Cloudflare (NET): Evaluating Valuation After Launching Industry-First AI Security Integrations for Enterprise Clients

Cloudflare (NET) just made a splash with its latest set of product launches, becoming the first Cloud Access Security Broker to connect with all three leading generative AI tools: ChatGPT Enterprise, Claude by Anthropic, and Google Gemini. This is more than just another feature drop; it represents a clear step toward redefining how businesses control and secure the use of AI in the workplace. As enterprise adoption of AI accelerates, Cloudflare is positioning itself as the protector of sensitive data, an area that many companies are actively seeking to address.

These moves have caught the attention of the market. Over the past year, Cloudflare’s stock price has surged an impressive 153%, with momentum increasing in recent months as AI-related headlines become more frequent. The past three years also show a considerable gain, reflecting growing investor confidence. Like most fast-growing software names, the swings in price can be dramatic. This new push into enterprise AI security adds a timely dimension to the Cloudflare growth story.

With such strong gains, an important question arises: does Cloudflare’s current price offer a rare entry point, or is Wall Street already factoring in the potential for the company to capture the next wave of AI-driven growth?

Price-to-Sales of 38x: Is it justified?

Cloudflare currently trades at a price-to-sales ratio of 38 times. This makes its stock price look expensive compared to industry peers.

The price-to-sales (P/S) multiple measures how much investors are willing to pay for each dollar of revenue generated by the company. For high-growth, unprofitable software companies like Cloudflare, this metric is especially relevant because it reflects future growth expectations in the absence of current profits. However, Cloudflare’s multiple not only exceeds the US IT industry average of 2.4x, it is also much higher than its peer group’s 15x average.

This sizable premium suggests the market is pricing in not just Cloudflare’s current revenue growth but also high confidence in its long-term potential to compete in AI-driven security. Still, such a high valuation carries expectations that the company will deliver sustained, above-market expansion and eventually achieve profitability.

Result: Fair Value of $85.56 (OVERVALUED)

See our latest analysis for Cloudflare.

However, any slowdown in enterprise AI adoption or continued lack of profitability could quickly dampen investor enthusiasm and put pressure on Cloudflare’s elevated valuation.

Find out about the key risks to this Cloudflare narrative.

Another View: Our DCF Model Weighs In

While the market’s pricing based on revenue multiple looks lofty, our SWS DCF model tells a similar story. It signals that shares are overvalued from a cash flow perspective as well. So which approach better reflects reality?

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Cloudflare for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover undervalued stocks based on their cash flows. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Build Your Own Cloudflare Narrative

Of course, if you see things differently or prefer to dig into the numbers firsthand, crafting your own take is quick and straightforward. You can do it in under three minutes. Do it your way

A great starting point for your Cloudflare research is our analysis highlighting 1 key reward and 1 important warning sign that could impact your investment decision.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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