Crossroads
Retail Investor, YouTube Investing Creator
Cloudflare's business outlook looks very bullish, but the stock needs to fall back below $200 before even a small position makes sense. Cloudflare sees a need for a payment processor that can handle millions or tens of millions of transactions per second to support microtransactions on the agentic web, and its recent fireside chat was very bullish. x.com x.comÂ
Cloudflare is an amazing company, but after surging on strong earnings the stock needs a cheaper entry. Revenue growth accelerated to 35.9%, net retention hit 120%, RPO grew 38.2% and $100k+ customers rose 26.6%. Workers added 2 million developers in Q2, and Cloudflare said non-human traffic now exceeds human traffic, possibly reaching 1,000x within five years. Weaknesses are gross margin falling to 71.8% from the high 70s in 2024 and higher customer concentration. x.comÂ
Cloudflare cannot justify a bullish view at a 10000x revenue valuation. x.comÂ
Cloudflare at 38x NTM revenue and 150x NTM EBITDA is insane, so a decent return from here is unlikely even though it is the leader. That has never happened before without massive acceleration in growth rates and margin expansion. x.comÂ
Cloudflare looks attractive as more AI agents bring more traffic for it to route, secure and bill. Its recent dips have reversed, while the agent-driven traffic opportunity is the business case. x.comÂ
Cloudflare's valuation, about 28.5x EV/ARR and 453x run-rate GAAP EBIT, leaves little room for its competitive risks. Its SASE and developer-platform businesses face Zscaler, Palo Alto and hyperscalers with far bigger budgets, and OpenAI and Anthropic may keep inference on their own backends. The bull case is crisp and arguably priced in: bot security and edge workloads matter more as agents spread, growth sped up from 27% to 34%, and weekly agent requests doubled in January. x.comÂ
Cloudflare's stock price is far beyond what the company can ever pay back to shareholders. Even if free cash flow quadrupled next year to $250 million, or reached $1 billion annually, investors would only earn back their investment around 2106. SpaceX conceivably offers more optionality through Starlink. x.comÂ
Cloudflare's importance becomes clearest during outages, when disruption exposes how much of the internet depends on its platform. That dependence makes the stock hard to sell despite its obscene valuation. x.comÂ
Cloudflare is difficult to buy at about 30x EV/sales because a lot is already priced in, even after a good quarter. Q1 revenue rose 34% to $640 million versus $623 million expected and EPS of $0.25 beat, with strong AI and agentic traction, but remaining performance obligations of $2.54 billion fell short of the roughly $2.61 billion expected. It also announced a 20% workforce reduction. x.comÂ
CrowdStrike and Cloudflare are likely flat until 2028-2030 even in the best case, and could be disasters for the next 3-5 years. Escaping requires Palantir- or Nvidia-style revenue acceleration and GAAP margin expansion, with double-digit sequential growth for many quarters over 3+ years. Without that there are no obvious incremental buyers, and once the charts break, institutions will run for the hills as they have before in these names, with zero valuation support. x.comÂ
Cloudflare may be the strongest software play on agentic AI in the public markets. x.comÂ
Cloudflare's roughly $100 billion valuation is hard to justify because it is unclear how shareholders make money at this price. A post the author replies to calls it an amazing company and product at nosebleed multiples; another notes it converts only about 30% of revenue into cash, and stock-based compensation makes that worse. Positive EPS alongside negative net income reflects non-GAAP versus GAAP figures. x.com x.com x.com x.comÂ
