Cloudflare is the IBD Stock of the Day as analysts eye possible long-term revenue upside from the company's investments in artificial intelligence infrastructure. Cloudflare stock has gained 51% in 2023, rebounding from a sell-off in April when it lowered 2023 guidance.
On the stock market today, Cloudflare stock rose 10.5% to close at 70.61.
From a technical view, NET stock owns a 76.07 buy point from a consolidation. For more aggressive investors, there's a lower 66.24 buy point — the Nov. 7 high. NET stock has cleared resistance in the 66 trading area. A 5% buy zone extends to 69.55.
Started in 2009, Cloudflare speeds up and provides security for web applications routed through its intelligent global network. When the company released third-quarter earnings for NET stock on Nov. 2, management updated analysts on its AI infrastructure plans.
Cloudflare and rival Akamai Technologies are racing to deploy network gear that supports edge computing — extending cloud services closer to where data is generated. At the same time, Cloudflare is targeting AI "inferencing" — processing AI apps or workloads locally on the network edge.
NET Stock: Deploying Nvidia AI Chips
As of Oct. 31, Cloudflare told analysts it had deployed "inference-optimized" Nvidia-made GPUs in 75 cities. It plans to deploy the Nvidia chips in 100 cities by the end of 2023.
In 2024, Cloudflare aims to deploy the Nvidia AI chips in 300 locations worldwide. The AI networking cards are simply plugged into computer server PCI slots, lowering capital spending needs.
"The timing of AI monetization remains difficult to predict, but the company is already seeing workloads shift to Cloudflare's AI edge platform," said William Blair analyst Jonathan Ho in a recent report.
In late September, Cloudflare announced its "Workers AI" platform and partnerships with Microsoft, privately held Databricks and Hugging Face. Hugging Face is among a wave of AI startups building AI training models for apps.
Cloudflare Stock: New 'Workers' AI Platform
"Workers is positioned as an arms' supplier for inferencing at the edge," said Oppenheimer analyst Tim Horan in a report. "Developers are building new disruptive services on workers at an accelerating pace. The AI inferencing opportunity is arguably ten times the size of training. Cloudflare has first mover advantage as a neutral cloud on ramp. But edge inferencing will take time to play out."
Further, Cloudflare has ties to generative artificial intelligence startup OpenAI, the developer of ChatGPT. It provides secure links to cloud services when consumers sign up to use OpenAI's ChatGPT, a conversational chatbot.
The April 28 sell-off of NET stock was spurred by a weak June-quarter and full-year 2023 revenue outlook. Cloudflare lowered its 2023 revenue growth outlook to 31% from 37%.
Cloudflare Q3 Earnings Beat
In addition, Cloudflare has set a long-term goal of $5 billion in annual recurring revenue, or ARR, from subscription-based services. Its 2022 revenue stood at $975.2 million.
Cloudflare earnings for the quarter ending Sept. 30 were 16 cents a share, up 166% from 6 cents a year earlier.
Revenue climbed 32% to $335.6 million, the San Francisco-based company said. Analysts predicted profit of 10 cents a share and revenue of $330.5 million.
In Q3, Cloudflare said it added 206 new large customers that spend more than $100,000 annually. It ended the quarter with 2,558 large customers, up 34% from a year earlier.
NET Stock Technical Ratings
Meanwhile, NET stock holds an IBD Composite Rating of 97, according to IBD Stock Checkup.
IBD's Composite Rating combines five separate proprietary ratings into one easy-to-use rating. Also, the best growth stocks have a Composite Rating of 90 or better.
Further, Cloudflare stock has an Accumulation/Distribution Rating of B. That rating analyzes price and volume changes in a stock over the past 13 weeks of trading. Its current rating indicates more funds are buying than selling.
The rating, on a scale of A+ to E, measures institutional buying and selling in a stock. A+ signifies heavy institutional buying; E means heavy selling. Think of the C grade as neutral.
Follow Reinhardt Krause on X, formerly called Twitter, @reinhardtk_tech for updates on artificial intelligence, cybersecurity and cloud computing.
