Cloudflare is the IBD Stock of the Day as one of 2023's hottest stocks looks to rebound from a pullback. Fourth quarter earnings for NET stock are due early Feb. 8.
Started in 2009, Cloudflare speeds up and provides security for web applications routed through its intelligent global network. The company has added web infrastructure to handle fast emerging generative artificial intelligence apps.
Cloudflare stock rose 4.4% to close at 81.35 on the stock market today. The shares jumped 84% in 2023, clawing back from a sell-off in April when it lowered 2023 guidance.
The stock is down about 5% this year. NET stock hit a 52-week high 86.91 on Dec. 27 as many technology companies rallied late in the year.
NET Stock: Key Support Lines
Cloudflare stock has retreated to near its 50-day moving average. Technically, NET stock trades in a buy zone from a cup base formed last year.
However, investors should look for a bounce off the 50-day line. When a stock rebounds from the 50-day line, it can provide the next chance to catch the stock's run. Heavy trading volume is a bullish signal.
If Cloudflare stock moves above 80, that would put it above its 21-day exponential moving average and break a short downtrend. That would offer an aggressive entry.
IBD research has found that companies that find support at the 21-day line tend to outperform.
Cloudflare Earnings Due Feb. 8
A more traditional entry point would be 86.91 from a flat base/base-on-base pattern.
With Q4 earnings for Cloudflare stock due after the market close on Feb. 8, investors may want to be cautious. One strategy around earnings would use call options.
In Q4, analysts expect adjusted profit of 12 cents, up from 6 cents a year earlier. Analysts project revenue growth of 28% to $352.7 million.
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
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.
As of Oct. 31, Cloudflare told analysts it had deployed "inference-optimized" Nvidia-made GPUs in 75 cities. It said it planed to deploy the Nvidia chips in 100 cities by the end of 2023.
"We view NET as the first unique, serverless, global edge compute and AI inferencing platform," said Oppenheimer analyst Tim Horan in a recent report. "NET is deploying AI infrastructure on Workers AI and is already partnering with large technology companies. Workers AI is only three months old, but it is already seeing strong demand and interesting new user cases, both with small startups/developers and large enterprises."
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.
Further, Cloudflare has ties to generative AI 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 2023 sell-off of NET stock was spurred by a lowered 2023 revenue outlook. Cloudflare lowered its 2023 revenue growth outlook to 31% from 37%.
NET Stock Technical Ratings
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.
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.
Meanwhile, NET stock holds an IBD Composite Rating of 99, 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.
