With Help From Its AI Ventures, Cloudflare Is Poised To Surge

Artificial intelligence player Cloudflare’s (NET) stock is breaking a four-month slide and turning positive for the year. That makes the AI stock this week’s featured Sector Leader from Investor’s Business Daily.

The software provider’s recent run-up, in which it advanced in 15 out of 22 days as of Wednesday’s close, has lifted its Relative Strength Rating to 86 from 25 in just four weeks. Meanwhile, the stock’s rising relative strength line shows its outperformance compared with the S&P 500.

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Cloudflare shows a deep cup formation on its weekly chart with a possible buy point at 260, which is also the stock’s all-time high. Its daily chart shows a cup with handle with a 229.15 pivot. Year to date, shares have gained more than 10% as of Wednesday.

Cloudflare beat estimates during its fourth quarter while reporting accelerating profit growth for the third continuous quarter. Earnings grew 47% to 28 cents per share, with analysts calling for 27 cents per share. Revenue of $615 million topped views for $591 million and increased 34%.

Largest Contract Value Ever

The company closed the period with its largest value in annual contracts ever, averaging $42.5 million a year. Total new annual contract value rose nearly 50% year over year, the highest increase since 2021.

The company expects first-quarter revenue of $620 million to $621 million with profits of 23 cents a share. For the full year, Cloudflare’s sales outlook came in between $2.785 billion to $2.795 billion, with earnings expected at $1.11-$1.12 per share.

Cloudflare provides software that connects, builds and protects websites, apps and AI agents. Its products also include tools for cloud connectivity, phishing and workspace security for enterprises and small businesses.

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The company’s security platform has features that guard artificial intelligence agents and models from abuse while also securing network firewalls and providing tools for email security. Its AI Gateway monitors, controls and optimizes AI applications.

“If agents are the new users of the web, Cloudflare is the platform they run on and the network they pass through,” Chief Executive Matthew Prince said in the company’s fourth-quarter earnings release.

Mutual Funds Adding Cloudflare Stock

Mutual funds have added the AI stock to their portfolios for five straight quarters, as seen on IBD Stock Checkup. A total of 59% of outstanding shares are under institutional sponsorship.

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In the IBD Mutual Fund Index, four names hold the AI stock. JPMorgan Large Cap Growth Fund (SEEGX) has the highest stake with 5.48 million shares of Cloudflare as of the December-ended quarter.

Meanwhile, other funds include the Fidelity Contrafund (FCNTX), the Fidelity Series Growth Company Fund (FCGSX), and the Virtus KAR Mid-Cap Growth Fund (PHSKX).

Cloudflare stock has near-ideal scores of 98 on its Composite Rating and Earnings Per Share Rating. Cloudflare also leads the software sector, one of 33 sectors in the IBD database.

The stock also ranks first in the enterprise software group, according to IBD Stock Checkup. Further, Cloudflare stock is part of the IBD 50.

Please follow VRamakrishnan on X/Twitter for more news on the stock market today.

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