Cloudflare shares jump after forecast raise on higher AI-driven spending

Cloudflare NET.N shares rose 16% before the bell on Friday after the cloud services firm raised its annual forecasts, betting that growing enterprise spending on AI infrastructure would drive demand for its networking and security products.

The results, reported after markets closed on Thursday, add to signs that higher AI adoption is boosting demand beyond chipmakers to companies providing the software and infrastructure used to build and run AI applications.

Analysts at TD Cowen said that Cloudflare is "well-positioned to play a lead role as AI unfolds."

Analysts at Morgan Stanley said Cloudflare's Workers developer platform was its fastest-growing segment, amid a shift toward a usage-based model, expecting the company to exceed its outlook.

San Francisco-based Cloudflare's security business could also benefit as companies look to protect AI-powered applications and workers from increasingly sophisticated cyber threats.

Shares of the company have gained over 44% so far this year, compared with a near-77% rise in rival CrowdStrike CRWD.O and a 95% jump in Palo Alto Networks PANW.O. The stock trades at over 190 times its forward price-to-earnings ratio, compared with over 145 for CrowdStrike, according to LSEG-compiled data.

The company "has multiple, durable avenues to AI monetization over the long-to-medium term that warrants a premium valuation," RBC Capital Markets analysts noted.

Cloudflare now expects full-year revenue of $2.86 billion to $2.87 billion, up from its prior expectation of $2.805 billion to $2.813 billion. It also lifted its adjusted earnings per share forecast to a range of $1.25 to $1.26 from its earlier estimate of $1.19 to $1.20.