Cloudflare (NET) shares surged on Friday, climbing over 20% to $171.38, after the company reported fourth-quarter results that exceeded Wall Street expectations.
The cybersecurity firm posted revenue of $459.9 million, a 27% year-over-year increase, surpassing analyst estimates of $452.3 million. Adjusted earnings per share came in at $0.19, narrowly beating the consensus estimate of $0.18.
CEO Matthew Prince highlighted the company’s growing traction with large enterprises, revealing that Cloudflare closed 2024 with 173 customers spending over $1 million annually. Of these, 55 were added last year, with more than half joining in the fourth quarter alone. This trend underscores the company’s success in securing major clients amid rising cybersecurity threats.
Despite the strong Q4 performance, Cloudflare’s Q1 2025 revenue forecast of $468 million to $469 million fell slightly short of analysts’ expectations of $475.2 million. However, the company’s full-year revenue guidance of $2.09 billion aligned with projections, signaling continued confidence in its long-term growth trajectory.
CEO Matthew Prince highlighted the company’s growing traction with large enterprises, revealing that Cloudflare closed 2024 with 173 customers spending over $1 million annually. Of these, 55 were added last year, with more than half joining in the fourth quarter alone. This trend underscores the company’s success in securing major clients amid rising cybersecurity threats.
Despite the strong Q4 performance, Cloudflare’s Q1 2025 revenue forecast of $468 million to $469 million fell slightly short of analysts’ expectations of $475.2 million. However, the company’s full-year revenue guidance of $2.09 billion aligned with projections, signaling continued confidence in its long-term growth trajectory.
AI Efficiency and Market Disruption
Beyond the earnings beat, investors were drawn to Prince’s comments on artificial intelligence. He addressed the impact of DeepSeek, a Chinese AI startup whose cost-efficient model recently rattled the AI investment landscape. Prince dismissed the notion that AI development requires enormous spending, instead positioning Cloudflare as a leader in AI efficiency.
“We are extremely good at wringing out as much efficiency as possible, and we’re seeing the same opportunities with inference that DeepSeek saw with training,” Prince stated. Cloudflare’s approach leverages its global network to provide scalable AI infrastructure at a lower cost, potentially disrupting industry norms.
His comments echoed those of Microsoft (MSFT) CEO Satya Nadella, who recently referenced Jevons Paradox—a concept suggesting that increased efficiency drives higher demand—to argue that cheaper AI models will ultimately expand the market. This perspective further bolstered investor enthusiasm for Cloudflare’s future prospects.
Beyond the earnings beat, investors were drawn to Prince’s comments on artificial intelligence. He addressed the impact of DeepSeek, a Chinese AI startup whose cost-efficient model recently rattled the AI investment landscape. Prince dismissed the notion that AI development requires enormous spending, instead positioning Cloudflare as a leader in AI efficiency.
“We are extremely good at wringing out as much efficiency as possible, and we’re seeing the same opportunities with inference that DeepSeek saw with training,” Prince stated. Cloudflare’s approach leverages its global network to provide scalable AI infrastructure at a lower cost, potentially disrupting industry norms.
His comments echoed those of Microsoft (MSFT) CEO Satya Nadella, who recently referenced Jevons Paradox—a concept suggesting that increased efficiency drives higher demand—to argue that cheaper AI models will ultimately expand the market. This perspective further bolstered investor enthusiasm for Cloudflare’s future prospects.
Technical Breakout Points to Further Gains
Cloudflare’s stock had already been on an upward trend, climbing over 30% since the beginning of the year. The company’s breakout above an 11-month cup-and-handle pattern last month signaled further upside potential, with technical indicators pointing to price targets of $180, $200 and $220 in the coming months.
Additionally, the recent breakout above the December high around $120 supported by strong trading volume, as well as the formation of a golden cross back in November—where the 50-day moving average crosses above the 200-day moving average—provide further confirmation of bullish momentum. Key support levels to watch in case of profit-taking include $140 and $120, with the latter potentially acting as a strong floor for the stock’s continued uptrend.
Looking Ahead: Balancing Growth and Investment
Cloudflare expects 2025 revenue growth of approximately 25%, but projected adjusted earnings of $0.79 to $0.80 per share indicate a more moderate profit expansion. The company’s declining free cash flow in Q4 suggests that ongoing investments in AI and cybersecurity innovation remain a priority.
While some analysts see near-term spending as a potential drag on profitability, others view it as a necessary investment to maintain Cloudflare’s competitive edge. The company’s ability to balance growth with operational efficiency will be a key factor in sustaining its stock’s recent gains.
With strong fundamentals, a bullish technical outlook, and a strategic position in AI-driven cybersecurity, Cloudflare appears well-positioned for continued success in 2025 and beyond.
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