Cloudflare (NYSE: NET) has received a double upgrade from Bank of America analysts citing the company’s differentiated AI offering, security momentum and share gains from established rivals.
The analysts upgraded the company to a ‘Buy’ rating from ‘Underperform’ and upped their price target to $160 from $60.
Cloudflare shares traded hands at $126 on Tuesday afternoon.
The analysts see AI momentum and share gains in security resulting in a three-year compound annual growth rate of 30% by 2028 compared to their earlier 25% growth estimate.
“We think Cloudflare is poised to be one of the true ‘AI winners’ in software,” they wrote. “It stands out by offering customers an alternative to building their own capacity - an expensive and inefficient task.”
AI-as-a-Service
Bank of America highlighted Cloudflare’s differentiated AI-as-a-Service (AIaaS) model as a key factor in its positive outlook.
“The company offers a differentiated approach to AI, and we place a high probability on Cloudflare becoming the leader in AI-as-a-Service (AIaaS), which we expect will be the AI consumption method of choice for Enterprises,” they wrote.
They pointed to surveys which indicate that AI spending by Cloudflare customers is projected to rise by 8% in the next 12 months.
Cloudflare’s network security segment is also gaining traction, particularly in Secure Access Service Edge (SASE) solutions.
Strengthened market position
With firewall refresh cycles approaching, enterprises are increasingly turning to software-based security products, further strengthening Cloudflare’s market position. The company's security offerings are expected to replace solutions from established rivals.
“According to our survey, network security products are currently 33% penetrated, with over 50% of new spending in the next 12 months expected to go to security products, replacing rivals such as CheckPoint and Cisco, as customers look to modernize network security with software solutions,” analysts wrote.
While the outlook is positive, Bank of America notes that Cloudflare’s ambitious revenue target of $5 billion by 2028 will require strong go-to-market execution, especially among enterprise clients. Additionally, the timing of AI's material contribution to revenue could vary as the market develops.