What Happened?

Shares of internet security and content delivery network Cloudflare (NYSE:NET) jumped 5.7% in the morning session on continued positive momentum following its stellar Q4 2024 results, which exceeded Wall Street's expectations across the board and saw revenue growth accelerate. Also, it is likely that more investors are recognizing the advantages and productivity gains offered by its Workers platform, especially for AI-related workloads, given management's detailed discussion of the platform's untapped potential during the earnings call.

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What The Market Is Telling Us

Cloudflare’s shares are quite volatile and have had 16 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business. 

The previous big move we wrote about was 3 days ago when the stock gained 20.1% on the news that the company reported impressive fourth-quarter results, which exceeded analysts' billings expectations. Revenue also beat, with 28% year-on-year growth accelerating from 27% last quarter, something that the market tends to reward. The top line benefited from strong wins in the enterprise segment as the number of large customers kept pace with the sales growth while the large customer count (1m+ customers) grew even faster at 47% y/y. This raised the total enterprise revenue mix to 69%, up from 66% in the same period last year. 

Cloudflare's AI business is also living up to the hype, driving strong adoption of its Workers platform, as the company won several large enterprise AI deals during the quarter. 

It wasn't just top line, either, with operating profit beating handily. Lastly, we were happy with full-year revenue guidance, which exceeded expectations. Overall, this was a very good quarter.

Cloudflare is up 55.5% since the beginning of the year, and at $174.95 per share, has set a new 52-week high. Investors who bought $1,000 worth of Cloudflare’s shares 5 years ago would now be looking at an investment worth $9,539.

Today’s young investors likely haven’t read the timeless lessons in Gorilla Game: Picking Winners In High Technology because it was written more than 20 years ago when Microsoft and Apple were first establishing their supremacy. But if we apply the same principles, then enterprise software stocks leveraging their own generative AI capabilities may well be the Gorillas of the future. So, in that spirit, we are excited to present our Special Free Report on a profitable, fast-growing enterprise software stock that is already riding the automation wave and looking to catch the generative AI next.