Bank of America, Washington, DC. Taken on January 13, 2013. Photo by: Adam Fagen.Bank of America double-upgraded Cloudflare stock from ‘Underperform’ to ‘Buy’ due to the firm’s AI and cybersecurity growth. The bank even adjusted its price target to $160 from $60.
Following the upgrade, Cloudflare shares surged by close to 7% on Tuesday in premarket trade.
BofA believes Cloudflare’s differentiated approach to AI propelled its growth
Bank of America (BofA) upgraded Cloudflare’s stock on Tuesday, citing the corporation’s impeccable growth in the AI and network security market. BofA believes the company’s growth was contributed to by its differentiated approach to AI and the increasing demand for network security solutions, especially the Secure Access Service Edge (SASE).
Meanwhile, Cloudflare’s AI-as-a-service (AIaaS) is expected to become enterprises’ preferred method of AI consumption, which could spell more growth for the company.
Madeline Brooks, one of the bank’s analysts, even stated that the firm could see an influx of AI consumers, with average AI spending bound to rise by over 8% to at least $100,000 per customer or roughly take up 15% of cumulative consumer spending.
She added, “AIaaS is already resonating with customers. ” She claims consumers are leaning more towards the company’s software-based security options, challenging competitors like CheckPoint and Cisco.
Moreover, the IT company’s products already hold a 33% market share, and over half of the new spending in the next twelve months will go towards security products. Analysts expect the firm to meet or surpass its full-year revenue guidance.
BofA changes Cloudflare’s stock price target to $160
In addition to the upgrade, Bank of America has increased the price target for Cloudflare’s stock to $160. The bank expects the IT company to see a 20-fold increase in 2026.
Analysts also predict that Cloudflare could be looking at a three-year compound growth of 30% by 2028, a slight rise from the previous 25% projection.
While very optimistic about the firm’s growth, the bank believes that for Cloudflare to accrue $5 billion by 2028, revenue growth would need to reaccelerate roughly 400 basis points higher than peer group growth estimates.
The bank also believes the developing state of the AI market and pricing strategies may affect Cloudflare AI’s revenues.
Wall Street analysts remain cautious, with 17 out of 35 covering the stock maintaining a ‘hold’ rating. However, 15 analysts have rated the stock as a ‘buy’ or equivalent. At the same time, on Stocktwits, retail sentiment toward the stock has improved from ‘neutral’ to ‘bullish’ following the rise in revenues.
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