The stock market’s recent obsession with AI has cooled, shifting focus to tariffs and trade policies. This has led to significant pullbacks in many AI-related stocks—some down 25% or more—creating potential long-term buying opportunities.
One such stock I’m eyeing for my Stocks and Shares ISA is Cloudflare (NYSE: NET), a cloud connectivity and cybersecurity leader whose shares have fallen 37% in two months. With a $37 billion market cap, could this be a smart AI growth play at a discount?
Why Cloudflare? Internet Security & Performance at the Edge
Cloudflare operates a global edge computing network spanning 335+ cities, helping websites load faster while blocking cyber threats. Its technology:
- Processes nearly 25% of all internet traffic
- Blocks 200+ billion cyber threats daily
- Delivers content to 95% of the global internet population in under 50 milliseconds
Strong Financial Growth Despite Market Volatility
In 2024, Cloudflare reported:
- Revenue up 29% YoY to $1.7 billion
- 47% increase in $1M+ annual customers (now 173)
- Operating cash flow surged 49% to $380.4M
While still unprofitable under GAAP due to heavy growth investments, management expects:
- 2025 revenue to hit $2.1B (25% growth)
- $5B annual recurring revenue by 2028
AI Inference: The Next Big Growth Catalyst?
Cloudflare is positioning itself as a leader in AI inference—where trained AI models process real-time data—via its Workers AI platform. This allows developers to run machine learning models directly on Cloudflare’s edge network, reducing latency.
Bank of America analysts believe Cloudflare could become the “leader in AI-as-a-service”, projecting 30% annual revenue growth and raising their price target from 60to60to160.
Valuation Risks & ISA Investment Strategy
Cloudflare trades at a forward P/S ratio of ~18, reflecting high growth expectations. The risks?
- AI adoption may slow
- Competition in edge computing intensifies
- Profitability remains uncertain
Still, with free cash flow expected to triple to $546M by 2027, I’m considering a small starter position in my Stocks and Shares ISA, adding more on further dips.
Should You Buy Cloudflare Now?
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Disclaimer: Past performance is not indicative of future results. Investing involves risk, including capital loss.
Final Thoughts
Cloudflare’s AI and edge computing potential makes it a compelling Stocks and Shares ISA candidate, but its valuation demands caution. Will you add it to your portfolio?
