The Surprising AI Play Poised for Growth

Cloudflare’s rise to prominence began in the world of website performance enhancement and cybersecurity. But the company’s true potential lies in its global-edge network, which has positioned it perfectly for the next phase of the AI revolution. As the industry shifts from training AI models to inferencing, Cloudflare’s network infrastructure is ideally suited to handle the increased demand.

In the fast-paced world of tech stocks, few have seen the meteoric rise of Nvidia (NASDAQ: NVDA). But as Nvidia’s stock has soared, some investors are looking for the next big thing in the AI revolution. Enter Cloudflare (NYSE: NET), a company that may not be on everyone’s radar as an AI play, but could offer significant upside in the coming years.

Cloudflare’s Workers platform, which allows developers to build lightweight applications on Cloudflare servers, has become increasingly popular. And with the recent launch of Workers AI, Cloudflare is now competing directly with the major cloud providers in the AI model building and processing space.

The potential for Workers AI is enormous. By allowing developers to run inferencing within Cloudflare’s servers, rather than sending processing traffic back to public clouds, Cloudflare is offering a more efficient and cost-effective solution for AI applications. Early results have been promising, with daily Workers AI requests increasing ninefold between September and December.

Despite its potential, Cloudflare’s stock remains well below its 2021 highs, presenting an attractive entry point for investors. With a strong recent earnings report and the potential for AI inferencing to drive growth in the coming years, Cloudflare is a stock worth keeping an eye on.

Cloudflare’s financials reflect its growth potential. While the stock may appear expensive at over 25 times sales, it is important to note that Cloudflare is still 57% below its all-time highs. The company has also shown steady improvement in operating leverage, with adjusted operating margins expanding from 1% in 2021 to 9% in 2023, and adjusted free-cash-flow margins expanding from 7% to 9% over the same period.

With the AI revolution just beginning and the potential for massive growth in the inference market over the next decade, Cloudflare is well-positioned to capitalize on this trend. The company’s early success with Workers AI and its ability to attract new customers to its developer platform are encouraging signs of what may lie ahead.

For growth-oriented investors, Cloudflare’s stock may offer an attractive opportunity. While the stock is not without its risks, including competition from larger cloud providers, the potential for Cloudflare to become a major player in the AI inference market makes it a stock worth considering for those looking to invest in the future of technology.

Cloudflare’s trajectory in the AI market is just one part of its overall growth story. The company has been expanding its offerings and capabilities, making it a more comprehensive and attractive option for businesses looking to improve their online performance and security.

One key area of growth for Cloudflare is its network of data centers, which now spans over 250 cities worldwide. This extensive network allows Cloudflare to offer fast and reliable services to customers around the globe, giving it a competitive edge in the market.

Cloudflare has also been investing heavily in its cybersecurity offerings, which have become increasingly important as cyber threats continue to evolve. The company’s security solutions include DDoS protection, web application firewall, and bot management, all of which help protect websites and applications from malicious attacks.

In addition to its core offerings, Cloudflare has been expanding into new areas such as edge computing and serverless computing. These services allow developers to build and deploy applications closer to their end-users, improving performance and reducing latency.

Overall, Cloudflare’s strong performance in the AI market, combined with its continued growth and innovation in other areas, make it a compelling investment opportunity for those looking to capitalize on the ongoing digital transformation.