The story around Cloudflare has changed dramatically over the past year in its San Francisco offices, which are located in the South of Market district that has been home to some of the more intriguing and some of the more overpriced technology companies of the previous 20 years. Eight months ago, the stock was trading at about $158. Today, it is close to $279, up almost 67% from its 52-week low and pushing into new 52-week high territory during today’s trading session.
The market capitalization is getting close to $97 billion. None of this was especially amicable. On May 7, Cloudflare released what appeared to be legitimately impressive earnings, with revenue of $639.8 million, up 34% year over year and easily exceeding forecasts. The stock fell 24% right away. Since then, it has regained that decline and then some, which is the kind of scene that causes everyone to raise an eyebrow and provide conflicting interpretations.
As of this now, the fundamental business case for Cloudflare stock is quite well documented. In addition to offering security, performance optimization, DDoS mitigation, and a growing developer platform, the company functions as a worldwide network that stands between the internet and the servers serving information. From $400 million every quarter in mid-2024 to $640 million in Q1 2026, revenue has been steadily increasing, and the client expansion figures are quite remarkable.
Deals over $1 million increased 73% year over year, while the cohort paying more than $100,000 yearly expanded 25% year over year to 4,416 clients, who now account for 72% of total revenue. Investors paying premium multiples want to see that kind of enterprise client growth continue. Depending on your priorities, CEO Matthew Prince’s description of it as the strongest demand environment in Cloudflare’s history can be interpreted as either conventional earnings-call optimism or conviction.
The portion of the Q1 story that needs more attention is the staff restructure. As part of what management called a shift to an AI-first operating model, Cloudflare announced layoffs of over 1,100 people, or roughly 20% of the staff. In 2026, the company anticipates restructuring costs of between $140 and $150 million. The conventional form of this argument, which technology companies are presenting at various scales and with varying degrees of plausibility, was framed as saying that AI would enable the same work to be done with fewer people.
Cloudflare’s version is more detailed than most: the firm has been actively developing AI-related products, over 5.5 million developers have registered on its developer platform, and AI-related traffic appears to already make up a significant fraction of the workloads operating on its network. It’s still unclear if the restructure results in the efficiency gains management is anticipating or if it causes execution friction at a time when enterprise customer growth is what determines valuation.
The subject of valuation is always there while discussing NET. The price-to-sales ratio is approximately 32x, and the P/E ratio is technically negative because the company is still experiencing GAAP losses, resulting in a P/E multiple of almost -1,098. The wager that Cloudflare’s revenue trajectory, enterprise client development, and gross margin profile will translate into the kind of profitability that justifies a $96 billion market valuation is one that calls for a particular level of perseverance and conviction. Due to the company’s significant investments in network infrastructure and technological costs, the gross margin has been dropping, from 77.8% in mid-2024 to 71.2% in Q1 2026.
The trajectory of diminishing margins should be monitored in conjunction with revenue growth, as the valuation case relies on their divergent paths over the next years. The full-year 2026 forecast calls for non-GAAP EPS of $1.19 to $1.20 and sales of $2.81 billion at a growth rate of about 30%. That implies the business is real and growing. The question of whether the stock is priced fairly for the risk is actually more difficult.
It appears that investors have determined that the AI-infrastructure buildout is a more favorable environment for Cloudflare than they were six months ago, as seen by the company’s stock rising 67% from its 52-week low and reaching new highs today. The company’s network handles a sizable portion of the world’s internet traffic, its developer platform is actually in use and expanding, and the enterprise customer base is rising in ways that point to long-term need rather than a cyclical spike. The question that still lacks a clear answer is whether the current price appropriately reflects all of that or something extra.
