Cloudflare Inc. NET shares have surged 41.3% year to date (YTD), outperforming the Zacks Internet - Software industry’s decline of 0.2%. The stock also outperformed its peers, including Qualys Inc. QLYS, Zscaler ZS and Check Point Software CHKP. Shares of Qualys have returned 29.2%, while Zscaler and Check Point Software shares have plunged 24.9% and 26.1%, respectively, YTD.
The outperformance of Cloudflare shares raises the question: Does it still have room to run, or is it time for investors to consider taking profits? Let’s find out.
YTD Price Return Performance
Image Source: Zacks Investment Research
AI Security Demand Boosts Cloudflare's Prospects
Cloudflare is seeing stronger demand for its SASE and Zero Trust offerings as companies look to adopt artificial intelligence (AI) more securely. Management said the key reason big companies are approaching Cloudflare is that they know they need AI but want to deploy it securely. This is creating new opportunities for the company’s SASE and Zero Trust platforms, particularly as enterprises need to secure AI agents in addition to human users.
Cloudflare believes its developer-focused approach gives it an advantage in this market. Management said companies will have more AI agents working across their organizations and will need a security model designed for these agents. In one example, a large U.K. government agency was evaluating a first-generation Zero Trust provider but reconsidered the project after discussing its plans for AI agents with Cloudflare. Management said the agency canceled its existing request for proposal and is now reevaluating the project with an agents-first approach. Cloudflare believes its developer-focused approach has helped its SASE and Zero Trust platforms gain significant share over the past six months.
Customer wins in the quarter also show demand for Cloudflare’s security platform. A Fortune 100 technology company signed a $5.2 million, three-year contract for Cloudflare’s full SASE portfolio. The customer is replacing legacy VPNs and virtual desktops and moving its global workforce to a single Zero Trust platform. Cloudflare beat two first-generation Zero Trust vendors in the deal because of its network performance and unified management, with the customer expecting to operate the services with roughly one-third the staff.
The broader shift toward AI could therefore support Cloudflare’s SASE and Zero Trust growth. The company is also seeing enterprises replace fragmented security tools with its unified platform. Sustaining its recent market-share gains will depend on how well Cloudflare can convert growing AI security needs into larger and longer-term enterprise contracts. The Zacks Consensus Estimate for Cloudflare’s 2026 and 2027 revenues indicates year-over-year growth of 32.3% and 28.5%, respectively.
Image Source: Zacks Investment Research
NET's Workers Platform Emerges as a Key Growth Engine
Cloudflare’s Workers developer platform is becoming an increasingly important part of its growth strategy. During the second quarter of 2026, the company said its Workers platform continued to drive new customer adoption. Cloudflare ended the second quarter with more than 7.4 million developers on its platform, adding nearly two million developers in the second quarter alone. This was more than the 1.5 million developers added during all of 2025.
Cloudflare’s Workers developer platform is also gaining traction among enterprise customers. Cloudflare said more customers are including Workers in pool-of-funds contracts, allowing them to use the developer platform along with services such as Zero Trust and reverse proxy. For example, an APAC technology company signed a $4 million pool-of-funds contract for Workers after previously signing an $8.7 million Application Services contract. Another technology company signed a $6 million Workers contract to support its AI agent capabilities.
Cloudflare said the Workers platform has moved beyond being mainly an adoption-focused product and has become a meaningful contributor to revenues. The company also noted that the Workers platform is driving consumption as customers use it alongside its security and networking products. This creates an opportunity for Cloudflare to expand its relationships with existing customers as their developer teams increase their use of the platform.
The growing use of AI agents could provide another boost to the Workers Platform, which is designed to help customers build, deploy and scale AI agents. With AI workloads increasing and more developers joining the platform, Workers could become a key contributor to Cloudflare’s overall growth.
Rising Costs Weigh on Cloudflare’s Margins
Cloudflare’s non-GAAP gross margin was 73.1% in the second quarter of 2026, down 320 basis points from 76.3% a year ago. The main issue is the changing mix of traffic on Cloudflare’s network. As paid traffic grows relative to free traffic, a larger portion of Cloudflare’s network costs is being allocated to cost of revenues. This shows that Cloudflare is handling more traffic that requires infrastructure and network resources, and this is putting pressure on the company’s gross margins.
This is particularly relevant as Workers, AI workloads and machine-to-machine traffic expand. These workloads can drive more usage and revenues, but they also require Cloudflare to provide more compute, network and storage capacity. Although management expects gross-margin pressure to stabilize, continued growth in AI and developer workloads could require higher infrastructure spending. This could limit near-term margin expansion even as revenues continue to grow rapidly.
NET's Premium Valuation Warrants a Cautious Approach
Cloudflare is currently trading at a higher price-to-sales (P/S) multiple compared with the industry. NET’s forward 12-month P/S ratio sits at 28.76X, higher than the industry’s forward 12-month P/S ratio of 4.07X. The Zacks Value Score of F also suggests that NET stock is overvalued.
NET Forward 12-Month P/S Ratio
Image Source: Zacks Investment Research
The stock trades at a premium valuation to other industry peers, including Qualys, Zscaler and Check Point Software. At present, Qualys, Zscaler and Check Point Software have P/S multiples of 7.67X, 6.96X and 4.79X, respectively.
Conclusion: Hold Cloudflare Stock Right Now
Cloudflare continues to benefit from strong demand for AI security, SASE and Zero Trust solutions, while its Workers platform is gaining adoption among developers and enterprise customers. Strong revenue growth, rising AI workloads and growing use of Workers support the company’s long-term growth outlook.
However, Cloudflare’s gross margins remain under pressure as higher paid traffic, AI workloads and Workers usage increase infrastructure costs. Further, the company’s premium valuation warrants a cautious approach to the stock.
Currently, Cloudflare carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Zacks' Research Chief Names "Stock Most Likely to Double"
Our team of experts has just released the 5 stocks with the greatest probability of gaining +100% or more in the coming months. Of those 5, Director of Research Sheraz Mian highlights the one stock set to climb highest.
This top pick is a little-known satellite-based communications firm. Space is projected to become a trillion dollar industry, and this company's customer base is growing fast. Analysts have forecasted a major revenue breakout in 2025. Of course, all our elite picks aren't winners but this one could far surpass earlier Zacks' Stocks Set to Double like Hims & Hers Health, which shot up +209%.
Free: See Our Top Stock And 4 Runners UpWant the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Cloudflare, Inc. (NET): Free Stock Analysis Report
Check Point Software Technologies Ltd. (CHKP): Free Stock Analysis Report
Qualys, Inc. (QLYS): Free Stock Analysis Report
Zscaler, Inc. (ZS): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).