Cloudflare Inc. NET shares have surged 65.4% in the past three months, outperforming the Zacks Internet - Software industry’s appreciation of 13.3%. The stock also outperformed its industry peers, including F5 Networks, Inc. FFIV, BlackBerry Limited BB and Allot Ltd. ALLT. In the past three months, shares of F5 Networks and BlackBerry have gained 16.5% and 42.5%, respectively, while Allot shares have plunged 9.7%.
The outperformance of Cloudflare’s 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.
3 Month Price Return Performance
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AI Security Demand Bodes Well for 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 31.1% and 28.2%, respectively.
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Large-Customer Growth Boosts Cloudflare's Prospects
Cloudflare is seeing strong momentum among its largest customers, which is driving strong revenue growth and customer retention. In the second quarter of 2026, the company ended with 4,698 customers generating more than $100,000 in annual revenues, up 27% year over year. Cloudflare added 282 large customers during the second quarter and a record 986 net additions in large customers, year over year. Each large-customer group, from $100,000 to more than $5 million in annual revenues, posted record year-over-year net additions in the second quarter of 2026.
Large customers are also becoming a bigger part of Cloudflare’s business. They accounted for 73% of total revenues in the second quarter, up from 71% a year ago. Strong expansion among these customers helped push dollar-based net retention to 120%, up from 118% in the previous quarter and 114% a year ago. This shows that existing customers are increasing their spending on Cloudflare’s products, while the company continues to add new large accounts.
The strong performance of large customers is supporting Cloudflare’s overall financial growth. Second-quarter revenues increased 36% year over year to $696.1 million. Management said new customer bookings grew at their fastest rate in more than five years, while pipeline generation increased at its fastest sequential pace in five years. Cloudflare added more than 80,000 paying customers during the second quarter, resulting in 74% year-over-year growth in its paying customer base.
The above-mentioned factors show that Cloudflare’s growing large-customer base could support future revenue growth if these customers continue to expand their use of Cloudflare's platform. The company is also seeing customers adopt multiple products, including its developer platform, Zero Trust and application security offerings. As of now, maintaining 120% net retention will depend on continued expansion among existing customers.
Long-Term Prospects Justify NET’s Premium Valuation
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 32.97X, higher than the industry’s forward 12-month P/S ratio of 4.06X.
NET Forward 12-Month P/S Ratio
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NET stock also trades at a higher P/S multiple compared with other industry peers, including F5 Networks, BlackBerry and Allot. At present, F5 Networks, BlackBerry and Allot have P/S multiples of 6.46X, 8.09X and 2.92X, respectively.
NET’s rally reflects strong investor confidence in AI security demand and large-customer growth, putting it above industry and peers in terms of valuation, reflecting the high growth expectations of the company in the long term.
Key Technical Indicator Signals Bullish Trend for NET
Cloudflare shares are trading above their 50-day and 200-day moving averages, a bullish technical signal that indicates the potential for continued upward momentum in the near term.
NET 50-Day & 200-Day Simple Moving Averages
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Conclusion: Buy Cloudflare Stock Right Now
Cloudflare’s strong growth in AI security, SASE and Zero Trust, along with rising demand from large customers, supports its long-term growth outlook. The company’s strong revenue growth estimates and improving customer spending support the outlook for continued growth. Further, the stock’s valuation reflects high growth expectations, as Cloudflare remains well positioned to benefit from rising AI security demand over the long term.
Currently, Cloudflare carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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This article originally published on Zacks Investment Research (zacks.com).