in stock Nvidia (NVDA -0.49%) is a big winner as the leader of the artificial intelligence (AI) revolution, soaring 450% in the past three years.
Nvidia should continue to be a strong stock, but with a $2 trillion market capitalization and 36 times this year’s earnings estimates, it will be difficult to replicate that performance over the next three years.
But the AI revolution should also benefit many other technology companies, including those that are still well below their 2021 highs. For potentially bigger returns, investors should keep an eye on this sneaky AI inference play that could be in full swing over the next few years.
Cloudflare has been strong, but it could get even stronger
Not many people recognize leaders in networking and security cloudflare (Net -0.84%) As a play for AI. After all, the company started with the purpose of improving the performance of their websites, content distribution, and software applications, and has helped companies large and small improve the performance of their websites and applications. From there, the company expanded into cybersecurity, protecting websites and applications from attacks. Cloudflare then leverages its global footprint in ISP data centers to provide smart networking that provides security and simplicity by unifying a company’s on-premises data centers with public and private clouds, all in one easy interface. We were able to announce our product.
Cloudflare builds its software products from a single software stack on commodity hardware, which makes it difficult for competitors to switch software and hardware configurations based on different products. You can gain an advantage over Also, the acceleration service that benefits Internet Service Providers (ISPs) has allowed Cloudflare to place servers directly inside his ISP data centers around the world. This brings our current footprint to 310 cities in over 120 countries, with over 13,000 interconnected global networks.
Its architecture and footprint make it much easier for Cloudflare to roll out new products compared to its competitors.
How Cloudflare’s network is set up for the AI revolution
Cloudflare’s flexible software and massive network are well-positioned for the next phase of the artificial intelligence revolution. For the past 18 months or so, AI companies have mainly focused on training AI models such as ChatGPT, Geminis, and Llamas within cloud data centers.
But now, the AI industry will move toward more inference as companies and customers begin to deploy and interact with these models in different ways.
That’s where Cloudflare’s global edge network can help. Apart from networking and secure edge, Cloudflare recently rolled out a developer platform on its servers called Workers. Workers allows developers to power or develop lightweight applications on Cloudflare servers without having to travel to large cloud data centers.
The Workers platform is new but growing in popularity. So it’s no surprise that Cloudflare finally found a way to serve the compute-intensive AI market on Workers, announcing Workers AI last September.
Image source: Getty Images.
Worker AI could be a big problem
Workers AI is essentially an inference-as-a-service platform developed by deploying graphics processing units (GPUs) across Cloudflare’s server platform. Thanks to Cloudflare’s flexible software stack, the company was able to seamlessly deploy the product into its existing server footprint relatively quickly.
Workers AI allows developers to use some of the most popular open source AI models, including: “Meta Platform” Llama or Hugging Face is already configured for Cloudflare’s infrastructure and you seamlessly add your own data via Cloudflare Vectorize in a secure manner. That puts Cloudflare in direct competition with cloud giants in building and processing AI models, at least when it comes to smaller models.
But the big opportunity may be to run all inference within Cloudflare’s servers, rather than sending processing traffic back to the public cloud. CEO Matthew Prince said on a fourth-quarter conference call with analysts:
[W]We think that… you know, we’re… the Goldilocks of that space, where the centralized public cloud is too far away and your… ..the device you hold in your hand, or just on your wrist, often doesn’t have enough power, but where we sit in between is a really great place for reasoning .
Given that we are only at the beginning of the AI era and that so many applications will be run through AI inference in the future, understand how the inference market will grow in the next decade. It’s not difficult to do. And Cloudflare may be ideally positioned to take advantage of that.
Early results are already promising. Management noted that daily Workers AI requests increased by a whopping 9x between the September release and December. In addition, Workers AI brought in many new customers across his Workers developer platform, with added cross-selling bonuses for Cloudflare.
NET percent off on all-time high data by YCharts.
Cloudflare: Expensive but 57% below 2021 highs
At first glance, Cloudflare looks very expensive at over 25x sales. But on the other hand, Cloudflare is still 57% below its all-time high. Additionally, the company has steadily improved operating leverage as it grows, with adjusted operating margin expanding from 1% in 2021 to 9% in 2023, and adjusted free cash flow margin increasing from 7% to 9%. Expanded to %. .
Investors should at least keep an eye on Cloudflare stock for potential entry, given recent strong earnings reports and tailwinds from AI inference that could drive growth in the coming years. . And growth-oriented investors may want to consider taking positions at these levels as well.
Randi Zuckerberg is a former head of market development and spokesperson at Facebook, sister of Meta Platforms CEO Mark Zuckerberg, and a member of the Motley Fool’s board of directors. William Duberstein holds a meta position on his platform. His clients may own shares in the companies mentioned. The Motley Fool has positions in and recommends Cloudflare, Meta Platforms, and Nvidia. The Motley Fool has a disclosure policy.
