Investors are buying artificial intelligence (AI) stocks for free, which helps explain why they’re being bought. cloudflare (Net -2.67%) It’s up a whopping 40% in the past three months. And the company’s latest quarterly results suggest that its frenetic stock price rally will continue.
Cloudflare stock soared 20% on February 8, the day after the company announced its fourth quarter and full-year 2023 results. Investors liked the company’s better-than-expected numbers and solid outlook for strong future growth.
Let’s take a closer look at Cloudflare’s latest results to see how AI is positively impacting the company’s growth.
Cloudflare customers are spending more money on its solutions
Cloudflare’s fourth-quarter revenue increased 32% year-over-year to $362 million, beating consensus estimates of $353 million. The company’s full-year sales rose 32% to $1.3 billion.
Cloudflare’s adjusted earnings also increased significantly, increasing to $0.15 per share from $0.06 per share in the year-ago quarter, beating the consensus estimate of $0.12 per share. Full-year earnings per share increased to $0.49 from $0.13 in 2022.
Cloudflare, a cloud-based internet infrastructure service that accelerates internet connections while improving performance, security and reliability, achieved better-than-expected growth driven by strong customer spending and an increasing customer base.
Cloudflare ended the fourth quarter of 2023 with 189,000 paying customers, an increase of 16% year over year. However, it’s worth noting that Cloudflare derives over 60% of its revenue from large customers with annual revenue of over $100,000. The company ended his 2023 with 2,756 of these large customers, an increase of 35% year over year.
Additionally, the number of customers with annual revenue of more than $500,000 grew at an even faster pace of 56%. The number of customers increased by 39% over the previous year, and annual revenue exceeded $1 million.
Cloudflare serves a large addressable market that is expected to be worth $164 billion in 2024 and grow to $204 billion in 2026. The company notes that AI offers an opportunity for incremental growth and has already begun to gain significant traction in this market.
Explore AI opportunities
In September 2023, Cloudflare launched Workers AI, a platform that allows developers to build AI applications on the network without investing in expensive infrastructure. Workers AI gives customers access to graphics processing units (GPUs) on Cloudflare’s network, allowing developers to “run well-known AI models on serverless GPUs” and “work with users wherever they are.” Build and deploy ambitious AI applications that run near you.
These models allow developers to run a variety of models for text generation, automatic speech recognition, image classification, and translation. Workers AI is gaining traction among Cloudflare customers. During the company’s latest earnings conference call last week, CEO Matthew Prince said:
From our September release to December, the average number of daily Workers AI requests increased by 9x. Additionally, a third of the thousands of Workers AI accounts are new to the Workers platform, suggesting that Workers AI is more than just that. [a] This is not only a significant opportunity in itself, but also a potential accelerator. [the] Adopting a platform across the workforce.
It’s no surprise that we’re seeing even greater adoption of this platform. By the end of 2023, Cloudflare will have surpassed his goal of 100 cities and deployed GPUs in 120 cities. Even better, the company is “deploying inference-tuned GPUs to nearly every city that makes up Cloudflare’s global network, within milliseconds of nearly every internet-connected device in the world.” That’s what I’m aiming for.
Given that Cloudflare’s global network covers 300 cities, the company’s goal of deploying AI GPUs across its vast network is to capitalize on the rapidly growing AI-as-a-Service market. may be useful.
Cloudflare is therefore pulling the right strings to make the most of this fast-growing niche market, and this could help the company maintain solid growth. Not surprisingly, Cloudflare expects his 2024 revenue to increase by 27% to $1.65 billion. Analysts expect the company to maintain strong growth over the next few years.
NET revenue estimates for current year data by YCharts.
Additionally, the company’s revenue is expected to grow at an annual rate of 62% over the next five years. Based on 2023 earnings of $0.49 per share, using a compound annual growth rate, Cloudflare’s bottom line could jump to $5.47 per share in five years. Multiplying that gives us Nasdaq-100 If the index has a forward price/earnings (P/E) ratio of 30 times (using the index as a proxy for tech stocks), Cloudflare’s stock price will be $164 in five years. This would be a 60% increase from current levels. This is why I’m excited about this stock.
