Key Takeaways
- Cloudflare (NET) stock gained approximately 35% in 2026 through November 2, despite falling 28% from its October high as investors reassessed expensive AI and software stocks.
- Datadog (DDOG) has also faced selling pressure, with its November 4 earnings report offering an early indication of enterprise cloud demand before Cloudflare reports on November 5.
- Cloudflare’s second-quarter revenue increased 36% to $696 million, while management raised its full-year revenue guidance to between $2.864 billion and $2.870 billion.
- Cloudflare’s expanding AI opportunities support its long-term growth outlook, but declining gross margins and a premium valuation make the stock a hold ahead of earnings.
What Happened?
Cloudflare (NET) stock gained approximately 35% in 2026 through November 2, climbing from $197 at the end of 2025 to $265, according to historical closing prices.
However, shares have fallen approximately 28% from their October 6 intraday high of $370 as investors grew increasingly cautious about richly valued AI infrastructure and software companies.
Datadog (DDOG) experienced similar sector pressure, making its November 4 earnings report an important indicator of enterprise cloud demand before Cloudflare reports on November 5.
Cloudflare’s underlying business has continued expanding despite the stock’s volatility.
First-quarter revenue increased 34% year over year to $639.8 million, exceeding management’s guidance. However, non-GAAP gross margin declined to 72.8% from 74.9% in the previous quarter.
The company also announced plans to reduce its workforce by approximately 1,100 employees as it reorganized around AI and automation.
Shares fell approximately 24% on May 8 as investors weighed strong revenue growth against margin pressure and restructuring concerns.
Second-quarter results demonstrated continued momentum, with revenue increasing 36% to $696.1 million.
Management also raised its full-year revenue guidance to between $2.864 billion and $2.870 billion.
CEO Matthew Prince described the company’s expanding opportunity in AI-driven Internet traffic, saying: “we are seeing a fundamental rewrite of the Internet for machine-to-machine traffic.”
Cloudflare’s developer ecosystem has expanded to more than 10 million developers, compared with 7.4 million at the end of the second quarter.
Its infrastructure for AI agents could create new revenue opportunities as websites begin charging automated systems for accessing content.
Meanwhile, Datadog’s second-quarter revenue increased 36% to $1.12 billion, while customers generating more than $100,000 in annual recurring revenue increased 23% to approximately 4,720.
These results highlight continued demand for cloud infrastructure and monitoring services, although investors remain concerned about whether strong growth can justify premium valuations across the software sector.
Is Cloudflare Stock Undervalued or Overvalued?
Cloudflare appears overvalued based on its forward earnings multiple, despite an attractive long-term growth outlook.
TIKR’s October 20 consensus estimates project annual revenue increasing from $2.17 billion in fiscal 2025 to approximately $4.73 billion in fiscal 2028, representing more than a doubling over three years.
However, Cloudflare’s GAAP gross margin declined from 77.3% in fiscal 2024 to 74.5% in fiscal 2025, while second-quarter 2026 non-GAAP gross margin fell to 73.1% from 76.3% a year earlier.
At the October 30 close, Cloudflare traded at approximately 190x forward earnings, above its roughly 173x historical average since mid-2023, leaving limited room for slower growth or additional margin pressure.
Wall Street’s average price target of approximately $345 suggests around 30% upside from Cloudflare’s November 2 closing price of $265, although Guggenheim’s $160 price target highlights the potential downside if growth or profitability disappoints.
The November 5 earnings report will be an important catalyst. Another increase in full-year revenue guidance, alongside non-GAAP gross margin holding near 73%, would strengthen the case for the company’s premium valuation.
For now, Cloudflare looks more attractive as a hold than an aggressive buy, with further upside depending on sustained revenue growth, margin stability, and successful monetization of its AI infrastructure.
So what is Cloudflare stock actually worth?
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Disclaimer:
Please note that the articles on TIKR are not intended to serve as investment or financial advice from TIKR or our content team, nor are they recommendations to buy or sell any stocks. We create our content based on TIKR Terminal’s investment data and analysts’ estimates. Our analysis might not include recent company news or important updates. TIKR has no position in any of the stocks mentioned. Thank you for reading, and happy investing!
