From Underperform to Buy: Why BofA Is Betting Big on Cloudflare

Cloudflare’s Stock Surges as Bank of America Signals Major Growth Potential in AI and Cybersecurity

Editorial Team (ET)May 8, 2025

Cloudflare (NYSE:NET) is making headlines once again, this time for all the right reasons. On Tuesday, Bank of America (BofA) analysts made a significant move, double-upgrading the company from "Underperform" to "Buy," citing strong fundamentals and a clear trajectory for accelerated growth. Investors reacted swiftly, pushing Cloudflare’s stock up over 5% in premarket trading.

The upgrade wasn’t just a minor vote of confidence—it was a declaration that Cloudflare is primed for long-term success, particularly in two key areas: artificial intelligence (AI) and network security. The analysts at BofA believe these sectors will be pivotal in shaping the company's financial future, positioning it as a formidable player in the tech space.

AI-as-a-Service: Cloudflare’s Billion-Dollar Bet

Artificial intelligence is no longer just a buzzword—it's a gold rush. Companies that can efficiently integrate AI solutions are poised to dominate, and Cloudflare is proving to be a frontrunner. BofA analysts emphasized that Cloudflare’s AI-as-a-Service (AIaaS) offering is gaining significant traction, with enterprises increasingly looking to adopt AI-driven solutions.

According to BofA’s internal surveys, AI is the top product Cloudflare customers plan to implement over the next twelve months. Notably, average AI-related spending per customer is projected to rise by 8% to approximately $100,000. This means that Cloudflare’s AI-driven products could soon account for 15% of total customer spending—a clear indicator that the company is carving out a dominant space in the AI market.

What makes Cloudflare’s AI push so compelling? Its seamless integration across its cloud network, allowing businesses to access AI capabilities without the need for costly, complex infrastructure investments. This accessibility makes it an attractive option for enterprises looking to scale AI usage efficiently.

Strengthening Its Hold in Network Security

While AI is driving excitement, Cloudflare’s growth isn’t just limited to one sector. The company is rapidly expanding its footprint in network security, particularly in the booming Secure Access Service Edge (SASE) market. SASE is the future of cybersecurity, offering a cloud-native approach to secure enterprise networks without relying on traditional hardware-based security measures.

BofA analysts noted that Cloudflare’s security offerings now command a 33% market penetration, a staggering statistic that signals its ability to outpace legacy competitors. With over half of new enterprise IT spending projected to go toward security solutions, Cloudflare is well-positioned to challenge industry stalwarts like Check Point Software (NASDAQ:CHKP) and Cisco (NASDAQ:CSCO).

Wall Street’s Confidence Soars with Price Target Hike

BofA’s upgrade wasn’t just a symbolic move—it came with a substantial increase in its price target for Cloudflare stock. The analysts raised their target to $160 per share from the previous $60, a clear endorsement of the company’s upside potential.

This bullish revision is based on a 20x multiple applied to Cloudflare’s estimated enterprise value-to-sales ratio for 2026, doubling from the prior 10x multiple. With this trajectory, analysts predict that Cloudflare’s three-year compound annual growth rate (CAGR) will hit 30% by 2028, surpassing the previous forecast of 25%.

The Challenges Ahead: A High-Stakes Growth Strategy

Despite the overwhelming optimism, BofA did highlight potential challenges. Cloudflare has set an ambitious target of hitting $5 billion in revenue by 2028, a feat that would require accelerating growth by 400 basis points above industry peers.

Achieving this goal won’t be easy. It demands near-flawless execution, particularly in scaling enterprise adoption. The AI market is still in its infancy, and unpredictable pricing models could delay Cloudflare’s ability to fully capitalize on its AI investments. However, if the company successfully navigates these hurdles, it could emerge as one of the defining technology stocks of the decade.

A Defining Moment for Cloudflare

Cloudflare’s stock surge is a direct result of the company’s ability to innovate, execute, and disrupt key tech sectors. With AI and network security serving as cornerstones of its future strategy, the company is proving that it isn’t just riding industry trends—it’s actively shaping them.

BofA’s dramatic upgrade is a strong vote of confidence, signaling that Wall Street is starting to recognize Cloudflare’s long-term growth trajectory. Investors who once questioned its valuation are now taking notice. The coming months will be critical in determining whether Cloudflare can sustain its momentum, but for now, the market is clearly betting big on its success.

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