Cloudflare Stock Is Not a Buy Despite Its Strong Outlook. Here’s Why.

The demand for Cloudflare’s (NET) products appears to be growing rapidly, with the company likely having a very bright future ahead and earning a recent price target hike from Mizuho. However, given NET stock’s extremely high valuation, the fact that many expensive software names have struggled in 2026, and significant competition, shares of the company may not be worth buying right now.

What’s going on with Cloudflare and NET stock? Let’s take a closer look.

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About Cloudflare Stock

Cloudflare provides a content delivery network (CDN), IT security, and artificial intelligence (AI) infrastructure. Based in San Francisco, California, the company has a market capitalization of $96.2 billion.

As of this writing, shares of NET stock have jumped 37% so far in 2026 and are up 24% for the past month. NET stock is also up by 42% for the past 12 months.

Cloudflare’s Growing Demand and Positive Overall Outlook

In the first quarter of 2026, revenue surged to $639.8 million, up 34% versus the same period a year earlier. Meanwhile, non-GAAP net income per diluted share came in at $0.25. That figure climbed 56% year-over-year (YOY) from $0.16 in Q1 2025. Free cash flow also jumped to $84.1 million in Q1 2026, representing 13% of revenue, compared with $52.9 million in Q1 2025.

Notably, Cloudflare expects full-year non-GAAP net income to come in at a range of $418 million to $421 million for fiscal 2026. The company reported non-GAAP net income of $342.9 million in fiscal 2025.

Speaking on the Q1 2026 earnings call on May 7, CEO Matthew Prince said that the company’s sales pipeline “grew sequentially at the fastest pace in five years.” Cloudflare is benefiting from strong demand for AI platforms and tools, including agents and cybersecurity offerings.

With AI adoption expected to continue expanding for years, and with fears over AI-powered cybersecurity threats increasing, the overall outlook is positive for Cloudflare. To that end, Mizuho recently noted that its research indicates Cloudflare is performing well in Q2. The firm raised its price target on NET stock to $310 from $260 while maintaining an “Outperform” rating.

A High Valuation and Significant Competition

Cloudflare stock has an issue on the valuation front, however. NET stock has a huge price-to-sales (P/S) ratio of 44.4 times.

On the competition front, Cloudflare also has to face off against multiple firms in the CDN space, including Amazon (AMZN), Fastly (FSLY), Akamai (AKAM), and Microsoft (MSFT). At any point, one or more of these competitors could step up their games and meaningfully impact Cloudflare’s revenue growth. Because NET stock has such a high valuation, shares would likely react to such a development by tumbling.

Wall Street Is Wary of Software Names

In 2026, Wall Street has been generally wary of software names with high valuations, due to possible competition from AI models. ServiceNow (NOW) and Palantir (PLTR) are among the names in this category that have fallen sharply due to these concerns. Although NET stock has so far avoided this fate, it may not be able to escape it in the future, inviting caution from investors considering Cloudflare.

Overall, Cloudflare stock has a consensus “Moderate Buy” rating on Wall Street. Out of 32 analysts with coverage, 22 have a “Strong Buy,” two have a “Moderate Buy” rating, seven have a “Hold,” and one analyst has a “Strong Sell” rating.

On the date of publication, Larry Ramer had a position in: AMZN, AMZU. All information and data in this article is solely for informational purposes. This article was originally published on Barchart.com