Steve Grasso is bullish on Cloudflare (NET), citing its impressive 36% revenue growth and its strategic positioning in the burgeoning AI market. The cybersecurity firm is seeing increased spending from existing clients and is leveraging its global network to manage AI traffic and enhance security.
Despite a high valuation, Grasso believes the momentum can continue, though he advises caution with stop orders.
Cloudflare Stock Surges on AI Momentum: Why Steve Grasso Says Ride the Wave
In the dynamic world of cybersecurity, Artificial Intelligence (AI) is proving to be a powerful catalyst for growth. Cloudflare (NET), a company that enhances website and application performance and security through its global network, is a prime example, according to Wall Street contributor Steve Grasso.
Cloudflare's robust network is key to its security and performance offerings.
Key Growth Drivers
Grasso highlights several factors propelling Cloudflare's momentum:
Accelerated Revenue Growth: Cloudflare's revenue surged by 36% last quarter, outpacing competitors like CrowdStrike and Zscaler, which are experiencing mid-20% growth. Notably, Cloudflare is accelerating its growth even as its scale increases, a rarity in the tech sector.
Increased Customer Spending: Existing customers are spending approximately 20% more with Cloudflare year-over-year, indicating strong customer retention and upselling opportunities. This provides a vital growth engine independent of new customer acquisition.
AI Integration: The company is leveraging its 17-year-old global network to capitalize on AI opportunities. Cloudflare is enabling businesses to build AI applications and manage bot and agent interactions with their websites and data. It also utilizes OpenAI models to assist customers in identifying and rectifying code vulnerabilities, thereby enhancing its security products.
Why Now?
Despite a significant run-up, with the stock up about 68% year-to-date and trading above key moving averages, Grasso believes the momentum can continue. Cloudflare protects roughly 20% of websites globally and has demonstrated superior performance in security access technology compared to rivals.
Risks and Outlook
While the outlook is positive, Grasso acknowledges the risks. Cloudflare trades at a premium, around 40 times sales. He advises investors to use stop orders to mitigate potential downside, especially if the broader market experiences a pullback. However, he considers Cloudflare the best-in-class cybersecurity stock in its segment. The upcoming third-quarter earnings report will be a crucial test, with strong growth expected to sustain the stock's upward trajectory.
Disclosure: Grasso owns this position personally. Opinions expressed are solely those of the CNBC Pro contributors and do not reflect the views of CNBC. This content is for informational purposes only and does not constitute financial advice.
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Despite a high valuation, Grasso believes the momentum can continue, though he advises caution with stop orders.
