what happened
shares of cloudflare (Net 1.42%) It rose nearly 18% this week, according to data from S&P Global Market Intelligence. Despite the lack of news, Cloudflare’s stock seems to be hitting new all-time highs, with the stock up 70% in the last month alone. So why are investors focusing on this stock now? Two words: artificial intelligence (AI).
so what
Cloudflare’s stock plunged about 30% to 40% after reporting slowing revenue growth and poor guidance in its first-quarter earnings report. But in recent weeks, the company has unveiled new products centered around the recent boom in AI products and how its cloud network and other software/infrastructure tools are being leveraged by AI startups.
For example, the company’s R2 Storage product (yes, that’s explicit) Star Wars According to a Cloudflare press release, ) is reportedly being used as essential infrastructure for generative AI companies. Generative AI requires enormous computing power, and R2 helps companies manage it as efficiently as possible. CEO Matt Prince called Cloudflare “the first developer platform built for the AI era” in the R2 press release.
Investors now love everything related to AI. Nvidia The stock has nearly tripled this year, C3.ai. So it shouldn’t be a surprise to see Cloudflare’s stock price skyrocket after learning about these developments. A new AI market could help Cloudflare reaccelerate revenue growth in the coming quarters.
It’s also possible that Cloudflare’s share price rose as other software companies reported strong earnings this week. for example, MongoDB reported a 29% increase in sales for the quarter, and today the company’s stock surged 28%. Investors may think that if other software disruptors like MongoDB do well, so will Cloudflare’s business.
so
Long-term investors, let alone those chasing quarterly gains, shouldn’t buy Cloudflare stock just because it’s related to AI. This can lead to risky performance pursuits and irrational decision-making, which you want to avoid when investing. If you like Cloudflare’s business, now is the perfect time to put it on your watchlist and wait for an opportunity, as the AI craze hasn’t pushed the stock price too far.
There are many things I love about Cloudflare’s business. Since going public just a few years ago, revenue has increased by almost 350%, making it one of the fastest growing companies in the world. If this situation continues and you can buy the stock at an affordable price, owning Cloudflare stock will pay off in the long run. But with today’s high prices that may not be possible.
Brett Schaefer has no positions in any of the mentioned stocks. The Motley Fool has positions in and recommends Cloudflare, MongoDB and Nvidia. The Motley Fool recommends his C3.ai. The Motley Fool has a disclosure policy.
