Cloudflare Q1 revenue hit $400M, up 30%. FY25 margin guidance disappointed, sending shares down 10%. Agentic AI drives growth, but near-term margins suffer. Alpha Score 32/100. Next catalyst: Q2 earnings.
Cloudflare ( NET ) reported Q1 revenue of $400 million, up 30% year over year and $10 million above consensus. Adjusted earnings per share of $0.17 beat estimates by $0.04. The stock fell 10% in after-hours trading. The market focused on full-year EBITDA margin guidance of 23%, below the 25% analysts expected.
First-quarter EBITDA margin came in at 24%, above consensus of 23%. The full-year guide of 23% implies margin compression ahead. The margin miss reflects a deliberate choice. Cloudflare is pouring money into artificial intelligence infrastructure. Its Workers AI platform and AI Gateway are handling more requests from AI agents – autonomous software that queries the network for tasks. CEO Matthew Prince called agentic AI the company's fastest-growing traffic category during the earnings call. The company did not break out its AI revenue separately.
Cloudflare is not alone in chasing AI traffic. Competitors are also spending. The difference lies in Cloudflare's edge network, built for low-latency workloads. That positioning could pay off as AI agents demand faster responses. For now, the investment depresses near-term margins.
Goldman Sachs analysts raised their price target to $150 after the print. Raymond James and other firms also boosted their targets. All acknowledged the margin overhang. The stock trades at about 12 times forward revenue, high by most standards and below its historical peak. The market is pricing in strong growth. It wants to see that growth translate into profits.
AlphaScala's proprietary score for NET stands at 32 out of 100, rated Weak. The score reflects the tension between top-line acceleration and bottom-line compression, plus a valuation that leaves little room for error.
The next catalyst is Q2 earnings, expected in early August. Cloudflare guided Q2 revenue between $455 million and $456 million, above the $448 million consensus. Full-year revenue guidance stands at $1.825 billion at the midpoint. The key disclosures will be AI revenue breakdown and any update on margin trajectory for the back half of the year. A margin raise would remove the main overhang. A further guide-down or a growth deceleration would confirm the market's worst fears.
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