Cloudflare (NET.US) crushed expectations with its performance thanks to "AI proxy traffic," leading Wall Street to collectively raise target prices.

Cloudflare (NET.US) announced its second quarter financial report for fiscal year 2026 ending June 30, with all key indicators surpassing Wall Street expectations and revenue accelerating for the second consecutive quarter. As a result, the stock briefly surged over 16% in pre-market trading. Following the earnings release, multiple Wall Street firms quickly raised their price targets for Cloudflare, with the highest increase reaching 42%. Core financial data: All metrics exceeded expectations, with AI-driven traffic becoming a key turning point. The report showed that Cloudflare achieved revenues of $696.1 million in the second quarter, a year-over-year increase of 35.9%, exceeding market expectations of approximately $664.7 million by about $29.75 million. Adjusted earnings per share were $0.29, also higher than the market expectation of $0.27. More crucially, Cloudflare achieved accelerated revenue growth for the second consecutive quarter. The company revealed in its report that its network traffic composition reached a historic turning pointnon-human traffic, such as AI proxies, surpassed 50% for the first time. CEO Matthew Prince stated in a statement: As the internet transitions to AI answer engines and proxy-driven business models, we are witnessing a fundamental restructuring of machine-to-machine traffic. Other core indicators were also strong: the number of large customers (those with annual spend over $100,000) increased to 4,698, a 27% year-over-year growth, contributing 73% of total revenue; remaining performance obligations (RPO) reached $2.732 billion, a 38% year-over-year increase; and the net revenue retention rate (NRR) in dollar terms improved to 120%, a sequential increase of 200 basis points and a year-over-year increase of 600 basis points. Based on the strong performance and the demand outlook driven by AI, Cloudflare significantly raised its full-year guidance for 2026: the new revenue midpoint is approximately $2.867 billion, and adjusted earnings per share midpoint is about $1.255, both exceeding market averages. The company expects next quarter's revenue to be around $736.5 million (midpoint), also above analyst expectations. Wall Street is raising price targets across the board: from "hold" to "buy", showing a bullish outlook. Morgan Stanley analyst Sanjit Singh raised the price target from $322 to $370, maintaining an "overweight" rating. Singh noted: The accelerated growth in the second quarter, the continued RPO growth of 34%, and the strong performance across performance, security, and developer platform product lines indicate that the company can maintain over 30% growth in the coming years and is likely to become the preferred infrastructure platform for businesses and AI-native developers to run and coordinate their proxy workloads. Bank of America Corp analyst Tal Liani raised the price target from $330 to $380, calling the performance outstanding. Liani wrote: Cloudflare's second quarter performance was impressive, with revenue growing 35.9% year-over-year (above the market expectation of 30.1%), significantly surpassing expectations and continuing the trend of accelerated growth for the second consecutive quarter. The company added 282 large customers this quarter, setting a new record and driving a 27% year-over-year growth in large customers. The dollar-denominated NRR improved to 120%, a sequential increase of 200 basis points and a year-over-year increase of 600 basis points, while RPO grew 38% year-over-year. Both new customer bookings and sales leads reached the highest levels in over five years. Jefferies Financial Group Inc. analyst Joseph Gallo raised the price target from $290 to $350 and pointed out that the company is shaking off any concerns related to artificial intelligence. He stated in a report: In the context of general investor concerns over the future of software development in the AI era, the company clearly benefits from AI and is well-prepared to capitalize on the positive impacts of AI and the consolidation of vendors in the cybersecurity space. TD Cowen raised Cloudflare's price target from $300 to $355 and maintained a buy rating for the stock. Analysts told investors in a research report that the company reported strong performance, with year-over-year revenue growth of 36%. The company highlighted that Cloudflare set new year-over-year net increases in all large customer tiers and large contracts. TD Cowen believes that as artificial intelligence develops, the company is well-positioned to lead. Goldman Sachs Group, Inc. raised the price target from $266 to $389, maintaining a "buy" rating. Analysts noted the growth was driven by the adoption of proxy-based AI, rapid expansion of the Workers platform, and emerging opportunities from new internet business models. Barclays raised Cloudflare's price target from $300 to $355 and maintained an "overweight" rating; analysts reported that the companys revenue accelerated growth this quarter. Stifel likewise raised the price target from $260 to $370. Additionally, Oppenheimer, Citizens, Truist, and RBC Capital have all raised their price targets following the earnings report. RBC Capital specifically pointed out that Cloudflare has multiple sustainable monetization pathways related to AI in the medium to long term, justifying a valuation premium. According to an S&P Global survey of 34 analysts, Cloudflare currently holds a consensus rating of "buy."