Cloudflare stock jumps as Scotiabank upgrades on AI growth outlook
AI Sentiment: 78/100 Bullish
This score is generated through AI-driven analysis of the article's content.
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Buy NET. Scotiabank’s upgrade is backed by a clear demand chain: accelerating traffic trends (typically lead revenue by ~3 quarters) plus AI-agent workloads landing on Workers. Monetization Gateway (Pay Per Use for AI agents) is the next step to convert that traffic into higher-margin revenue, and the market hasn’t fully priced it yet. Key upside is re-rating toward the $300 target as 2H26 expectations reset.
Key Risk: AI traffic growth fails to translate into revenue because Monetization Gateway adoption stays slow or pricing power disappoints.
Buy NET and sell a cloud-infra/cyber peer basket (e.g., sell CRWD and/or PANW). The thesis is that NET’s AI infrastructure layer (Workers + agentic web monetization) is gaining share while peers are more exposed to slower enterprise security budgets and less direct AI monetization. If traffic-to-revenue timing holds, NET should outperform on both growth and multiple expansion.
Key Risk: Peers also accelerate AI-related monetization (or NET loses AI workload share), removing the relative performance edge.
- Cloudflare jumps 6% after Scotiabank lifts target to $300.
- AI demand and Workers platform fuel Cloudflare growth outlook.
- Scotiabank sees traffic trends driving stronger 2026 revenue.
Cloudflare Inc. NET shares climbed 6% on Tuesday after Scotiabank upgraded the cloud infrastructure and cybersecurity company, citing growing confidence in its long-term role in artificial intelligence infrastructure and raising its price target on the stock.
The brokerage upgraded Cloudflare to Sector Outperform from Sector Perform and increased its price target to $300 from $225, pointing to multiple catalysts that it believes could drive stronger revenue growth over the coming quarters.
Shares of Cloudflare rose after the analyst report, adding to investor optimism surrounding the company's expanding role in AI infrastructure and developer tools.
AI adoption seen as key growth catalyst
Scotiabank analyst Patrick Colville said Cloudflare's Workers platform is increasingly becoming a preferred infrastructure layer for AI-generated, or "vibe coded," applications, including OpenAI Codex Sites and Lovable.
"We upgrade our rating on the common shares of Cloudflare to Sector Outperform and lift our price target to $300," Colville said.
After spending the past 4+ weeks doing a deeper dive on Cloudflare's opportunity, we feel convinced that the time is now to own NET as: (1) Workers is becoming the default infrastructure for vibe coded applications – including OpenAI Codex Sites and Lovable, a dynamic we think is underappreciated by investors; (2) Traffic trends, which typically precede revenue by 3 quarters are inflecting due to agentic AI and will set Cloudflare up nicely to beat and raise Street numbers by ~5pp in 2H26, (3) Cloudflare is winning the best of the best AI-native customers, which validates their architecture and provides a long runway for growth.
According to Scotiabank, these developments are not yet fully reflected in investor expectations and could become an increasingly important driver of Cloudflare's future growth.
The brokerage also pointed to the company's ability to attract leading AI-native customers, saying this validates its technology platform and supports a longer runway for expansion.
Traffic trends support revenue outlook
Scotiabank said Cloudflare's traffic growth has historically preceded revenue growth by approximately three quarters and noted that those trends are now accelerating as demand for agentic AI applications increases.
The firm believes the improvement in traffic could allow Cloudflare to outperform Wall Street expectations by roughly five percentage points during the second half of 2026.
The report argues that stronger traffic trends, combined with growing adoption of AI-focused applications, position the company for improved financial performance over the coming quarters.
Monetization efforts add to AI strategy
The analyst note follows Cloudflare's July 1 launch of Monetization Gateway, which expands its existing Pay Per Crawl service into Pay Per Use through the open x402 protocol.
The initiative is designed to allow website owners to charge AI agents for access on a per-use basis, supporting what the company describes as the emerging agentic web.
The feature remains in an early-access and waitlist phase.
While acknowledging that Cloudflare continues to trade at a premium valuation, Scotiabank said the company's long-term opportunity in AI infrastructure is becoming increasingly clear.
The brokerage argued that the combination of growing AI adoption, improving traffic trends and continued product development supports a more constructive outlook for the stock despite its elevated valuation.
Cloudflare trades at a forward P/E of 204.19, according to data from stockanalysis.
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