Cloudflare, Inc. (NYSE:NET) shares jumped more than 16% in pre-market trading on Friday after the company reported better-than-expected second-quarter financials and third-quarter guidance, reinforcing the view that demand for its networking and security products is ramping up.
The company reported second-quarter adjusted earnings of 29 cents per share on revenue of $696.1 million, beating estimates of 27 cents per share on revenue of $665 million.
For the full year, it now expects revenue of $2.86 billion to $2.87 billion, up from its previous expectation of $2.805 billion to $2.813 billion. It also lifted its adjusted earnings per share forecast to a range of $1.25 to $1.26, up from its earlier estimate of $1.19 to $1.20.
The stronger outlook underscores Cloudflare’s position as an immediate beneficiary of rising AI-driven demand for infrastructure modernization and AI coding agents.
Crowdstrike Sets a High Bar
With cybersecurity becoming a crucial AI battleground, Cloudflare, Inc. (NYSE:NET) isn’t the only player benefiting from rising AI demand. CrowdStrike Holdings, Inc. (NASDAQ:CRWD), even though operating in different areas of cybersecurity than its peer, also recently posted results that are a testament to the strength of demand across the broader security market.
Posting its fiscal Q1 2027 financial results on June 3, the company reported adjusted earnings of $1.10 on revenue of $1.39 billion. These figures narrowly beat estimates of $1.07 adjusted EPS on revenue of $1.36 billion.
More importantly, the company’s annual recurring revenue reached $5.51 billion, up 24% year-over-year. Meanwhile, record net new ARR rose 32% to $256 million and free cash flow reached $468.5 million.
“In Q1, the worlds of cybersecurity and frontier AI collided: this was the Mythos moment. CrowdStrike is AI security infrastructure, critical to successful AI adoption.”
– CEO George Kurtz
With advanced models such as Anthropic’s Mythos threatening to accelerate the pace of cyberattacks, CrowdStrike stands out among the companies benefiting from increasing demand for cyber tools.
Cloudflare, Inc. (NYSE:NET) shares have gained over 44% so far this year, compared with a more than 70% rise in CrowdStrike.
Growth Comes At a Price
Neither stock comes cheap. As per LSEG-compiled data, Cloudflare trades at over 190 times its forward price-to-earnings ratio, compared with over 145 for CrowdStrike Holdings, Inc. (NASDAQ:CRWD).
This valuation gap is particularly notable given that CrowdStrike Holdings, Inc. (NASDAQ:CRWD) already generates substantial and recurring revenue and cash flow. Meanwhile, Cloudflare is being valued on the expectation that AI agents and workers will become increasingly important growth engines.
According to analysts at RBC Capital Markets, Cloudflare “has multiple, durable avenues to AI monetization over the long-to-medium term that warrants a premium valuation.”
Cloudflare’s recent growth gives bulls a reason to accept the premium, but also leaves little room for execution mistakes. Factors such as slow AI demand, enterprise spending, and even developer adoption could pressure the multiple.
Similar is the case for Crowdstrike, its strong platform economics and recurring revenue are already reflected in its premium valuation. If ARR growth or margins fall short, the stock could face vulnerability.
Hedge Funds Remain Bullish
Insider Monkey’s hedge fund database shows growing hedge fund interest in both names. 84 hedge funds had positions in Cloudflare at the end of the first quarter, up from 70 in Q4 2025. Meanwhile, CrowdStrike was held by 79 funds, up from 67.
Short sellers also look restrained. As of July 15, short interest for Cloudflare stood at 3.1% of its public float, while for CrowdStrike it was 2.7% of the public float. These figures reflect limited bearish positioning despite premium valuations.
Bottomline
Cloudflare’s latest results show that higher AI adoption is boosting demand for companies that offer the software and infrastructure used to build and run AI applications.
Its recent growth of 36%, driven by accelerated demand for AI infrastructure, developer tools, and large customer expansion; currently outpaces CrowdStrike’s 26% year-over-year increase.
NET evidently demonstrates an edge on recent top-line growth, but CrowdStrike has established itself as the more proven name with significant recurring revenue and cash flow.
Conclusively, NET offers broader AI upside, but CrowdStike is offering a high bar on execution that investors anticipate from premium stocks.
While we acknowledge the risk and potential of NET and CRWD as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than NET and CRWD and that has 10,000% upside potential, check out our report about this cheapest AI stock.
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