Cloudflare, Inc. (NYSE:NET) closed at $297.58 on October 19. The stock returned 45.3% over the last 6 months, compared with an 11.6% return for the Insider Monkey Billionaire Index and 8.7% for the State Street SPDR S&P 500 ETF Trust.
Cloudflare sits between a website and the people visiting it, speeding up what it can and blocking what it should. Millions of sites use it, and most of them pay nothing. That free tier is the reason the company has the reach it does, and it is also why the price is harder to justify than the business is to admire.
READ ALSO: 10 Best Stocks to Buy for High Returns in 2026
What the Free Tier Buys:
Giving the basic service away put Cloudflare in front of an enormous number of sites at almost no selling cost. The paying customers come largely from inside that pool. It works as a growth engine.
Turnover jumped 35.90% over the most recent quarter, carrying the company towards $2.87 billion in revenue this year, which is unusual for a business selling infrastructure rather than applications.
Cloudflare is one of the ten in our 10 Most Promising Cloud Stocks According to Hedge Funds. To see the rest of the list, click HERE.
What It Costs:
Serving customers who pay nothing is not free. The network has to be built and run for all of them, which is why the company still reports an operating margin of -7.60% at this scale. Debt sits at 217.86% of equity, heavy for a business that has not yet made a profit. The cash flow is positive, so this is a question of patience rather than survival.
The model also caps the price of the paid product. A customer who can see a capable free version has a reference point every time the bill arrives.
DON’T MISS: 10 AI Stocks Beyond NVIDIA That Could Surge in 2026
Good or Bad at This Price:
At 178.57 times what analysts expect next year the price is the hard part. The stock is up 45.3% over six months. The business is good, and the price is the problem.
At this level, a buyer is not paying for what Cloudflare earns but for what it might earn if the free users keep converting for another decade. Paying this much for a business still losing money is one way to back it. 11 Best SaaS Stocks to Buy Right Now sets out the cheaper ones.
Conclusion:
The business deserves the admiration, but the stock is a hard buy at this level. Giving the core product away is what gave Cloudflare its reach, and the growth rate shows the strategy working exactly as intended. The difficulty is that the same free users have to be served whether they pay or not, which is why the margin is still negative at this size. The price then assumes a decade of conversion going right. Watch the paid customer count rather than the revenue, since that is the number the whole model turns on.
Market Sentiment:
Cloudflare, Inc. was held by 87 hedge funds with a combined stake value of about $3.98 billion at the end of Q2 2026 in the Insider Monkey database. This is up from 84 hedge fund holders in the previous quarter.
While we acknowledge the risk and potential of NET 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 that has 10,000% upside potential, check out our report about this cheapest AI stock.
READ NEXT: 10 Most Promising Cloud Stocks According to Hedge Funds and 10 Best Cybersecurity Stocks to Buy in 2026
This article is originally published at Insider Monkey.
