What Needs To Be True To Buy Cloudflare Stock?
Investors in Cloudflare (NET) are paying a steep premium for a company that still reports a loss. The stock trades at 41.8 times its sales, compared with 3.1 times for the S&P 500. Buyers paying that price appear to be betting on the company’s Workers developer platform and on agentic workloads, which are the tasks AI agents perform across its network. Management reported rapid growth in both. Is that bet showing up in Cloudflare’s sales yet?
Cloudflare’s Sales Growth Has Picked Up Pace
So far, yes. Cloudflare’s revenue grew 35.9% from a year earlier in fiscal Q2 2026, accelerating from the 27.8% growth recorded in the same quarter of 2025. Management said the quarter was driven in particular by Workers and agentic workloads, along with continued momentum with its largest customers.
This pace keeps Cloudflare well ahead of the broader market. Its sales grew 30.6% a year on average over the last three years, easily outpacing the 5.9% rate for the S&P 500. The company is also continuing to build on Workers. On October 9, 2026, Cloudflare announced it is acquiring Deno, the startup behind the programming runtime of the same name.
A note of caution comes from management itself. The company forecasts revenue growth of 31% for fiscal Q3 2026, below the pace it just reported. Executives say they set this guidance prudently because quarter-to-quarter moves have become harder to forecast.
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Has Cloudflare’s Gross Margin Stopped Falling?
Not clearly. Cloudflare posted a gross margin of 71.8% in fiscal Q2 2026, compared with 74.9% a year earlier. The figure did tick up from 71.2% in fiscal Q1 2026.
Management addressed this slide during the fiscal Q2 2026 call, noting that paid traffic on the network kept growing against free traffic. This dynamic moves more network costs out of sales and marketing and into the cost of revenue. By management’s account, part of the slide comes from where Cloudflare books those costs.
Executives also said they expect the gross margin to stabilize around its current level, adding that unit economics matter more. This amounts to a forecast of a margin that stops falling, not one that climbs back.
Most Of Cloudflare’s Latest Loss Came From Restructuring
Cloudflare lost $170 million in fiscal Q2 2026. That result included $151 million of severance and other restructuring charges. Without these costs, the loss would have been about $19 million. Executives also noted that Cloudflare is pacing ahead of its goal to reach a reported profit by the end of 2028.
The loss means Cloudflare lacks a meaningful price-to-earnings ratio, requiring buyers to measure its price against sales or cash flow instead. The stock trades at 165.7 times its cash flow from operations. If either the sales growth or the gross margin disappoints, holders should remember how far this stock has fallen before. During the 2022 inflation shock, Cloudflare fell 69%, compared with a 24% drop for the S&P 500.
Sales growth has held up so far, while the gross margin remains below where it was a year ago. For the price to hold, sales growth needs to stay near the 31% management forecasts, and the gross margin needs to stop falling. When Cloudflare releases its next report, expected on or around November 5, 2026, its gross margin and revenue growth against management’s forecast will be the key numbers to watch.
Is Too Much Of Your Wealth Riding On One Stock?
A move like this makes Cloudflare holders ask whether to add or step back. When one position grows into a large part of your wealth, a sharp fall can hurt your whole plan, and selling to spread the money out can bring a large tax bill. Glenn Caldicott, CIO of our Boston-based partner firm Empirical Asset Management, an SEC-registered investment adviser, offers a free 15-minute strategy review of ways to protect a concentrated position and unwind it with less tax.