MSX US Stocks Daily Watch: Cloudflare's Revenue Acceleration and Raised Guidance Reinforce Growth Confidence, Shares Rise Against the Trend After Hours

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Today's Watch

Against the backdrop of a large-scale selloff in AI and tech stocks, Cloudflare delivered quarterly earnings that were significantly stronger than market expectations. On November 5, the US tech sector fell across the board, with the S&P 500 down 4.4%, the Nasdaq down 5.5%, Nvidia down 9.3%, and AMD down 17.3%. Cloudflare also fell about 8.3% during regular trading hours, but after the earnings release, its shares rose about 17% after hours, essentially recovering the day's losses and turning to a gain relative to the previous day's close.

The core support for the stock's contrarian rebound was not just revenue and profit beating expectations, but Cloudflare's growth reaccelerating. In FY2026 Q3, Cloudflare's revenue reached $782.5 million, up 39% year-over-year, above market expectations of about $736.8 million, marking the fastest growth rate in nearly four years. Adjusted EPS was $0.38, above market expectations of $0.34; current remaining performance obligations grew 37% year-over-year, indicating that signed revenue expected to be recognized over the next 12 months continues to grow at a rapid pace.

More importantly, the company expects fourth-quarter revenue of $845 million to $846 million, with a midpoint of $845.5 million, significantly above market expectations of about $798.2 million. The full-year revenue guidance was also raised from the previous $2.864 billion to $2.870 billion to $2.963 billion to $2.964 billion. On the day when the market concentrated its selloff on AI infrastructure companies, Cloudflare's after-hours rebound shows that investors have not rejected all AI-related companies; rather, they place greater emphasis on the pace of revenue realization, order visibility, and capital efficiency.

Data in a Minute

• FY2026 Q3 revenue of $782.5 million, up 39% year-over-year, above market expectations of about $736.8 million;

• This quarter's revenue growth rate further increased from 36% in Q2 to 39%, the fastest in nearly four years;

• Adjusted EPS of $0.38, above market expectations of $0.34;

• Adjusted net income of $143.7 million, compared with $102.6 million in the same period last year;

• Adjusted operating income of $137.1 million, compared with $85.9 million in the same period last year;

• Adjusted operating margin of 17.5%, compared with 15.3% in the same period last year;

• Current remaining performance obligations (cRPO) up 37% year-over-year;

• Operating cash flow of $215.4 million, compared with $167.1 million in the same period last year;

• Free cash flow of $82.1 million, compared with $75 million in the same period last year;

• Free cash flow margin of 10%, compared with 13% in the same period last year;

• GAAP net loss of $34.1 million, compared with a net loss of $1.3 million in the same period last year;

• GAAP operating loss of $67.9 million, compared with a loss of $37.5 million in the same period last year;

• Adjusted gross margin of 72.4%, compared with 75.3% in the same period last year;

• Cash, cash equivalents, and marketable securities totaled approximately $5.129 billion at quarter-end;

• Q4 revenue guidance of $845 million to $846 million, above market expectations of about $798.2 million;

• Q4 adjusted EPS guidance of $0.43;

• FY2026 revenue guidance raised to $2.963 billion to $2.964 billion, versus market expectations of about $2.87 billion;

• FY2026 adjusted EPS guidance raised to $1.35;

• Cloudflare fell about 8.3% during regular trading hours and rose about 17% after hours following the earnings release.

MSX View

The most important reason for Cloudflare's after-hours rebound this time is that it simultaneously met three conditions: "earnings beat, growth acceleration, and guidance raise." For high-valuation software companies, merely beating quarterly market expectations is usually not enough to drive the stock price higher. Investors are more focused on whether the company can sustain its growth rate and whether next quarter's guidance supports the current valuation.

Cloudflare's Q3 revenue grew 39% year-over-year, not only above market expectations but also faster than the 36% in Q2. The company expects fourth-quarter revenue at a midpoint of $845.5 million, nearly 6% above the original market expectation. This means this quarter's growth is not a one-time pull-forward of revenue recognition; management expects this momentum to extend at least through year-end.

The 37% year-over-year growth in cRPO is equally significant. Revenue reflects business already recognized, while cRPO reflects contracted revenue that has been signed and is expected to be recognized over the next 12 months. The two growth rates are relatively close, indicating that Cloudflare's current growth is driven both by current usage and supported by a certain level of orders.

Cloudflare is benefiting from three types of demand simultaneously. The first is cybersecurity. As the scale of cyberattacks expands, enterprises still need DDoS protection, application security, zero-trust access, and network performance services. Security spending typically has higher priority than general IT projects, which gives Cloudflare some resilience even when enterprises cut some software budgets.

The second is the developer platform. Workers allows developers to run applications and code directly on Cloudflare's global network. As AI applications require lower latency and inference and data processing capabilities closer to users, Cloudflare has the opportunity to further expand from a traditional content delivery network to an application development and runtime platform.

The third is AI traffic infrastructure. AI agents generate a large number of programmatic requests and bring demand for identity verification, security protection, and content authorization. Cloudflare does not need to bear the same scale of server and chip procurement as GPU cloud companies, but it can generate revenue from AI traffic growth through networking, security, and developer tools.

This is also the difference between Cloudflare and some AI infrastructure companies that were hit by concentrated selling in this round. The market is currently worried about excessive data center capital expenditure, rising financing costs, and possible restrictions by local governments on new data center construction. If the expansion of computing power supply slows, GPU, server, power, and data center construction companies will be affected first. Although Cloudflare also needs to build a global network, its business model is closer to networking, security, and a development platform, and its revenue growth does not depend entirely on new large-scale data center projects.

However, this earnings report is not without areas to watch. Adjusted gross margin fell from 75.3% to 72.4%, and the free cash flow margin also dropped from 13% to 10%. This indicates that while Cloudflare is expanding network capacity, supporting more computing workloads, and developing new products, infrastructure and operating investments are still increasing.

The company achieved $137.1 million in operating income on an adjusted basis, but still recorded a GAAP operating loss of $67.9 million; GAAP net loss also widened from $1.3 million in the same period last year to $34.1 million. The improvement in adjusted profitability proves that operating leverage is forming, but there is still a gap before stable profitability on a GAAP basis. Therefore, Cloudflare's current investment logic is not simply relying on the AI concept, but on proving that AI traffic can bring faster revenue growth without significantly eroding gross margin and cash flow.

This after-hours rebound shows that in the process of the market overall lowering valuations of AI assets, capital is still willing to reward companies that can deliver revenue, raise guidance, and generate positive free cash flow; the market has not abandoned the AI trade.

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