Market research firm IDC recently released a report stating that the global artificial intelligence (AI) market is now worth $235 billion, and the great thing is that this technology still has a lot of room to grow over the next five years.
IDC estimates that global spending on AI and generative AI could reach $631 billion by 2028. There are several ways investors can take advantage of this huge opportunity. From hardware companies such as Nvidia to software suppliers such as Palantir and cloud computing companies such as OracleInvestors may be spoiled for choice if they want to buy an AI stock right now.
Cloudflare (NYSE:NET)However, may not be on the minds of many investors when looking for an AI stock to add to their portfolios. The company has made a name for itself in the cybersecurity industry by helping customers secure their Internet connections while improving the reliability and quality of connections. However, it is now also making a concerted push into the AI market.
Let’s take a closer look at Cloudflare’s AI-focused initiatives and why this technology has the potential to boost growth.
Cloudflare has set its sights on lucrative AI markets
Cloudflare has used its cybersecurity credentials to strengthen its prospects in cloud AI. In September last year, the company launched the Workers AI platform that allows developers to run AI inference applications on Cloudflare’s network. The company has acquired Nvidia’s GPUs (graphics processing units) and network switches to build an edge AI network in cities around the world that will allow developers to create AI apps without having to purchase any hardware themselves.
Cloudflare says it has now deployed GPUs in 180 cities worldwide. This number has the potential to go even higher, considering that the company has data centers in 300 cities around the world. The company says it wants to “enable any organization worldwide to deploy AI models – powered by Nvidia GPUs, networking and inference software – without having to worry about managing, scaling, optimizing or securing deployments.”
In simpler words, organizations and developers looking to jump on the AI bandwagon can easily rent Cloudflare’s infrastructure without having to incur the huge capital expenditures they would have had to incur if they bought their own GPUs and deployed their own servers. It’s worth noting that the infrastructure-as-a-service (IaaS) market that Cloudflare is targeting with this strategy is expected to be worth $580 billion by 2030.
Additionally, the company currently has a platform of more than 1 million developers to whom it can sell its new services, such as Workers AI. However, Cloudflare is not going to limit itself to the cloud AI market. The company just announced a new AI offering called AI Audit. The tool allows websites and content creators to see how AI bots access and use their content, block access, and also charge for the content AI bots access.
In other words, Cloudflare could help content and website creators charge AI companies, and it won’t be surprising to see this offering gain traction once it’s fully rolled out. That’s because the adoption of generative AI in content creation will grow at an annual rate of 31% over the next decade, according to Market.us.
Cloudflare is already growing at a healthy pace and AI could give it a chance
When Cloudflare reported second-quarter 2024 results in August, the company reported a 30% year-over-year increase in revenue to $401 million. In fact, the company’s adjusted earnings doubled year over year to $0.20 per share. Cloudflare’s impressive year-over-year growth in revenue and profits can be attributed to existing customers spending more money on Cloudflare’s offerings.
For example, the number of Cloudflare customers with annualized revenues greater than $100,000 was 3,046 in the second quarter, up 30% year over year. That was higher than the 20% year-over-year growth in Cloudflare’s paying customer base last quarter. Additionally, the company’s dollar-based net retention rate of 112% in the second quarter indicates that its existing customers have either increased their adoption of Cloudflare’s new offerings or are using more of its current services.
This measure compares the company’s revenue in a quarter to the revenue of the same customer cohort in the same period a year ago. So a score of more than 100% means that it has managed to capture a larger share of its existing customers’ portfolios. Add to that the additional revenue opportunities that will likely arise from the company’s growing portfolio of AI offerings, and there’s a good chance that Cloudflare will continue its robust growth in the long term as well.
It turns out that analysts expect Cloudflare’s revenues to grow 62% annually over the next five years. That’s why investors looking to add a growth stock to their portfolio would do well to buy Cloudflare before it steps on the gas after a flat performance in the market so far in 2024.
Should You Invest $1,000 in Cloudflare Now?
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Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Cloudflare, Nvidia, Oracle, and Palantir Technologies. The Motley Fool has a disclosure policy.
Artificial Intelligence (AI) Spending Expected to Hit $631 Billion by 2028: 1 Great Stocks to Buy Now Before That Happens was originally published by The Motley Fool
