Agentic Product Cycle Accelerates, Cloudflare's Growth Center May Move Higher Over the Next 3+ Years

Overview

The report believes Cloudflare delivered strong second-quarter performance, with both revenue and EPS exceeding market expectations and revenue growth accelerating notably. Increased agentic activity on the platform is driving expansion of the Workers developer ecosystem and accelerating the consumption of customer committed spend pools. At the same time, products such as pay-per-crawl, monetization gateway, wallet, and identity are gradually outlining a new business model for the agentic internet. Based on this, Goldman Sachs maintains its Buy rating and significantly raises its target price.

Core views

The core view is that Cloudflare is entering a new agentic product cycle: first, Workers is rapidly attracting developers through performance and cost advantages; second, increased agentic activity is lifting customer usage and accelerating consumption under the committed spend pool model; third, pay-per-crawl and agentic transaction products may form a new internet monetization layer. Goldman Sachs expects these factors to structurally raise the company's growth rate over the next 3+ years, though the spend pool model will also widen the range of quarterly guidance outcomes.

Analysis framework

The report assesses operating momentum by combining the gap between second-quarter actual results and FactSet consensus expectations, third-quarter guidance, developer growth, and platform usage activity, and updates revenue, EPS, and free cash flow forecasts for 2026 to 2028. Valuation uses a Q5 to Q8 revenue multiple methodology, with the applicable multiple raised from 26x to 34x based on the new product cycle.

Methodology notes

• Valuation methodologyForward revenue multiple valuation

  Uses Q5 to Q8 revenue as the valuation basis and applies a 34x revenue multiple.

  The target valuation multiple was raised from the previous 26x to 34x, reflecting Goldman Sachs' view that the new agent-related product cycle will structurally lift the company's growth center.

• Earnings analysisComparison of actual results with consensus expectations

  Compares actual results and management guidance with FactSet consensus expectations.

  The report measures operating momentum by the degree to which revenue, EPS, and next-quarter guidance exceed expectations, and assesses whether growth is accelerating based on changes in revenue growth.

• Multi-factor analysisGS Factor Profile

  Standardizes growth, financial returns, and valuation multiples into percentiles and forms a composite indicator.

  Growth metrics reference forward sales, EBITDA, and EPS growth; financial return metrics reference return on equity, return on capital, and cash return on capital; valuation metrics reference P/E ratios, enterprise value multiples, and others.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Cloudflare (US.NET) common stock

  Directly covered security in the report

  Strengths

  Outstanding global network processing capability, with Workers offering performance and cost advantages; rapid developer growth; agentic activity increases platform usage; pay-per-crawl, monetization gateway, wallet, and identity products open up new business models.

  Weaknesses

  Valuation is at a relatively high level, near-term gross margin forecasts are below 2025 levels; commercialization of new products is still at an early stage, and the spend pool model will increase quarterly results and guidance volatility.

  Comparison

  The rating is made relative to Goldman Sachs' coverage universe of software and infrastructure companies; the report does not provide itemized quantitative comparisons with a single peer company.

  Risks

  New product productivity ramping more slowly than expected, enterprise business expansion disrupting the sales organization, SSE market progress falling short of expectations, and inference demand being met by hyperscale cloud vendors or other computing solutions.

Key data

• 12-month target price$389.00Previously $266.
• Current share price$284.43Reference price listed in the report.
• Potential upside36.8%Calculated from the target price relative to the current price.
• Second-quarter revenue growth36%Accelerated by about 250 basis points from previously, with revenue 5% above market expectations.
• Second-quarter EPS performance7% above expectationsThe comparison benchmark is FactSet consensus expectations.
• Third-quarter guidanceRevenue 2% above expectations, EPS 9% above expectationsThe comparison benchmark is FactSet consensus expectations.
• Workers developer growthNearly 2 million added in the second quarterBy comparison, approximately 1.5 million were added for all of 2025.
• Platform transaction processing scaleAbout 500,000 transactions/secondThe company estimates that it may eventually monetize 1% to 10% of these transactions.
• Revenue forecast2026E/2027E/2028E: $2.868bn/$3.7664bn/$4.8659bnPrevious forecasts were $2.8108bn, $3.6072bn, and $4.5473bn, respectively.
• Free cash flow forecast2026E/2027E/2028E: $435mn/$559mn/$771mnPrevious forecasts were $401mn, $583mn, and $831mn, respectively.
• Target valuation multiple34x Q5 to Q8 revenuePreviously used 26x.
• M&A rank3Corresponds to a relatively low potential acquisition probability and is not included in the target price.

Impact & implications

If agentic traffic continues to grow, Cloudflare may further extend from networking, security, and developer platforms into content licensing, payments, and identity infrastructure, thereby expanding its serviceable market and increasing customer usage intensity. Expansion of the Workers ecosystem and accelerated spend pool consumption are positive for revenue upside, but will also increase uncertainty in quarterly guidance. The significant increase in the target valuation multiple means the market needs to see new products monetize on schedule and growth continue to materialize in order to support the current elevated valuation.

Risks

• The ramp-up timing of productivity and revenue contribution from new products may be later than expected.
• Expansion into enterprise customers may cause execution disruption for the sales organization.
• Market expansion and customer adoption of SSE products may fall short of expectations.
• Artificial intelligence inference demand may be handled more by hyperscale cloud vendors or other computing solutions.
• The spend pool consumption model will widen the quarterly guidance range and earnings volatility.
• High forward revenue and earnings valuations may amplify downside risk to the share price if growth falls short of expectations.

What to watch

• Commercialization milestones over the next year for pay-per-crawl, monetization gateway, wallet, and identity products.
• Whether the number of new Workers developers and developer activity can sustain second-quarter momentum.
• The pace of customer spend pool consumption and its impact on the magnitude of quarterly revenue upside.
• Enterprise customer expansion, sales organization stability, and SSE business progress.
• Delivery of revenue, EPS, and free cash flow forecasts from 2026 to 2028.
• The actual proportion of agentic transactions Cloudflare can monetize and the related pricing model.