What Happened?

Shares of internet security and content delivery network Cloudflare (NYSE:NET) jumped 6.8% in the morning session after the company received a double rating upgrade from Goldman Sachs. Goldman Sachs analysts raised the stock's rating from Sell to Buy and nearly doubled the price target increase from $77 to $140. The analysts attributed the improved rating to "several positive catalysts," including improved operating efficiency and the potential in NET's edge computing solutions.

The shares closed the day at $112.62, up 4.6% from previous close.

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What The Market Is Telling Us

Cloudflare’s shares are quite volatile and have had 17 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.

The previous big move we wrote about was about a month ago when the stock gained 6.8% on the news that Morgan Stanley analyst Hamza Fodderwala upgraded the stock's rating from Equal Weight (Hold) to Overweight (Buy), as he believes the company (NET) deserves a premium growth valuation, given the potential for acceleration of top-line growth.

Some factors driving the optimistic growth forecast include 1) multiple product cycles, 2) improving sales execution, and 3) top-line tailwinds as an Edge AI network.

Contributing to the bullish thesis, the analyst also cited the partnership with Apple Intelligence, where NET is helping to encrypt AI queries for hundreds of millions of devices. He believes the partnership "has the potential to contribute 2-3pts to revenue growth in 2026-28."

The points raised by Fodderwala align with some of the updates provided by the company during the last earnings, especially regarding product innovation, which the market might need help to evaluate.

For example, following the introduction of Apple Intelligence, there are valid concerns regarding Apple's ability to handle privacy, security, and compute capacity-related issues as iPhone users adopt the feature. Cloudflare excels in these areas by providing solutions like Workers AI, which allows customers to run models on the Cloudflare network.

Cloudflare is up 41.4% since the beginning of the year, and at $112.20 per share, it is trading close to its 52-week high of $117.56 from December 2024. Investors who bought $1,000 worth of Cloudflare’s shares 5 years ago would now be looking at an investment worth $6,588.

When a company has more cash than it knows what to do with, buying back its own shares can make a lot of sense–as long as the price is right. Luckily, we’ve found one, a low-priced stock that is gushing free cash flow AND buying back shares. .