While Big Tech is seeing weak price action following capex estimates for 2026, Cloudflare’s earnings report is being met with enthusiasm. Rather than competing with hyperscalers head-on, the company is taking a different route by offering an edge network where latency, global reach and lower costs matter more than compute and scale.
Key metrics are suggesting an important inflection is underway, which was a theme from our coverage last quarter. Cloudflare reported the strongest revenue growth since Q1 2023. The company’s Q4 revenue grew by 33.6% YoY and 9.3% QoQ to $614.5 million, beating estimates by a solid 3.9%. The company’s Q1 revenue guide also beat estimates by 1%.
The company reported a record new annual contract value (ACV) in Q4, which grew by nearly 50% YoY and was the fastest growth rate since 2021. Q4 remaining performance obligations (RPO) grew by 48% YoY and was the fastest growth rate since June 2022. Similarly, paying customers grew by 40% YoY and accelerated by 7 percentage points from 33% growth in the previous quarter. Notably, active developers on the Workers platform grew by 50% YoY to 4.5 million.
Faster and Cheaper for Inference compared to Hyperscalers
Cloudflare has strong positioning at the network edge for handling connectivity, security and real-time edge execution – all needed for the inference stage of AI. Therefore, companies are layering in and adding Cloudflare while also remaining with hyperscalers, which specialize more in compute and perform better in certain regional zones.
Many of the wins that Cloudflare highlighted in the opening remarks are from customers that use the Big 3 yet still chose Cloudflare for its time-to-deployment advantages and easier billing structure.
Here is how management described it: “The hyperscalers are in the business of buying machines and then renting them back so that they basically get 5x what they paid for them over the course of their useful life. And again, it's a great business for them, but it's not the business that Cloudflare is in. Cloudflare is in the business of getting work done. And so what we are constantly doing is having research teams inside of Cloudflare figure out how you can run AI workloads significantly more efficiently. The hyperscalers is actually have no incentive to do that. They don't want AI workloads to be more efficient because that just means you have to lease fewer machines from them. Whereas we — because we only charge you for the actual work that's getting done, that means that we're just getting oftentimes as much as 10x the amount of work off of the same GPU that you might get with a hyperscaler. That advantage is part of how we're able to just bring much more out of the CapEx that we spend than others are.”
Over two years ago, I wrote a deep dive on Cloudflare entitled “Bringing AI Inference to the Edge.” The analysis connected important dots on how Cloudflare attracts business despite the highly competitive arena of cloud infrastructure. Here’s an excerpt:
“With Cloudflare’s serverless approach, developers pay for the Javascript runtime once, and then are able to run more scripts without additional costs […] Cloudflare eliminated cold starts entirely with its Workers platform. There are a few milliseconds where Cloudflare can have Workers runtime load a hostname before a TLS certificate is sent back and the original encrypted request is sent. By the time the HTTPS protocol is ready to send secure data between a browser and a website, Cloudflare has the Worker runtime warm. This means Worker executes code the minute the request is received.
What’s crazy is that Cloudflare rolls out features that exceed hyperscaler performance at minimal cost. It is this combination of competing with the hyperscalers, delivering app performance at faster speeds — while keeping prices low — that is unique to Cloudflare.”
The advantages pointed out in the October 2023 analysis as to how combining a CDN, reverse proxy, zero-trust and a serverless platform can lead to strong edge performance was echoed again tonight with management stating: “Despite an incumbent offering significant discounts to keep the business, this customer chose Cloudflare because of our next-generation architecture and workers' developer platform, which allowed them to customize their edge traffic. We didn't just replace 3 incumbents we replaced a legacy mindset proving once again that when you give developers the best tools, the entire enterprise follows.”
Flywheel driven by AI Agents
Cloudflare’s CEO buried the lead a bit in the opening remarks, finally stating what is perhaps the most important element to his quarter’s beat: AI Agents. Although the key metric was provided for January, it’s clear that Cloudflare is seeing a strong inflection: “Over the month of January alone, the number of weekly requests generated by AI agents more than doubled across the Cloudflare network. This is driving increased demand for our whole platform.”
According to management, this creates a “virtuous flywheel” as more agents drive more code execution on their Workers Platform, which in turn, drives more demand for their security products and networking services.
AI agents also drive sheer infrastructure consumption for Cloudflare as agents look at many more sites and are always-on – which leads to more overall usage.
Here was some commentary from the earnings call:
“You've got a bunch of the agents of the world that are interacting with the Internet and they're interacting with it at a volume that we've just never seen before. And that's just driving more need for what are classically Cloudflare’s services. So the fact that more than 20% of the Internet sits behind us means that the agents have to interact with us, which means we have a seat at the table in defining exactly what the rules and the rails and the guardrails of the future of agentic commerce is going to look like; and be, and we are sitting in the middle of that.”
How Capex Compares to Hyperscalers
Cloudflare’s model is less capital intensive because the edge network architecture shares infrastructure across many workloads. Therefore, their servers don’t sit idle. Another major difference is that Cloudflare charges for execution, rather than pricing based on customers' reserving capacity, which results in optimized runtimes and higher utilization.
The latency sensitive, short bursts that inference needs is well aligned with Cloudflare’s shared edge infrastructure and execution-based pricing. The higher utilization also avoids the very high capex burden associated with reserving GPUs per customer.
Although Cloudflare’s operating margin is ticking down, capex relative to revenue growth is better than hyperscalers. The company’s Q4 capex grew by 14.3% YoY to $91 million. Microsoft’s capex in Q4 grew by 65.9% YoY to $37.5 billion in Q4. While, Microsoft’s Q4 revenue grew by a mere 16.7% YoY to $81.2 billion. Cloudflare’s Q4 revenue grew by a stunning 33.6% YoY to $614.5 million. Capex as a percentage of revenue was only 14.8% for Cloudflare compared to 46.1% for Microsoft.
Cloudflare’s Q4 operating cash flow grew by 49.6% YoY to $190.4 million with an operating cash flow margin of 31%, up 3 percentage points YoY. Similarly, free cash flows grew by 108% YoY to $99.4 million with a free cash flow margin of 16%, up 6 percentage points YoY.
The company had cash and available-for-sale securities of $4.1 billion, while convertible senior notes outstanding were $3.27 billion at the end of Q4 2025.
Financials
Q4 Revenue Growth of 33.6%
Cloudflare reported the strongest revenue growth since Q1 2023. The company’s Q4 revenue grew by 33.6% YoY and 9.3% QoQ to $614.5 million, beating estimates by a solid 3.9%. Revenue growth accelerated 2.9 percentage points from 30.7% growth in Q3 and was primarily driven by strong AI demand for its services, particularly from its enterprise customers. The company guided Q1 revenue of $620 million to $621 million, implying a YoY growth of 29.5% YoY and 1% QoQ and beating estimates by 1%.
The company’s co-founder and CEO Matthew Prince highlighted the strong AI demand in the earnings call. “We are seeing the shift to AI and agents drive more demand for Cloudflare services. What we're witnessing is a fundamental replatforming of the Internet. AI is driving a paradigm shift in how software is both created and consumed, and that is turning out to be the biggest tailwind for Cloudflare's network and Workers developer platform.
If you look at the last 30-plus years of the Internet and software ecosystem, they were built for human consumption, people in seats and clicks. Now the agentic Internet is emerging, and we can already see its trends. If humans looked at 5 sites when they were making a decision, agents might look at 5,000.”
The company 2025 revenue grew by 29.8% YoY to $2.17 billion. Management provided a strong 2026 revenue guide of $2.785 billion to $2.795 billion, implying a YoY growth of 28.7% and beating estimates by 1.8%.
Key Metrics Strengthen, Aided by Enterprise Transition
Cloudflare reported a record new annual contract value (ACV) in Q4. Matthew Prince said in the earnings call, “We blew away our previous record for new ACV in the quarter, with strong year-over-year and quarter-over-quarter acceleration. In Q4, new ACV book grew nearly 50% year-over-year, making it not only a record quarter in absolute ACV dollars but also the fastest growth rate we've delivered since 2021.”
Cloudflare signed the largest annual contract in the company’s history of $42.5 million and management attributed the success to the company’s go-to-market sales strategy. Some of the other customers win this quarter include a leading AI company expanding their relationship with Cloudflare, selecting Cloudflare as their single long-term infrastructure provider with 100% traffic allocation. Another leading AI company expanded their relationship with Cloudflare, signing a 1-year $5.4 million contract for the Workers developer platform and application services. A Fortune 100 technology company expanded their relationship with Cloudflare, signing a 3-year $5.8 million contract, representing a notable upsell from their initial engagement with the company in mid-2025. While a Fortune 500 technology company expanded their relationship with Cloudflare, signing a 2-year $45 million pool of funds contract.
RPO growth of 48% YoY, fastest since June 2022
Q4 remaining performance obligations (RPO) grew by 48% YoY and 16% QoQ to $2.496 billion, accelerating from 43% YoY and 8% QoQ growth in Q3. It was the fastest growth rate since June 2022. Current RPO was 63% of total RPO and grew 34% YoY.
Customers Grew by 40% YoY
Q4 total customers grew by 40% YoY and 12% QoQ to 332,466. Customer growth accelerated by 7 percentage points from 33% growth in Q3 and 10% QoQ. The company is witnessing a transition from the free tier to small paid accounts, particularly for the developer platform products.
Cloudflare’s enterprise cohort, or customers contributing >$100K ARR grew by 23% YoY to 4,298. Revenue contribution from large customers was 73% of revenue during Q4, up from 69% in the fourth quarter last year. Revenue from large customers grew by 41% YoY and 9% QoQ to $448.6 million in Q4.
The company’s largest customers (spending over $1 million) grew by 55% YoY to 269 and added a record of 96 $1 million-plus customers in 2025.
DBNRR of 120%
The company’s continued significant expansion with the largest customers drove an acceleration in the Dollar-based net retention rate (DBNRR) to 120% in Q4, up 1% sequentially and 9% YoY. It was the highest rate since Q4 2022.
Q4 Billings Growth of 27%
The company’s billings grew by 27% YoY and 11% QoQ to $694.9 million. Among the key metrics, billings growth was blemish as it decelerated from 40% YoY and 12% QoQ growth in Q3.
Margins
Q4 gross profits grew by 28.8% YoY to $452.5 million. Adjusted gross profits grew by 29% YoY to $460.18 million with an adjusted gross margin of 74.9%, down 270 basis points YoY and 40 basis points sequentially due to higher network expenses from the increase of paid customer traffic.
Q4 operating loss was ($49.2 million) compared to ($34.7 million) in the same period last year. Adjusted operating income grew by 33.3% YoY to $89.6 million with an adjusted operating margin of 14.6%, which was flat YoY and down 70 basis points sequentially and beat the guidance by 40 basis points. Management Q1 guide is 11.4%. The company reported $132.4 million in stock-based compensation in Q4, which explains the difference between GAAP and non-GAAP operating income.
Q4 net loss was ($12.1 million) compared to ($12.8 million) in the same period last year. Q4 adjusted net profit grew by 55.2% YoY to $106.8 million or 17.4% of revenue compared to 15% in the same period last year.
Q4 Adjusted EPS grew by 47.4%
The company’s Q4 adjusted EPS grew by 47.4% YoY to $0.28, beating estimates by 3.2%. GAAP EPS was in line with estimates of ($0.03) compared to ($0.04) in the same period last year.
Management Q1 adjusted EPS guide of $0.23 was lower than the estimates of $0.25. However, it implies a YoY growth of 43.8%.
Conclusion:
The quarter combined accelerating growth, improved profitability and enterprise deal flow to help support our multi-year thesis that Cloudflare’s distributed edge architecture offers a unique advantage for AI inference workloads.
Agent-driven traffic is growing faster than human-driven usage, generating orders of magnitude more requests. This dynamic creates a powerful flywheel: more agents drive more Workers execution, which in turn increases demand across Cloudflare’s security and networking stack. Unlike prior growth cycles tied to seats or licenses, this model scales directly with usage.
As we patiently wait for the inference stage to arrive, Cloudflare will benefit – not by outspending hyperscalers on capex, but by extracting more value from every layer of internet traffic that flows through its network.
Royston Roche, Equity Analyst at I/O Fund contributed to this article.
Please note: The I/O Fund conducts research and draws conclusions for the Fund’s positions. We then share that information with our readers. This is not a guarantee of a stock’s performance. Please consult your personal financial advisor before buying any stock in the companies mentioned in this analysis.
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