Assessing Short Interest and Analyst Optimism: Is Cloudflare (NET) a Buy in 2026?

In the ever-shifting landscape of technology investing, contrarian strategies often thrive when market sentiment diverges from fundamental realities. Cloudflare (NET), a leader in cybersecurity and internet infrastructure, presents a compelling case for such an approach. As of December 2025, the stock faces rising short interest-a sign of bearish bets-yet enjoys robust analyst optimism and strong earnings momentum. This article examines whether these conflicting signals position Cloudflare as a buy in 2026, balancing contrarian indicators with growth potential.

Short Interest: A Contrarian Indicator with Caveats

Short interest in Cloudflare has risen to 9.69 million shares as of December 15, 2025, representing 3.10% of the public float and a 6.13% increase from the prior report. This equates to a days-to-cover ratio of 4.9, meaning short sellers would need nearly five days of average trading volume (1.71 million shares) to liquidate their positions. Institutional investors, including Tudor Investment Corp and Verition Fund Management, have amplified this bearish sentiment.

While elevated short interest often signals skepticism, Cloudflare's 3.10% ratio remains moderate compared to peers like Palo Alto Networks and Zscaler. This suggests short sellers are not overwhelmingly bearish but rather hedging against potential volatility. However, the risk of a short squeeze looms: if the stock price rises sharply, forced buying to cover short positions could accelerate upward momentum. Such scenarios often play out in stocks with strong fundamentals, making Cloudflare a potential candidate for contrarian bets.

Analyst Optimism and Earnings Momentum: A Bullish Counterpoint

Contrary to short sellers, analysts have overwhelmingly endorsed Cloudflare's long-term prospects. The stock carries a consensus Buy rating, with 25% of analysts recommending a Strong Buy and 39% a Buy. The average price target stands at $242.68, with some estimates reaching as high as $253.27. This optimism is rooted in Cloudflare's Q3 2025 earnings report, which revealed revenue of $562 million-a 31% year-over-year increase-and non-GAAP EPS of $0.27, exceeding expectations.

The company's guidance for Q4 2025 and full-year 2025 further underscores its strength. Cloudflare now projects Q4 revenue of $588.5–$589.5 million and full-year revenue of $2.14 billion, both above consensus estimates. Key drivers include a 23% year-over-year growth in large customers (those spending over $100,000 annually), who now account for 73% of total revenue. Strategic partnerships with a Global 2000 digital media platform and a European tech giant have also bolstered enterprise sales.

Financial health adds to the bullish case. Cloudflare's free cash flow exceeded expectations at $75 million, and while gross margins dipped slightly to 75.3% sequentially, this reflects a shift toward higher-paying customers-a positive trend for long-term profitability. Analysts from RBC and Stifel have raised price targets, citing the company's "strong go-to-market execution" and potential to reach a $3 billion revenue run rate by Q4 2026.

Contrarian Logic: Balancing Bearish and Bullish Signals

The interplay between short interest and analyst optimism creates a nuanced picture. On one hand, rising short positions suggest lingering doubts about Cloudflare's ability to sustain growth in a potentially slowing economy. On the other, the stock's strong earnings, revenue guidance, and expanding customer base indicate a company well-positioned to capitalize on AI-driven innovation and digital transformation trends.

For contrarian investors, the key lies in timing. A short squeeze could act as a catalyst, pushing the stock higher as short sellers scramble to cover positions. This scenario becomes more plausible if Cloudflare continues to outperform expectations, as seen in its Q3 results and Q4 guidance. Additionally, the stock's moderate short interest (relative to peers) implies that bears are not yet in full control, leaving room for a reversal if fundamentals continue to outpace pessimism.

Conclusion: A Buy for the Long-Term, With Tactical Caution

Cloudflare's 2026 outlook hinges on its ability to maintain momentum in a competitive market. While short interest reflects caution, the company's financial performance and analyst ratings paint a picture of resilience and growth. For investors with a multi-year horizon, the stock offers exposure to a critical sector-cybersecurity and cloud infrastructure-with a business model that benefits from secular trends like AI adoption and enterprise digitalization.

However, tactical caution is warranted. Short sellers may yet prove correct if macroeconomic headwinds intensify, but the current data suggests that Cloudflare's fundamentals are robust enough to withstand such pressures. In a market where contrarian opportunities are rare, Cloudflare (NET) emerges as a compelling buy-provided investors are prepared to ride out near-term volatility in pursuit of long-term gains.