Cloudflare’s AI Edge: Driving Demand Without Eating GPU Costs

Date of Call: Feb 10, 2026

Financials Results

• Revenue: $614.5M, up 34% YOY
• EPS: $0.28 per diluted share
• Gross Margin: 74.9%, down 270 basis points YOY
• Operating Margin: 14.6%, consistent YOY

Guidance:

• Q1 revenue expected to be $620M-$621M, up 29%-30% YOY.
• Q1 operating income expected to be $70M-$71M.
• Q1 diluted EPS expected to be $0.23.
• Full year 2026 revenue expected to be $2.785B-$2.795B, up 28%-29% YOY.
• Full year 2026 operating income expected to be $378M-$382M.
• Full year 2026 diluted EPS expected to be $1.11-$1.12.
• Revenue expected to be weighted 46% in the first half of the year.

Business Commentary:

Revenue and Customer Growth:

• Cloudflare reported $614.5 million in revenue for Q4 2025, up 34% year-over-year.
• The company now has 4,298 customers paying more than $100,000 per year, up 23% year-over-year.
• Revenue from large customers grew 42% year-over-year, contributing 73% of total revenue.
• The growth was driven by a significant increase in new ACV, with a nearly 50% year-over-year acceleration, and strong demand for enterprise sales.

Gross Margin and Operating Profit:

• Cloudflare's gross margin was 74.9%, just below its long-term target range of 75% to 77%.
• The company delivered an operating profit of $89.6 million, representing an operating margin of 14.6%.
• Strong free cash flow of $99.4 million was generated during the quarter.
• The gross margin decrease was due to increased network expenses, while operating profit and free cash flow were bolstered by strong sales productivity and efficient cost management.

AI and Developer Platform Growth:

• Cloudflare's Workers developer platform saw outsized growth, with more than 4.5 million human developers active on the platform by the end of 2025.
• AI usage is driving adoption of Cloudflare's Zero Trust platform and increasing demand for its entire platform.
• The rise in AI agents is creating more demand for Cloudflare's services, as they generate an order of magnitude more outbound requests to the web compared to traditional user-driven applications.

Large Deal Wins and Strategic Expansion:

• Cloudflare closed its largest annual contract value deal of $42.5 million per year and signed a $130 million multi-year deal earlier in the year.
• The company expanded relationships with leading AI companies, including a $85 million pool of funds contract and a $5.4 million contract for its Workers developer platform.
• These wins were attributed to Cloudflare's strategic neutrality, superior performance, and engineering innovation compared to competitors.

Sentiment Analysis:

Overall Tone: Positive

• We had a terrific quarter... achieving $614.5 million in revenue, up 34% year-over-year. Our go-to-market engine is firing on all cylinders... I wouldn't trade places with any CEO of any other company... the strength in our fourth quarter and full year results reinforces our conviction in our strategy.

Q&A:

• Question from Matthew Hedberg (RBC Capital Markets): In the short term, how do AI agents impact Cloudflare? And how are you providing the picks and shovels for this agentic infrastructure without absorbing all the GPU costs that some hyperscalers are?
  Response: AI agents drive more demand for Cloudflare's network and services, as they interact with the Internet at unprecedented volumes. Cloudflare's business model is more capital-efficient, charging for actual work done rather than leased machines, achieving 10x the work per GPU compared to hyperscalers.

• Question from Keith Weiss (Morgan Stanley): Can you talk about the evolution in Internet traffic due to agents and where newer acquisitions like Human Native and Astro fit into that vision?
  Response: Acquisitions like Human Native and Astro help Cloudflare think about the future business model of the Internet and build next-gen web frameworks. Cloudflare's ability to rewrite content and bring legacy services into the future positions it to make the transition seamless for all businesses.

• Question from Jonathan Ho (William Blair): Can you give examples of how companies are using Cloudflare Workers for AI projects and why they pick Cloudflare over hyperscaler platforms?
  Response: Companies use Cloudflare Workers for AI-assisted tools, secure sandboxed execution, and MCP servers. Developers choose Cloudflare for its complete modern toolkit, cost-effectiveness, and ability to scale infinitely without upfront GPU commitments.

• Question from Gabriela Borges (Goldman Sachs): How is the pipeline trending for large deals, and what are you learning from recent large deals to improve conversion?
  Response: The pipeline is incredibly strong, driven by deep customer relationships and demonstrating Cloudflare's ability to deliver faster, more scalable, and cost-effective solutions. Success will continue to grow as the company scales its sophisticated go-to-market organization.

• Question from Fatima Boolani (Citigroup): What is the next phase for pool of funds contracts, and how should we think about higher variability in revenue forecasting?
  Response: Pool of funds represents customer trust for a broad set of tools; it is still a low percentage of revenue but growing quickly. Higher share of variable revenue may cause sequential volatility, with bigger Q4s and smaller Q1s expected.

• Question from Gray Powell (BTIG): Can you talk more about increased need for core application services as customers deploy AI and the growth profile there?
  Response: Demand for core application services has increased as AI companies need security and load management, and traditional companies face an order-of-magnitude uptick in agent queries. AI is a tailwind for all of Cloudflare's product lines, including legacy services and Zero Trust.

• Question from Shrenik Kothari (Robert W. Baird): Can you share early feedback on adoption of opt-out controls to block AI scraping and the evolution of a marketplace model?
  Response: Cloudflare is acting as a neutral broker between content creators and AI companies, helping establish a fair ecosystem where creators can be paid. 2026 will focus on defining the future business model, with Cloudflare's trusted position advantageous over hyperscalers.

• Question from Adam Borg (Stifel): What are the channel priorities for 2026, especially for driving Act 2 and Act 3?
  Response: Channel-first strategy is critical for scaling enterprise sales. Improvements in product complexity and quoting processes in 2025 have made channel partners more effective, and success is expected to continue in 2026.

• Question from Jackson Ader (KeyBanc Capital Markets): How are you thinking about hiring direct salespeople if demand signals continue, given a channel presence?
  Response: The channel makes Cloudflare more nimble, not less. It provides leverage to the internal sales teams, and the company will continue to add sales capacity while using the channel to accelerate growth independently.

Contradiction Point 1

Revenue Concentration Risk from AI-Native Companies

Assessment of risk changes from "de minimis" to a more significant, unnamed but growing share.

What is the pipeline trend for large deals, and what are the key learnings to improve conversion? - Gabriela Borges (Goldman Sachs Group, Inc.)

2025Q4: The pipeline is incredibly strong... Cloudflare sees a massive total addressable market for its Workers platform. - Matthew Prince(CEO)

What is Cloudflare’s current exposure to AI-native companies, and how much of recent "pool of funds" growth is driven by these companies due to Cloudflare’s architectural differentiation for AI inference? - Fatima Boolani (William Blair)

20251031-2025 Q3: AI-native companies are still a 'de minimis' portion of revenue, with no single customer exceeding 2% of total revenue, so there is no current concentration risk. - Matthew Prince(CEO)

Contradiction Point 2

Impact of Pool-of-Funds Model on Revenue Forecasting

Guidance approach shifts from incorporating variability to assuming linear recognition.

What's next for the "pool of funds" model and how will it affect revenue forecasting volatility? - Fatima Boolani (Citigroup Inc.)

2025Q4: A higher share of pool-of-funds deals increases revenue variability. Cloudflare compensates for this in guidance. - Thomas Seifert(CFO)

What drove the 43% year-over-year increase in RPO, the highest since 2022? - Matthew Hedberg (RBC Capital Markets)

20251031-2025 Q3: The increase in RPO is attributed to... increased consumption of 'pool of funds' contracts... This shift is evidenced by... growth in large customer cohorts. - Matthew Prince(CEO) & Thomas Seifert(CFO)

Contradiction Point 3

Revenue Recognition Model and Seasonality

Contradictory statements on revenue predictability and seasonality impact.

What are the next steps for the "pool of funds" contracting model and how will it affect revenue forecasting volatility? - Fatima Boolani (Citigroup Inc.)

2025Q4: A higher share of pool-of-funds deals increases revenue variability. Cloudflare compensates for this in guidance. Sequential revenue patterns will likely show bigger Q4s and smaller Q1s compared to linear recognition deals. - Thomas Seifert(CFO)

How has the pipeline developed over the year, and what expectations are there for an enterprise-focused Q4 compared to typical quarters? - Jackson Ader (KeyBanc Capital Markets Inc.)

2025Q3: The Q4 guidance reflects an encouraging pipeline buildup, but the forecast considers multiple factors... Historically, Q4 has performed well, and the team feels good about coverage for the quarter. - Thomas Seifert(CFO)

Contradiction Point 4

Monetization and Business Model for the Agentic Web

The description of the business model's current state and Cloudflare's role in it has shifted significantly.

How is Internet traffic evolving with AI agents, what's next, and how do acquisitions like Human Native and Astro align with Cloudflare's vision? - Keith Weiss (Morgan Stanley)

2025Q4: Cloudflare aims to invent the next business model of the Internet and bring the legacy web along... The focus is on making tools like agentic commerce accessible to small businesses. - Matthew Prince(CEO)

Could you clarify the Agentic Web's business model, the customer models you aim to enable, and how Cloudflare monetizes them? - Keith Weiss (Morgan Stanley)

2025Q2: The business model is still emerging and will likely go through iterations.... It is too early to model the exact revenue impact, and the current priority is driving adoption. - Matthew Prince(CEO)

Contradiction Point 5

Impact and Management of "Pool of Funds" Deals

The characterization of pool-of-funds deals' revenue impact and the company's ability to forecast them has changed.

What is the next phase for the "pool of funds" contracting model and how will it impact revenue forecasting volatility? - Fatima Boolani (Citigroup Inc.)

2025Q4: The pool of funds represents customer trust in Cloudflare's broad future toolkit... It is still a small but growing revenue share... - Matthew Prince(CEO)

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2025Q2: Cloudflare is tracking on or slightly ahead of targets for these deals. The execution on pool of funds is maturing, allowing the company to 'harvest the tailwinds,' with variable revenue from consumption being a significant contributor to the outperformance in Q2... - Thomas Seifert(CFO)