Photo Credit: Leszek Stepien from Pixabay

Cloud infrastructure provider Cloudflare (NYSE: NET) recently announced its second quarter results that outpaced market expectations. This was a milestone quarter as the company crossed the $2 billion annualized run rate mark. The results sent the stock soaring 5% in the after-hours trading session.

Cloudflare’s Financials

Revenues for the second quarter grew 28% to $512.3 million, ahead of the Street’s estimates of $501.6 million. Adjusted EPS of $0.21 was also ahead of analyst estimates of $0.18.

For the third quarter, Cloudflare forecast revenues of $543.5-$544.5 million and an adjusted EPS of $0.23. The market was looking for revenues of $538.6 million and an EPS of $0.21. It expects to end the year with revenues of $2.11-$2.12 billion and an EPS of $0.85-$0.86. The market was looking for revenues of $2.1 billion and an EPS of $0.80 for the year.

Cloudflare’s AI Focus

Cloudflare is focused on adapting to the AI market. Last month, it announced new capabilities for Cloudflare One, its Zero Trust platform. The enhancements are focused on helping organizations securely adopt, build, and deploy generative AI applications. The new features enable Cloudflare to provide customer with the ability to automatically understand, analyze and set controls on how generative AI is used throughout their organization.

As the overall adoption of AI increases across teams, there is a need for improved security. Cloudflare’s AI Security Posture Management (AI-SPM) has been embedded into the Zero Trust platform to allow organizations to safeguard against a range of potential threats. The e-service will allow organizations to see how employees are using AI, block unapproved AI applications, limit the type of content provided to these AI applications, identify potentially risky employee interactions with AI models, and improve control and access management across the tools.

Additionally, Cloudflare has also become the first Cloud Access Security Broker (CASB) to integrate with all three of the leading gen-AI tools including ChatGPT Enterprise, Claude by Anthropic, and Google Gemini. With these integrations, Cloudflare customers get access to the benefits of all these generative AI applications used to strengthen enterprise AI security.

Cloudflare’s CASB continuously scans ChatGPT Enterprise, Claude, and Google’s Gemini platforms to protect customers’ sensitive data through automated and real-time visibility and proactive alerts, thus providing security teams with greater control and confidence that company data remains compliant and protected while employees use AI tools.

Earlier this summer, Cloudflare had introduced the concept of paywalls for AI scrapers. It has not divulged many details about the adoption of the service. Cloudflare remains outspoken about the way AI companies are harvesting content and wants to address the issue of search engines like Google answering user queries without requiring users to visit websites providing the content for the search results. Cloudflare recently announced another approach to addressing the issue.

It is working with Microsoft on a possible solution by integrating Microsoft’s new NLWeb (natural language web) standard with Cloudflare’s AutoRAG feature. NLWeb has been developed by Microsoft to allow websites to provide natural language answers directly on their own pages.

Cloudflare’s AutoRAG (automatic retrieval-augmented generation), currently in beta stage, automatically indexes a website’s content and stores it in a vector database. Cloudflare’s AutoRAG will maintain a vector database for the user’s site thus reducing the barriers to entry as building such a system requires technical expertise and infrastructure. It is not clear how Cloudflare’s solution will truly eliminate the need for Google search. Users could still go to search engines, or AI-engines and get their answers instead of needing to go to content websites.

Cloudflare’s stock is currently trading at year high levels of $217.92 with a market capitalization of $75.9 billion. It has been climbing from the 52-week low of $74.88 that it had fallen to a year ago.

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