Bernstein: Cloudflare: AI coding drives Workers growth, while near-term slowdown in traditional business and high valuation remain constraints

Why was the fourth-quarter revenue forecast lowered first?

AWS web activity indicators tracked by Bernstein were weaker than previously expected, so the firm lowered its fourth-quarter revenue model for Cloudflare by more than $20 million from its prior forecast. It believes the slowdown most directly affects third-quarter net new annual recurring revenue (ARR) and fourth-quarter revenue.
The firm estimates that more than eighty percent of Cloudflare's revenue comes from its traditional business, which it calls Act I, with pricing tied to the scale of workloads put into production. AI projects consuming budgets too quickly in early summer and attention being diverted by cybersecurity issues related to code patches in early autumn could both slow project launches.
Proxy indicators improved early in the fourth quarter, leading Bernstein to assume that quarter-on-quarter growth will return to a more normal level starting in the first quarter of 2027. However, Workers' growth can only partially offset the near-term slowdown; the firm expects fourth-quarter year-on-year revenue growth to slow by about 1.5 percentage points, still affected by a higher year-earlier base.

Workers is Cloudflare's serverless application platform. Bernstein observes that AI coding agents tend to recommend this application architecture, and the projects they generate subsequently need infrastructure for deployment and maintenance; Workers and Vercel are leading choices.
Some platforms directly designate Cloudflare as a deployment destination: the report says OpenAI's ChatGPT Sites uses Workers, and coding platforms such as Loveable also make it the default option; other development environments guide users toward it through recommendations.
Usage signals are strengthening: interactive visits to projects hosted on workers.dev have grown about 300% since the fourth quarter of 2025, and downloads of Workers-related npm packages have roughly doubled quarter on quarter. Bernstein estimates that Workers' ARR may have exceeded $300 million in the third quarter of 2026.

Bernstein has recast Workers from a product growing in line with the overall business to a primary growth engine, forecasting ARR of $1 billion to $1.5 billion by the end of 2028 and an increase of about 7 percentage points in the company's revenue growth rate in 2028 and beyond.
In the firm's model, Cloudflare's revenue is about $2.947 billion in 2026, rising to $4.151 billion in 2027, up about 41% year on year; this also depends on the non-Workers business returning to a more normal pace of growth.
Workers is not the only option. Bernstein estimates Vercel's current ARR is about twice that of Workers, its product offering is broader, and its AWS architecture lets customers pin workload execution to specific regions.
Growth in traffic from consumers using AI agents may not translate proportionately with bandwidth into Cloudflare revenue; Bernstein cautions that such traffic could instead put pressure on margins.

Bernstein raised its price target from $181 to $245 and maintained its market-perform rating. The target remains about 23% below the $318.72 closing price on 28 October 2026.
The firm calculates its target price by giving equal weight to discounted cash flow and a model using a forward price-to-sales multiple of 22 times; improved growth expectations support a higher valuation, but the report says Cloudflare's valuation at the time remained high relative to growth peers.