NET Earnings Recap
Beat 6 of last 7 quarters
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Cloudflare's results underscore the accelerating shift to agentic AI traffic, with nonhuman traffic now exceeding human traffic on its network. The company's position as the 'agent cloud' — with its Workers platform, Zero Trust security, and new monetization rails — positions it as a critical layer in the AI infrastructure stack, potentially displacing traditional hyperscaler workloads. Its disciplined approach to CapEx contrasts with the hyperscaler arms race, suggesting a differentiated model for the AI buildout.
Cloudflare delivered a strong Q2 with revenue of $696.1M (+36% YoY), beating consensus, and EPS of $0.29, also beating. The company added a record 986 large customers (>$100k ARR) YoY, reaching 4,698, and saw DBNR accelerate to 120%. Gross margin improved sequentially for the first time in 8 quarters to 73.1%, and operating margin expanded to 13.8%. Free cash flow was $56.4M, up 69% YoY, though impacted by $99M in restructuring cash payments. The company also saw record developer growth, adding ~2M developers in the quarter, and noted that for the first time, more than 50% of traffic on its network is nonhuman.
Management raised full-year 2026 revenue guidance to $2.864B–$2.870B (32% YoY growth) and operating income to $443M–$445M, while noting the business is tracking ahead of Investor Day targets. They expect gross margin to stabilize around current levels but emphasized that total unit economics will expand through the second half. The company is leaning into the agentic AI opportunity, with plans to build out the agentic marketplace (Monetization Gateway, wallets, cloudflare.pay) and expects nonhuman traffic to grow to 1,000x human traffic within five years. Management also highlighted that over 80% of major AI companies are Cloudflare customers and that new monetization tools like cloudflare.pay will enable microtransactions for agent traffic.
“For the first time in human history, in Q2, more than 50% of the traffic flowing across Cloudflare's network was not human.”
on Agentic traffic milestone
“We're in the right moment in time, and we are keeping our foot firmly on the gas.”
on Business momentum
“The business model of the Internet for the last 27 years has been largely defined by advertising and really defined by Google. I think the business model of the next 27 years of the Internet is going to be very different, and there's no company in a better position to define what it looks like than Cloudflare.”
on Agentic commerce vision
Do you see the changing traffic profile driving more new logos or existing customers buying more? And is it driving more business with large or small customers?
Matthew Prince noted that nonhuman traffic crossed 50% in May, earlier than expected, and could reach 1,000x human traffic in 5 years. He said Cloudflare blocks malicious or unwanted traffic for free, but also helps customers who want to serve that traffic efficiently. He highlighted that over 80% of major AI companies are Cloudflare customers and that new monetization tools like cloudflare.pay will enable microtransactions for agent traffic.
At what point do you see a security opportunity around securing agents themselves, and what does the security portfolio for agent orchestration look like?
Matthew Prince said the opportunity is already here, with enterprises calling about doing AI more securely. He noted that Cloudflare's SASE/Zero Trust is gaining share because it addresses agents, not just human seats, and cited a government agency that canceled an RFP with a first-generation Zero Trust vendor after realizing they hadn't thought about agents.
Why did you decide not to participate in the AI CapEx arms race, and is rising cyber risk hitting the financial model in Q2 or more of a back-half thing?
Matthew Prince said not all revenue is created equal and that selling commodity compute is not attractive. He emphasized Cloudflare's focus on efficiency, getting 10x utilization out of CapEx dollars, and building high-quality revenue. Thomas Seifert added that the strength in Q2 was broad-based across products, customers, and contract types, and that cyber risk is a tailwind.