Cloudflare: building the roads, bridges and tolls of the internet

Image generated by AI

As with any investment, your capital is at risk.

“We make anything connected to the internet – and when I say anything, I really mean anything – faster, safer and more reliable. We help build the backbone and infrastructure: the roads and bridges of the internet that make everything work. We kind of take these for granted in cities, and when they don’t work, it’s frustrating. We do this in the digital space.” – Matthew Prince, CEO

We first met Cloudflare in 2015, when it was still private. Its mission was already clear: to build a better internet. At the time, most websites relied on single servers that could quickly overload under heavy traffic.

Cloudflare was pioneering a different approach, distributing content across many locations to deliver it closer to users, faster and more reliably. Our note from that meeting ended simply: “We should keep an eye out.”

We did. Following Cloudflare’s initial public offering in 2019, LTGG initiated a holding in 2020. Our thesis then was straightforward: if Cloudflare could turn the internet’s basic connections into a network where applications also run, providing a distributed alternative to the centralised servers of the big cloud platforms, the potential upside could be dramatic.

Building a global network

Even through the lens of LTGG’s natural optimism, that now looks conservative. In the five years since, Cloudflare has grown into one of the most ambitious infrastructure companies in the digital economy.

Its network now spans 330+ cities in 125 countries, reaching 95 per cent of internet users within around 50 milliseconds. That proximity matters. Like roads built closer to homes and businesses, lower latency allows faster load times, smoother applications, and a more seamless digital experience.

Scale alone, however, does not ensure outlier potential. For LTGG, one of the most powerful routes to success is adaptability: the ability to unlock entirely new acts of growth. Few companies embody this better than Cloudflare.

Acts I-III: Defend. Deliver. Develop. 

Its first act was about security. Its reverse proxy blocked malicious traffic and denial-of-service attacks, giving even the smallest start-ups access to Fortune 500-grade resilience.

Next came secure connectivity. With Zero Trust services, Cloudflare replaces costly hardware with cloud-native security. What once required routers, private lines, and on-premise boxes can now be accessed securely from anywhere.

Its third act empowers developers with Cloudflare Workers: a serverless platform that allows applications to run directly on its global network. Unlike the hyperscalers’ centralised data centres (such as Amazon Web Services and Google Cloud Platform), Cloudflare’s distributed architecture offers speed, cost efficiency and compliance advantages.

These benefits are especially evident in AI inference – the process of running AI models to generate answers or actions – where responsiveness and local data handling are critical. These acts have broadened Cloudflare’s scope, deepened its moat, and set the stage for what comes next.

Act IV: reshaping the internet economics in the AI era

If Act III is about powering developers, Act IV is about shaping the rules of the digital economy.

Artificial intelligence is already unsettling many traditional SaaS business models (where companies charge recurring subscription fees for software delivered over the internet). If AI can automate tasks or compress entire workflows, why continue paying recurring fees for narrow tools? Incumbents risk seeing their moats eroded.

For Cloudflare, however, the story could be different.

Every AI system depends on fast, secure and widely distributed networks to move data and run inference at scale. Rather than being undermined, Cloudflare’s role as infrastructure becomes more essential.

AI also upends the long-standing bargain between websites and search engines. In the past, content could be ‘crawled’ – automatically scanned and indexed by search engines – in exchange for referral traffic that sent users back to the site. Generative AI, however, goes further. It ‘scrapes’ content, copying it in huge volumes to feed its models, but rarely returns visitors to the source.

Cloudflare’s AI Crawl Control seeks to reset this balance.

Sitting in front of roughly a quarter of the world’s websites, Cloudflare can enforce terms that require AI companies to pay for access. A recently announced partnership with Coinbase adds the possibility of micropayments in stablecoins: effectively tolls for the digital era.

In our recent conversation with Matthew Prince, he described the more interesting opportunity as helping “make the pool smart.” In his view, Cloudflare could allow model makers to assess content quality by asking: “How authoritative is this?” and “Does it fill a hole in my knowledge cheese, or is it more cheese?”

This could evolve into value scores for content, allowing AI models to pay more for material that truly adds knowledge. Looking ahead, Prince also sees these rails extending beyond crawlers to AI agents acting on our behalf, from booking flights to making purchases, with Cloudflare in the middle to manage and monetise those transactions.

For LTGG, the implications extend well beyond Cloudflare. If scraping shifts from being free to something AI platforms must pay for, whole industries may need to rethink their business models.

Advertising could give way to direct compensation from AI platforms, and content might evolve from click-driven headlines to material designed for machine learning. At the same time, Cloudflare’s global network could help decentralise AI, enabling new classes of applications from a much broader base of developers.

For us, these developments raise important considerations about how value is created and captured in the intelligence era and how this could affect companies in our investable universe – questions we continue to explore within the LTGG team.

Why this matters

Despite some trims to the position this year, the outlier potential remains significant. Cloudflare has already moved from protecting websites to securing corporate networks to offering a global developer platform.

The next step could be transformational: becoming a leading AI inference platform while capturing payments for AI scraping. To give a sense of scale, Google processes 3.2 trillion daily searches. If agentic AI multiplies that volume and costs fall sharply, Cloudflare capturing just 10 per cent of the traffic could equate to around $10bn of revenue.

And unlike human search, AI workloads can run continuously. With a quarter of the world’s websites already behind it, even tiny tolls on trillions of automated queries could create a new economic layer for the internet.

If successful, Cloudflare will not just enable the AI economy, it will help govern it. By building the roads and bridges of the internet and setting the tolls for their use, it is positioning itself as both builder and gatekeeper.

Risk factors

The views expressed should not be considered as advice or a recommendation to buy, sell or hold a particular investment. They reflect opinion and should not be taken as statements of fact nor should any reliance be placed on them when making investment decisions.

This communication was originally produced and approved in September 2025 and has not been updated subsequently.

All investment strategies have the potential for profit and loss, your or your clients’ capital may be at risk. Past performance is not a guide to future returns.

This communication contains information on investments which does not constitute independent research. Accordingly, it is not subject to the protections afforded to independent research, but is classified as advertising under Art 68 of the Financial Services Act (‘FinSA’) and Baillie Gifford and its staff may have dealt in the investments concerned.

All information is sourced from Baillie Gifford & Co and is current unless otherwise stated.

The images used in this communication are for illustrative purposes only.

Important information

Baillie Gifford & Co and Baillie Gifford & Co Limited are authorised and regulated by the Financial Conduct Authority (FCA). Baillie Gifford & Co Limited is an Authorised Corporate Director of OEICs.

Baillie Gifford Overseas Limited provides investment management and advisory services to non-UK Professional/Institutional clients only. Baillie Gifford Overseas Limited is wholly owned by Baillie Gifford & Co. Baillie Gifford & Co and Baillie Gifford Overseas Limited are authorised and regulated by the FCA in the UK.

Persons resident or domiciled outside the UK should consult with their professional advisers as to whether they require any governmental or other consents in order to enable them to invest, and with their tax advisers for advice relevant to their own particular circumstances.

Financial intermediaries

This communication is suitable for use of financial intermediaries. Financial intermediaries are solely responsible for any further distribution and Baillie Gifford takes no responsibility for the reliance on this document by any other person who did not receive this document directly from Baillie Gifford.

Europe

Baillie Gifford Investment Management (Europe) Ltd (BGE) is authorised by the Central Bank of Ireland as an AIFM under the AIFM Regulations and as a UCITS management company under the UCITS Regulation. BGE also has regulatory permissions to perform Individual Portfolio Management activities. BGE provides investment management and advisory services to European (excluding UK) segregated clients. BGE has been appointed as UCITS management company to the following UCITS umbrella company; Baillie Gifford Worldwide Funds plc. BGE is a wholly owned subsidiary of Baillie Gifford Overseas Limited, which is wholly owned by Baillie Gifford & Co. Baillie Gifford Overseas Limited and Baillie Gifford & Co are authorised and regulated in the UK by the Financial Conduct Authority.

Hong Kong

Baillie Gifford Asia (Hong Kong) Limited 柏基亞洲(香港)有限公司 is wholly owned by Baillie Gifford Overseas Limited and holds a Type 1 license from the Securities & Futures Commission of Hong Kong to market and distribute Baillie Gifford’s range of collective investment schemes to professional investors in Hong Kong. Baillie Gifford Asia (Hong Kong) Limited 柏基亞洲(香港)有限公司 can be contacted at Suites 2713–2715, Two International Finance Centre, 8 Finance Street, Central, Hong Kong. Telephone +852 3756 5700.

South Korea

Baillie Gifford Overseas Limited is licensed with the Financial Services Commission in South Korea as a cross border Discretionary Investment Manager and Non-discretionary Investment Adviser.

Japan

Mitsubishi UFJ Baillie Gifford Asset Management Limited (‘MUBGAM’) is a joint venture company between Mitsubishi UFJ Trust & Banking Corporation and Baillie Gifford Overseas Limited. MUBGAM is authorised and regulated by the Financial Conduct Authority.

Australia

Baillie Gifford Overseas Limited (ARBN 118 567 178) is registered as a foreign company under the Corporations Act 2001 (Cth) and holds Foreign Australian Financial Services Licence No 528911. This material is provided to you on the basis that you are a “wholesale client” within the meaning of section 761G of the Corporations Act 2001 (Cth) (“Corporations Act”). Please advise Baillie Gifford Overseas Limited immediately if you are not a wholesale client. In no circumstances may this material be made available to a “retail client” within the meaning of section 761G of the Corporations Act.

This material contains general information only. It does not take into account any person’s objectives, financial situation or needs.

South Africa

Baillie Gifford Overseas Limited is registered as a Foreign Financial Services Provider with the Financial Sector Conduct Authority in South Africa.

North America

Baillie Gifford International LLC is wholly owned by Baillie Gifford Overseas Limited; it was formed in Delaware in 2005 and is registered with the SEC. It is the legal entity through which Baillie Gifford Overseas Limited provides client service and marketing functions in North America. Baillie Gifford Overseas Limited is registered with the SEC in the United States of America.

The Manager is not resident in Canada, its head office and principal place of business is in Edinburgh, Scotland. Baillie Gifford Overseas Limited is regulated in Canada as a portfolio manager and exempt market dealer with the Ontario Securities Commission ('OSC'). Its portfolio manager licence is currently passported into Alberta, Quebec, Saskatchewan, Manitoba and Newfoundland & Labrador whereas the exempt market dealer licence is passported across all Canadian provinces and territories.

Israel

Baillie Gifford Overseas Limited is not licensed under Israel’s Regulation of Investment Advising, Investment Marketing and Portfolio Management Law, 5755–1995 (the Advice Law) and does not carry insurance pursuant to the Advice Law. This material is only intended for those categories of Israeli residents who are qualified clients listed on the First Addendum to the Advice Law.

Singapore

Baillie Gifford Asia (Singapore) Private Limited is wholly owned by Baillie Gifford Overseas Limited and is regulated by the Monetary Authority of Singapore as a holder of a capital markets services licence to conduct fund management activities for institutional investors and accredited investors in Singapore. Baillie Gifford Overseas Limited, as a foreign related corporation of Baillie Gifford Asia(Singapore) Private Limited, has entered into a cross-border business arrangement with Baillie Gifford Asia (Singapore) Private Limited, and shall be relying upon the exemption under regulation 4 of the Securities and Futures (Exemption for Cross-Border Arrangements) (Foreign Related Corporations) Regulations 2021 which enables both Baillie Gifford Overseas Limited and Baillie Gifford Asia (Singapore) Private Limited to market the full range of segregated mandate services to institutional investors and accredited investors in Singapore.

170703 10057365