Cloud connectivity service provider Cloudflare (NYSE:NET) helped mitigate another dour session on Wall Street. Within the past 24 hours, the company announced a series of partnerships with big technology firms, an apparent effort to bolster its capabilities in artificial intelligence (AI). Further, NET stock likely jumped on the democratization of advanced AI tools and models. Still, it’s a tricky investment, one that requires caution among prospective buyers.

From Tuesday evening through Wednesday morning, Cloudflare disclosed several initiatives and partnerships:

• Management announced a partnership with social media giant and tech powerhouse Meta Platforms (NASDAQ:META) to integrate the latter’s Llama 2 open-source large language model (LLM) into Cloudflare’s developer platform. Fundamentally, the news is significant because access to LLMs was limited due to proprietary intellectual property (IP) and the vast resources required for training. Llama 2’s open-source nature shifts this paradigm.
• Cloudflare announced a collaboration with Microsoft (NASDAQ:MSFT) to simplify the process of running AI protocols based on specific business directives. Due to inference tasks — essentially the ability for AI to learn new information — becoming increasingly distributed, this partnership aims to facilitate seamless access across devices, networks and platforms.
• The connectivity specialist also stated that its global network will incorporate graphics processing units (GPUs) by Nvidia (NASDAQ:NVDA). This integration should amplify the performance of various AI applications.

Lastly, Cloudflare partnered with open-source AI leader Hugging Face to make open AI models more accessible and affordable to developers.

NET Stock Offers a Compelling but Tricky Opportunity

On paper, the recently inked collaborative efforts should lift and sustain NET stock for the long run. As Grand View Research pointed out, the global AI market size reached a valuation of $136.55 billion last year. Further, experts project that the sector will hit revenue of $1.81 trillion by 2030, representing a compound annual growth rate (CAGR) of 37.3%.

To be sure, NET stock gained over 35% of equity value since the start of the year. In contrast, the Nasdaq Composite index gained roughly 26% during the same period. However, the recent performance of Cloudflare in the charts has been less encouraging. In the trailing month — inclusive of today’s boost — NET dipped more than 5%.

One element that prospective investors should consider is the valuation. According to investment data aggregator Gurufocus, NET stock runs a forward earnings multiple of 135.3x. That’s considerably higher than the software industry’s median forward multiple of 22.2x.

Why It Matters

According to TipRanks, analysts don’t appear particularly enthused about NET stock, pegging it a consensus hold. This assessment breaks down as eight buys, 10 holds and three sells. Moreover, the average price target comes in at $68.42, implying a 13% upside potential.

On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.