Next Generation Cybersecurity Specialist CrowdStrike‘S (NASDAQ: CRWD) Stocks infamously fell from their peak earlier this summer after a software update bug cost millions Microsoft-linked computer systems worldwide. It was a bad look for the company and raised concerns about losing customers to hungry competitors.
It’s been a few months since the outage, and CrowdStrike’s first earnings report since the event gave little indication that anything would happen.
The Federal Reserve has begun cutting the interest rate it charges banks for overnight lending, potentially leading to rate cuts that could push valuations higher on growth stocks like CrowdStrike. If you haven’t already, now’s a chance to consider adding this high-flying AI stock to your portfolio while it’s trading at a discount to its 52-week highs.
Here’s what you need to know.
The core product remains intact
There’s no need to sugarcoat it: The CrowdStrike incident was a disaster. The good news is that it was an update bug, not a fatal flaw in the company’s technology or product.
The platform is not comparable to the antivirus software of ten years ago. The cloud-based product creates a network that connects all of a customer’s devices in real time and protects them using various technologies, including artificial intelligence (AI).
CrowdStrike has gained strong industry recognition as a leader in endpoint detection and response, and has grown into a diversified security platform that sells its protection as product modules. The company’s tremendous growth is tied to new customer acquisition and cross-selling.
Today, 65% of customers use at least five of the modules. That adds up to big bucks; 48% of customers spending at least $100,000 use at least eight modules.
Cybersecurity companies like CrowdStrike spend a lot of money on marketing and customer acquisition, but cross-selling has helped CrowdStrike grow its profits. The company converts nearly a third of its annual revenue into free cash flow. It now has the deep pockets to compete with just about anyone: about $4 billion in cash on its balance sheet and just $743 million in debt.
The financial consequences appear to be minimal so far
Wall Street initially feared that customers would leave CrowdStrike after the outage, but that hasn’t happened, at least not yet.
All eyes were on the 2024 forecast, as Q2 earnings would be too early to see an impact from the outage. Management did cut the revenue forecast, but only by a small amount. Below, you can see that analyst estimates for revenue this year are down just 2.5%.
CRWD revenue estimates for the current fiscal year; data from YCharts.
It’s worth noting that software sales cycles can take time, and analysts expect headwinds to continue through 2025. Revenue estimates for next year are down about 5.5%. One notable headline is that arch-rival SentinelOne recently struck a deal with a PC manufacturer Lenovo to include its security software in new devices.
There’s no way to know if CrowdStrike was a contender for this business. Still, headlines like this can raise questions until the company gets more quarters under its belt and shows that its growth trajectory remains intact after the outage. Revenue guidance over the next few quarters will be key.
A fair price for a first class company
The proof is always in the data, and future results could change things. But for now, it looks like CrowdStrike will survive the disruption and remain a best-in-class tech growth stock. Even its lowered 2025 revenue estimates equate to a 22% gain next year.
The stock is still down 25% from its highs despite bouncing back from its post-disruption lows, giving investors some much-needed relief about the stock’s valuation:
CRWD EV to revenue (forward); data from YCharts. EV = enterprise value.
The question with fast-growing, highly profitable companies like CrowdStrike is always: how expensive is too expensive?
The stock was trading at about 24 times enterprise value (EV) to revenue at the time of the outage, making it one of the best-valued companies on Wall Street. It’s hard to call CrowdStrike cheap when it’s once again trading at a hefty premium to its peers, but it’s no longer the most expensive company on the market. It’s comfortably below what companies want Nvidia And Palantir currently going for.
The stock is still expensive enough that market volatility or any evidence of further damage from the outage could send it lower. However, interest rates are now moving lower, which could boost the valuations of growth stocks like CrowdStrike Holdings.
You should consider owning some CrowdStrike stock, but don’t feel pressured to jump in right away. Consider a dollar-cost averaging strategy to keep some cash on hand in case better buying opportunities arise.
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Justin Pope has positions in SentinelOne. The Motley Fool has positions in and recommends CrowdStrike, Microsoft, Nvidia, and Palantir Technologies. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.