Is CrowdStrike a Buy as Cybersecurity Meets AI?

The digital revolution led to a significant surge in cyber threats, making cybersecurity more crucial than ever. One such company that leads in the cybersecurity sector is CrowdStrike Holdings, Inc. (CRWD), redefining modern security with the world’s advanced cloud-native platform to protect key areas of enterprise risk like endpoints and cloud workloads, identity, and data.

With the convergence of cybersecurity and artificial intelligence (AI), investors are keen to understand whether CrowdStrike remains a strong buy in the rapidly changing tech landscape.

CRWD reported first-quarter 2025 results that surpassed analyst estimates on both the top and bottom lines. The company posted revenue of $921.04 million, compared to analysts’ estimate of $904.82 million. Subscription revenue increased 33.9% year-over-year, and professional services revenue rose 18%.

In addition, the cybersecurity giant posted first-quarter non-GAAP EPS of $0.93, exceeding the consensus estimate of $0.89. CrowdStrike started the fiscal year with strong momentum and strength, with net new annual recurring revenue (ARR) of $212 million, rising 22% year-over-year and ending ARR growing 33% year-over-year to reach $3.65 billion.

According to the guidance for the second quarter of fiscal 2025, CRWD expects total revenue between $958.30 million and $961.20 million. Its non-GAAP income from operations is anticipated to be $208.30 million - $210.50 million. Non-GAAP net income attributable to CrowdStrike is expected to be $245.70 million - $247.80 million and $0.98 - $0.99 per share.

Furthermore, the company raised its full-year 2025 guidance. CRWD expects total revenue of $3.98 billion - $4.01 billion. Its non-GAAP income from operations is expected to range from $890.10 million to $916.50 million. Non-GAAP net income attributable to CrowdStrike is expected to be $985.60 million - $1.01 billion, or $3.93 - $4.03 per share.

However, CRWD’s stock took a significant hit last month, dropping around 40% in July following the company’s faulty software update, which led to a cascade effect among global IT systems. On July 19, CrowdStrike experienced a major disruption after an issue with a software update, which caused Windows to crash and industries from banking to airlines facing outages.

Although CrowdStrike acted quickly to resolve the issue, the resulting negative publicity and potential lawsuits have deterred mainly investors from buying the stock. Shares of CRWD have plunged 12.8% over the past six months to close its last trading session at $271.54. However, the stock is up marginally over the past month and 6.4% year-to-date.

Let’s look at factors that could influence CRWD’s performance in the upcoming months.

Recent Strategic Developments

On June 26, CRWD announced that it exceeded $1 billion in total sales over the lifetime of its partnership with CDW Corporation (CDW), a prominent multi-brand provider of IT solutions. CrowdStrike and CDW jointly lead cybersecurity transformation for thousands of organizations globally through the AI-native CrowdStrike Falcon® platform.

On June 18, CRWD partnered with Hewlett Packed Enterprise (HPE) to secure end-to-end AI innovation, including large language models (LLMs), accelerated by NVIDIA Corporation (NVDA). Integrating the Falcon platform with HPE GreenLake cloud and OpsRamp AIOps unifies security and IT teams in monitoring accelerated AI workload IT alerts and adversary activity.

Also, on May 30, CrowdStrike and Cloudflare, Inc. (NET), the leading connectivity cloud company, expanded their strategic partnership to secure networks and power the AI-native Security Operations Center (SOC).

The new alliance combines market-leading Zero Trust protection and connectivity from Cloudflare One™ with best-in-class AI-native cybersecurity from CrowdStrike Falcon® Next-Gen SIEM on the Falcon® platform, accelerating partners’ ability to drive vendor consolidation by securing the network and stopping breaches across device endpoints, cloud, data, and applications.

Robust Financials

During the first quarter that ended April 30, 2024, CRWD’s total revenue increased 33% year-over-year to $921.04 million. Its gross profit rose 33% from the year-ago value to $696.03 million. Its non-GAAP income from operations grew 71.5% year-over-year to $198.74 million.

Further, non-GAAP net income attributable to CrowdStrike came in at $231.67 million and $0.93 per share, up 69.9% and 63.2% from the prior year’s quarter, respectively. Its free cash flow rose 41.8% year-over-year to $322.46 million. As of April 30, 2024, its total assets were $6.84 billion, compared to $6.65 billion as of January 31, 2024.

Solid Historical Growth

CRWD’s revenue has grown at a CAGR of 48.7% over the past three years. Its total assets have increased at a CAGR of 33.4% over the same period, and its levered free cash flow has grown at a CAGR of 33.9%. Furthermore, the company’s tangible book value has improved at a CAGR of 63.4% over the same timeframe.

Favorable Analyst Estimates

Analysts expect CRWD’s revenue for the second quarter (ended July 2024) to increase 31% year-over-year to $958.36 million. The consensus EPS estimate of $0.97 for the current quarter reflects a 30.5% year-over-year improvement. Moreover, the company has topped consensus revenue and EPS estimates in each of the trailing four quarters, which is impressive.

In addition, Wall Street expects the company’s revenue and EPS for the fiscal year (ending January 2025) to grow 29.6% and 26.7% from the previous year to $3.96 billion and $3.91, respectively. For the fiscal year 2026, CRWD’s revenue and EPS are expected to increase 24.3% and 20.7% year-over-year to $4.92 billion and $4.73, respectively.

Elevated Valuation

In terms of forward non-GAAP P/E, CRWD is trading at 69.37x, 190.8% higher than the industry average of 23.86x. Similarly, the stock’s forward EV/Sales of 15.96x is 440.4% higher than the industry average of 2.95x. Its forward EV/EBITDA of 61.55x is 319.2% higher than the 14.68x industry average.

Also, the stock’s forward Price/Sales and Price/Cash Flow multiples of 16.69 and 45.10 are 464% and 102.7% higher than the industry averages of 2.96 and 22.24, respectively.

Mixed Profitability

CRWD’s trailing-12-month gross profit margin of 75.29% is 52% higher than the industry average of 49.54%. Likewise, its trailing-12-month levered FCF margin of 34.21% is 228.8% higher than the 10.40% industry average. Also, the stock’s trailing-12-month ROCE of 6.36% is favorably compared to the industry average of 4.49%, respectively.

However, the stock’s trailing-12-month EBITDA margin of 4.42% is 56.5% lower than the industry average of 10.15%. Similarly, its trailing-12-month ROTC and ROTA of 0.53% and 1.92% are lower than the industry averages of 2.75% and 2.13%, respectively.

POWR Ratings Reflect Uncertainty

CRWD’s mixed fundamentals are reflected in its POWR Ratings. The stock has an overall rating of C, translating to a Neutral in our proprietary system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. CRWD has an A grade for Growth, consistent with its solid financial performance in the last reported quarter. However, the stock has a D grade for Value, in sync with its higher-than-industry valuation.

Also, CRWD has a D grade for Stability. The stock’s 24-month beta of 1.99 justifies its Stability grade.

CRWD is ranked #18 out of 23 stocks in the B-rated Software – Security industry.

Beyond what I have stated above, we have also given CRWD grades for Momentum, Sentiment, and Quality. Get access to all the CRWD ratings here.

Bottom Line

CRWD’s robust financial performance and strategic advancements indicate long-term growth potential, solidifying its position in the cybersecurity sector. However, investors must weigh these strengths with the company’s recent software update mishap and its elevated valuation.

Considering CRWD’s uncertain near-term outlook, waiting for a better entry point in this stock seems wise now.

Stocks to Consider Instead of CrowdStrike Holdings, Inc. (CRWD)

Given its near-term uncertain prospects, the odds of CRWD outperforming in the weeks and months ahead are compromised. However, there are many industry peers with much more impressive POWR Ratings. So, consider these A (Strong Buy) or B (Buy) stocks from the Software – Security industry instead:

Darktrace plc (DRKTY)

Radware Ltd. (RDWR)

OneSpan Inc. (OSPN)

For exploring more A and B-rated cybersecurity stocks, click here.

What To Do Next?

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CRWD shares were trading at $267.62 per share on Monday afternoon, down $3.92 (-1.44%). Year-to-date, CRWD has gained 4.82%, versus a 18.67% rise in the benchmark S&P 500 index during the same period.

Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.

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