The outlook for cybersecurity giant CrowdStrike (CRWD) is mixed, as the stock’s performance is likely to vary sharply in different timeframes.
In the near term, the stock could be held back by Wall Street’s current aversion to names with high valuations. In the medium term, CRWD stock is likely to benefit from Washington’s increased emphasis on cybersecurity and from the company’s alliances with Anthropic and OpenAI. But in the long term, CrowdStrike could be meaningfully hurt by competition from AI companies.
Investors Are Weary of Stocks With Very High Valuations
Recently, stocks with high valuations have been dropping sharply. For example, in the five days ending June 9, Palantir (PLTR) sank 14%, Marvell (MRVL) gave back 11.5%, and Blackberry (BB) retreated 13%. All three of those names have high price-earnings ratios of at least 90x. Similarly, CrowdStrike, whose forward P/E ratio is 650x, dropped 13.7% over the five days ending June 9.
To the extent this trend continues over the next week or two, CRWD is likely to underperform.
CRWD Stock Should Perform Well in the Medium Term
The company reported very good fiscal first-quarter financial results, indicating that its business fundamentals are healthy. Specifically, its revenue climbed 26% versus the same period a year earlier to $1.39 billion, while its net new annual recurring revenue advanced 32% year-over-year (YOY) to $256 million, and its operating income, excluding certain items, soared 62% YOY to $326 million.
CEO George Kurtz reported on the company’s Q1 earnings call that the firm is benefiting from increased demand for cybersecurity amid the AI Boom.
“AI (is) driving structural demand for cybersecurity that compounds, not decelerates,” Kurtz stated. And since CrowdStrike is partnering with both Anthropic and OpenAI, it is very well-positioned to benefit prolifically from this trend.
Meanwhile, the federal government, to which CRWD provides many products, appears to be placing greater emphasis on cybersecurity, as the Cybersecurity and Infrastructure Security Agency, which manages cybersecurity for civilian agencies, seeks to hire nearly 200 individuals.
Additionally, President Donald Trump recently signed an executive order directing agencies to partner with companies to improve their cybersecurity capabilities.
In light of these developments, the medium-term outlook for CRWD stock is strong.
CrowdStrike Faces Competition from AI Companies in the Long Term
Anthropic’s Mythos model is reportedly superb at locating IT security vulnerabilities, as it detected over 23,000 “potential vulnerabilities … across more than 1,000 open source software (OSS) projects.”
Further, Mythos is uniquely proficient at showing how multiple software flaws, when combined, can result in “a single, more severe” threat, the Chief Security Officer of the IT security company Cloudflare (NET) reported recently.
For now, as mentioned above, Anthropic is partnering with CrowdStrike. Kurtz, CrowdStrike’s CEO, has asserted that “Anthropic simply isn’t a cybersecurity company and wouldn’t know how to do it. It’s a hands-on business. We actually have to speak to people. “CNBC commentator Jim Cramer reported.
That’s probably true now. But in the longer run, Anthropic could easily hire cybersecurity veterans who understand very well how to run cybersecurity operations and “speak to people.” At that point, which could come within a year or two, Anthropic would likely become a major threat to CrowdStrike and CRWD stock.
*This article is intended to be informational only; it is not financial advice.
