CrowdStrike Holdings, Inc. (CRWD): A Bear Case Theory

We came across a bearish thesis on CrowdStrike Holdings, Inc. (CRWD) on Substack by Magnus Ofstad. In this article, we will summarize the bears’ thesis on CRWD. CrowdStrike Holdings, Inc. (CRWD)’s share was trading at $362.24 as of March 21^st. CRWD’s trailing and forward P/E were 401.83 and 105.26 respectively according to Yahoo Finance.

CrowdStrike (CRWD) is a dominant player in cybersecurity, benefiting from AI-driven threat detection and cloud security advancements. The sector remains a board-level priority, making it somewhat resilient to economic downturns. However, valuation is critical, as even leading firms can be overpriced. CRWD specializes in endpoint security, with its Falcon platform leveraging machine learning and extensive threat intelligence. The recent introduction of Charlotte AI Detection Triage, boasting 98% accuracy in security alert triage, has further solidified its market position. While CRWD’s sales are nearly twice as high as Zscaler’s, its top-line growth remains only slightly lower, with fiscal year 2024 revenue rising 29% and a non-GAAP operating margin of 21%. However, concerns arise as CRWD’s revenue growth guidance for fiscal year 2025 is only 21%, marking a significant slowdown from the previous year.

A major incident in mid-2024, where CRWD’s faulty Falcon sensor update caused widespread IT outages, led to a temporary dip in its share price, which has since recovered to $363. Despite its strong recovery, the slowing growth trajectory raises concerns about valuation. Over the past year, CRWD’s stock has fluctuated between $200 and $456, reflecting both investor confidence and moments of uncertainty. While the company remains a leader in AI-driven cybersecurity, its decelerating growth and rich valuation make it an expensive investment at current levels. With a fair value estimate of $270, the stock appears significantly overvalued, making it a risky bet for investors seeking a balance between growth and valuation.

CrowdStrike Holdings, Inc. (CRWD) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 77 hedge fund portfolios held CRWD at the end of the fourth quarter which was 74 in the previous quarter. While we acknowledge the risk and potential of CRWD as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than CRWD but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

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Disclosure: None. This article was originally published at Insider Monkey.