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Semiconductor giant Nvidia (NVDA) is the talk of the industry right now, with a whopping 210% gain so far in 2023 versus a 28% rise for the Nasdaq Composite ($NASX). However, there are other artificial intelligence (AI) stocks out there set to capitalize on the AI boom just as much.
Cybersecurity firm Crowdstrike Holdings (CRWD) is one of them. As the digital world evolves, so do cyber threats, necessitating the need for companies like Crowdstrike. Year to date, the stock has increased by 73% - and Wall Street analysts believe there is significant growth potential for this name in the near term. Let’s dig in to find out why.
On a Mission to Combat Cyber Threats
Crowdstrike creates cutting-edge technologies to efficiently combat cyber threats. It offers end protection, threat intelligence, and cyberattack response services to businesses worldwide.
The company's crown jewel is its AI-powered Falcon platform, which management says customers have quickly embraced. It combines AI with machine learning, and behavioral analytics to consistently track and evaluate endpoint activity in real time. Ultimately, it detects fraudulent actions and prevents threats from causing damage. Additionally, its incident response services have earned wide recognition for their ability to help organizations respond fast to cyber threats and breaches.
In its second quarter (ended Aug. 30), total revenue surged 37% year-over-year to $732 million. Annual recurring revenue (ARR) also jumped 37% to $2.9 billion, reflecting the company’s ability to retain its customers.
Moreover, Crowdstrike is also encouraging its existing customers to leverage more of its cloud-based modules. For instance, 63% of its subscription customers used at least five or more of its modules, an uptick from 59% in the year-ago quarter. What’s more, its customer base with at least seven modules grew from 20% to 24%.
A Brighter Future Ahead for This Cybersecurity Stock
Looking ahead, CEO George Kurtz stated in the Q2 earnings call, “With the business momentum we see and competitive market dynamics, we believe our second-half performance will yield double-digit net new ARR growth.” The CEO believes companies now need “better, faster, and more cost-effective protection for a digital society” - and Crowdstrike fulfills that goal.
Management forecast total revenue in Q3 to be in the $775 million to $778 million range, indicating growth of around 33% from the same quarter last year. Notably, Crowdstrike’s total revenue has increased at an astounding rate - from $481 million in fiscal 2020 to $2.24 billion in fiscal 2023.
Meanwhile, according to management, Q3 adjusted earnings per share (EPS) could jump by 85% year over year and 82%-84% for the full year. Both estimates are higher than what the market anticipates. Crowdstrike has surpassed Wall Street’s earnings estimates in three of the last four quarters.
By 2027, the cybersecurity market could be worth $266 billion, based on a 9% compound annual growth rate. Paired with generative AI, Crowdstrike is an expert at recognizing and resolving security breaches. With a knack for product innovation, it is perfectly capable of capitalizing on this growth.
Also, it ended Q2 with a commendable 39% year-over-year increase in positive free cash flow to $189 million, and a sizable cash reserve of $3.17 billion. As cyber threats become more prevalent globally, Crowdstrike can broaden its reach by forming international collaborations to boost cybersecurity efforts.
The global average cost of data breaches in 2023 touched $4.35 million. Companies can save money on data breach costs by taking proactive measures. More importantly, even in uncertain economic times, this may be the last place a company chooses to cut costs - making Crowdstrike a resilient stock through economic cycles.
What Are Analysts Saying About CRWD?
From $2.24 billion in fiscal 2023, analysts expect Crowdstrike’s revenue to increase by an astounding 36% to $3.04 billion in fiscal 2024, in line with management’s forecast for the year. Analysts say revenue could further grow to $3.91 billion by fiscal 2025. Given the pace at which the AI industry and demand for cybersecurity is growing, the revenue target doesn’t seem too far-fetched.
Looking ahead, analysts anticipate Crowdstrike’s profits to keep rising, as well. Compared to a loss of $0.79 per share in fiscal 2023, analysts foresee adjusted EPS of $0.39 in fiscal 2024, and $0.63 in fiscal 2025.
Many analysts raised their target prices for CRWD in September, thanks to its outstanding growth potential. At present, out of the 39 analysts covering Crowdstrike stock, 33 have a “strong buy” recommendation, 2 suggest “moderate buy,” and four call it a “hold.” The stock has no “sell” recommendations.
Based on analysts' average price target of $191.95, Wall Street sees potential upside for CRWD of about 5.5% over the next 12 months. The highest target price stands at $240, and the lowest at $153.
Key Takeaway
Crowdstrike has emerged as a trailblazer in the cybersecurity realm. All in all, the company has solid fundamentals, a robust balance sheet, and outstanding AI-driven long-term prospects in the cybersecurity market. CRWD is well-positioned to continue leading the charge in safeguarding the digital landscape, making it a top-tier growth stock to buy now.
On the date of publication, Sushree Mohanty did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
