Shares in this cybersecurity specialist have been gaining impressive momentum since early June.
Stock Price Crowdstrike (CRWD -3.82%) It has skyrocketed since early June, rising an impressive 22% as of this writing. There are a few reasons why shares of this cybersecurity specialist have risen so strongly, enabling it to overtake one of the hottest stocks on the market during this time. NVIDIA (NVDA -6.62%).
Notably, CrowdStrike’s gains over the past month are nearly double the 11% recorded by NVIDIA shares. Much of this gain was driven by the cybersecurity company announcing stellar results in early June for its fiscal first quarter (the three months ending April 30). CrowdStrike beat Wall Street expectations and raised its fiscal 2025 guidance.
Following the company’s impressive performance, S&P 500 The index rose, providing further impetus to the stock. These positive developments go a long way to explaining why CrowdStrike stock is set to rise by nearly 50% in 2024.
Should investors consider buying this cybersecurity stock for further upside? Let’s find out.
CrowdStrike’s AI-driven growth continues
CrowdStrike’s first-quarter revenue was $921 million, up 33% year over year. The revenue surge was driven by increased customer spending on cybersecurity products. CrowdStrike reported that more than 65% of its subscription customers now use five or more cybersecurity modules, up from 62% a year ago.
Additionally, CrowdStrike reported a 95% year-over-year increase in clients using eight or more cybersecurity modules (driven by increased demand for its Falcon cybersecurity platform). CrowdStrike is integrating AI tools and capabilities into its Falcon platform, such as a generative AI-powered security assistant called Charlotte AI, to help companies reduce their response time to cyber threats.
Going forward, CrowdStrike plans to partner with companies like Nvidia to push the boundaries of the AI-enabled cybersecurity market. The cybersecurity specialist will enable customers to use Nvidia hardware to train custom cybersecurity large-scale language models, enabling “improved threat hunting, detection of supply chain attacks, identification of anomalies in user behavior, and proactive defense against emerging exploits and vulnerabilities.”
These moves could help CrowdStrike grab a larger share of the AI-enabled cybersecurity market, which is expected to grow at a compound annual growth rate of 22% through 2031, reaching $114 billion in annual revenue by the end of the forecast period. Expanded adoption of the company’s AI-enabled cybersecurity platform could help it build a solid revenue pipeline in the future.
CrowdStrike’s remaining performance obligations (RPOs) increased 42% year over year to $4.7 billion last quarter. Growth in this metric outpaced the company’s improving revenue. This bodes well for the future, as RPOs refer to the total value of a company’s future contracts that have yet to be fulfilled.
The improving revenue pipeline also explains why CrowdStrike raised its fiscal 2025 revenue forecast to a midpoint of $3.99 billion from a previous estimate of $3.95 billion. The updated forecast indicates the company’s revenue could grow 31% year over year. But don’t be surprised if CrowdStrike finishes the year with strong growth, driven by solid RPOs.
But is the stock worth buying now?
CrowdStrike’s better-than-expected results and improved full-year guidance have undoubtedly stoked investor enthusiasm, but they’ve also sent the stock price quite high: CrowdStrike shares are currently trading at 28 times sales, well above the U.S. tech sector average of 8.3 times.
Piper Sandler Analyst Rob Owens points out that CrowdStrike’s stock trades at the highest multiple of sales among publicly traded software companies with market caps of over $75 billion. By comparison, chip designer Nvidia trades at 40x sales, but is growing at a much faster pace than CrowdStrike. Moreover, a closer look at future sales multiples shows that Nvidia’s future numbers are much lower than its historical multiples, so it is expected to continue growing at a faster pace (Nvidia’s price-to-sales multiple is expected to fall from 40x to 26x, while CrowdStrike’s is expected to fall from 28x to 23x).
NVDA PS Ratio (Forward) data by YCharts
Nvidia is a major player in the AI chip market, and its growth prospects are bright, so investors may want to put their money in the semiconductor giant instead of CrowdStrike. After all, CrowdStrike’s valuation is why Piper Sandler downgraded the stock to Neutral from Overweight.
Additionally, CrowdStrike’s median 12-month price target of $400 (from the 48 analysts covering the stock) suggests little upside potential from current levels. As such, investors who miss out on this cybersecurity stock’s impressive upside in 2024 would be wise to keep it on their watchlist and look for a better entry point before adding CrowdStrike to their portfolio.
Harsh Chauhan has no investment in any of the stocks mentioned. The Motley Fool has invested in and recommends CrowdStrike and Nvidia. The Motley Fool has a disclosure policy.
