CrowdStrike's (CRWD 1.32%) Falcon platform protects its customers by securing endpoints (devices) against hackers. This includes physical endpoints like on-premise servers and workstations, as well as virtual endpoints that run remote workloads in the cloud. According to the International Data Company (IDC), cloud environments are currently under-protected, leaving many enterprises vulnerable to attack. But CrowdStrike has a solution. Here's what investors should know.

The market opportunity

Cloud computing has become mainstream, as many enterprises have moved away from traditional on-site data centers to cut infrastructure costs and improve scalability. However, the rapid adoption of the cloud has left gaps in defense. According to the IDC, companies should spend roughly 5% to 10% of their IT budgets on security. But currently, only 1% of cloud IT spend goes to cloud security. CrowdStrike sees this as an opportunity. In fact, management believes cloud-security spend will jump from $1.2 billion in 2020 to $12.4 billion in 2023 -- a tenfold increase. That's a big leap, and as an industry leader, CrowdStrike is well positioned to capture market share.

CrowdStrike's solution

CrowdStrike offers software modules purposely built for cloud security. Falcon Cloud Workload Protection secures remote applications and services across all cloud environments, including public clouds like Amazon Web Services, Microsoft Azure, and Google Cloud Platform. This solution is designed to protect workloads like web servers and databases from external attacks. But there's still a problem: It does nothing to prevent internal errors, like misconfigurations, which cause 95% of all cloud-security breaches, according to Gartner, a leading research and advisory company.

Hacker in hoodie sitting in front of a laptop.

Image Source: Getty Images

In October 2020, CrowdStrike released Falcon Horizon, a new software module that helps identify misconfigurations across multi-cloud environments. It also incorporates more sophisticated automation, artificial intelligence, and guided remediation. In other words, this new solution can automatically identify risks and help resolve them. This not only reduces the likelihood of a costly cyberattack but also creates operational efficiencies for CrowdStrike's customers by reducing time spent securing the cloud.

The benefit for customers

CrowdStrike simplifies security by offering one platform for all workloads , whether they are in the cloud or not, allowing customers to manage everything from a single console. This is a vast improvement over existing solutions that increase complexity by adding vendors and separate tools, requiring clients to check and reconcile data from multiple consoles. As a result, management has already reported strong adoption of Falcon Horizon.

What's more, CrowdStrike's platform offers superior protection compared to solutions from other vendors like Broadcom's (AVGO -1.48%) Symantec and McAfee (MCFE). The company's proprietary Threat Graph collects and analyzes over 4 trillion data points per week, creating the industry's most comprehensive set of endpoint data and threat intelligence. This enormous database, combined with sophisticated AI-powered analytics, allows CrowdStrike to offer industry-leading threat protection. Put simply, CrowdStrike's platform reduces complexity, creates operational efficiencies, and provides the best endpoint security on the market. That's an incredibly strong value proposition, and it should help the company capture an outsized portion of the growing cloud-security market.

A final word

Investors should always weight potential downside. In this case, CrowdStrike is not profitable over the trailing 12 months, and the stock trades at an incredibly pricey 62 times sales. That figure is off the charts compared to competitors like Broadcom and McAfee.

However, CrowdStrike is currently growing much more quickly than its rivals. Over the last two years, the company's revenue has surged 205%, and subscription customers have nearly quadrupled, reaching 8,416 in the third quarter of fiscal 2021. Putting the pieces together, CrowdStrike has many of the qualities I look for in winning long-term investments: a solid competitive edge, strong revenue growth, and an expanding market opportunity. That's why, despite the valuation risk, I think this company has a bright future.