Artificial intelligence is a hot topic in 2023, thanks to advancements such as the popular AI-powered chatbot ChatGPT, which became the fastest-growing consumer app in history earlier this year. Yet when it comes to investing in companies touting AI, a cybersecurity firm doesn't always pop to the top of the list.
CrowdStrike (CRWD -0.01%) is worthy of consideration, however. Artificial intelligence is central to the organization's success as a cybersecurity company since CrowdStrike operates in a field where the stakes are high for customers.
The World Economic Forum considers cybercrime among the top 10 global threats faced over the next decade. A cyberattack caused electricity-generating wind farms in central Europe to shut down last year and forced supermarkets in Sweden to close temporarily in 2021.
Let's dig into CrowdStrike's use of AI, as well as how it affected the company's financial performance, to understand the factors that make the cybersecurity leader a good investment.
The importance of AI to CrowdStrike
Why is AI key to CrowdStrike's success? Cybercrime is rising at a rapid rate, making the use of AI a necessity to keep pace. The worldwide costs incurred from cyberattacks are expected to jump from $8 trillion in 2022 to nearly $24 trillion by 2027.
Cybercrime is also increasing in sophistication. Many types of cyberattacks exist, some so sophisticated that conventional antivirus software fails to detect a threat until it's too late. In 2022, it took businesses an average of nine months to discover an attack.
These factors make CrowdStrike's use of AI critical. For the company's Falcon platform to successfully detect surreptitious, ever-evolving attacks, it must be capable of quickly identifying the difference between legitimate activities and criminal hacks, referred to as indicators of attack (IOA).
CrowdStrike's AI analyzes over 2 trillion bits of data daily to identify IOAs. By ingesting and analyzing data in real time, the Falcon platform's AI algorithms can continuously improve, making its response to threats faster and more accurate. The company is the first in the cybersecurity industry to offer IOA detection via AI.
CrowdStrike's approach to cybersecurity has proven successful. The company's AI-enabled platform was recognized as a leader in the cybersecurity space by research firm Gartner.
CrowdStrike's technology translated into financial prosperity
The Falcon platform's success enabled CrowdStrike to surpass $2 billion in revenue in its 2023 fiscal year ended Jan. 31, a 54% year-over-year increase. This sales growth is no fluke. The company has steadily grown revenue for years.
Data by YCharts.
CrowdStrike's ability to attract customers is a strength. In its 2023 fiscal year, the company achieved a 41% year-over-year increase in the number of customers subscribing to its services.
CrowdStrike employs a software-as-a-service (SaaS) subscription model to generate revenue. The company uses the annual recurring revenue (ARR) metric, which is the annualized amount of subscription contracts, to measure the value of its subscribers. In fiscal 2023, CrowdStrike's ARR crossed the $2 billion threshold, reaching $2.6 billion, a 48% increase from 2022.
A company with many pros and few cons
CrowdStrike's financials are impressive, and its AI technology is helping it continue to grow its customer base, but the company's one downside is that it's not profitable. CrowdStrike exited fiscal 2023 with a net loss of $182 million.
However, this is a reduction from the $232 million it lost in the prior fiscal year. Moreover, it's common for tech companies to sacrifice profit in favor of investing in their technology to fuel growth.
In addition, CrowdStrike's balance sheet is solid. It exited fiscal 2023 with total assets of $5 billion compared to total liabilities of $3.5 billion. Another positive sign is that its fiscal 2023 free cash flow reached $677 million, up from $442 million the year prior. The company also expects revenue to continue to rise in fiscal year 2024, reaching an estimated $3 billion.
CrowdStrike's rising revenue is poised to continue beyond this next fiscal year, thanks to industry growth acting as a tailwind. The global cybersecurity market is forecasted to expand from $173.5 billion last year to over $266 billion by 2027.
CrowdStrike's strong customer and revenue growth, coupled with potent, AI-enabled cybersecurity capabilities, make it an attractive investment. Combine this with a stock price that is currently well below its 52-week high of $205.73 and now makes for an opportune time to grab shares.
