Last November, OpenAI launched ChatGPT. Within two months, the generative artificial intelligence (AI) platform reached 100 million monthly users, making it the fastest-growing application in history at the time. That steep adoption curve hints at the profound impact generative AI could have on the world. By democratizing automation with a natural language interface, generative AI promises to improve business productivity in ways that are unlike any other technology in history.
It's estimated that the total economic impact of this new technology could exceed $4 trillion in a few short years, according to research from Morgan Stanley. Analysts from the investment bank say generative AI will create a $30 billion revenue opportunity just in cybersecurity. If it does, CrowdStrike (CRWD 2.03%) is one of four companies best positioned to benefit.
Here's what investors should know.
CrowdStrike is a leader in multiple cybersecurity markets
CrowdStrike has a tremendous capacity for innovation that has kept it on the cutting edge of cybersecurity since it was founded in 2011. When other vendors were using reactive indicators of compromise to detect threats, CrowdStrike invented a new technique based on proactive indicators of attack. When other vendors were selling on-premises point solutions, CrowdStrike built a cloud-based platform that consolidated multiple products behind a single interface.
CrowdStrike was also one of the first companies to bring artificial intelligence to cybersecurity, and because its platform was designed to crowdsource data more effectively than other solutions on the market -- a quality from whence comes the name CrowdStrike -- management believes the company's AI models are uniquely effective in detecting attacks. Industry analysts echoed that sentiment.
As mentioned, Morgan Stanley sees CrowdStrike as one of the cybersecurity companies best positioned to benefit from generative AI, a prediction attributed to its unique datasets. Similarly, consultancy Frost & Sullivan offered the following insight in a recent report, "CrowdStrike leads the industry with regards to the application of artificial intelligence/machine learning to endpoint security." The report goes on to say that CrowdStrike offers unparalleled protection from malware and malware-free attacks.
Here's the upshot: Most enterprises are still buying north of 60 cybersecurity point products, and that creates a meaningful opportunity for CrowdStrike. Its platform reduces IT complexity by consolidating 27 different software modules behind a single interface. Those modules span multiple cybersecurity markets, and CrowdStrike is a recognized leader in many of them, including endpoint security, cloud security, and threat intelligence.
CrowdStrike is chasing a massive market opportunity
CrowdStrike looked sharp in the first half of fiscal 2024 (ended July 31). Revenue increased 39% to $1.4 billion, gross profit margin reached a record high of 78%, and free cash flow climbed 42% to $416 million. Those strong results reflect momentum with new and existing customers, and management sees that momentum increasing in the second half of the year.
Yet, CrowdStrike has just 23,000 customers, a very small number compared to the vendors listed below. It's worth mentioning that these are the other three cybersecurity companies that Morgan Stanley sees as key beneficiaries of the generative AI boom:
- Palo Alto Networks: 80,000 customers
- Fortinet: 680,000 customers
- Microsoft: 1 million customers
The customer counts detailed above show in no uncertain terms that CrowdStrike has hardly scratched the surface of its total addressable market (TAM). Indeed, the company values its TAM at $100 billion in 2024, but management says its product development pipeline (coupled with growing demand for cybersecurity software) could push that figure to $225 billion by 2028.
One product of note is Charlotte AI, a generative AI security assistant that can be prompted in natural language to automate and accelerate tasks like data collection, risk assessment, threat detection, and incident response. CrowdStrike says Charlotte AI represents an incremental opportunity of $7 billion by 2028.
Another product of note is Falcon for IT, a solution (powered by Charlotte AI) that extends the platform beyond cybersecurity to streamline reporting, monitoring, and remediation across IT workflows. CrowdStrike says Falcon for IT represents an incremental opportunity of $8 billion by 2028.
CrowdStrike stock trades at a substantial discount
The average cost of a data breach to a company reached $4.45 million in 2023, up 15% from 2018, according to IBM. And damages inflicted by cybercriminals are projected to total $10.5 trillion annually by 2025, up 75% from 2021, according to Cybersecurity Ventures. Put simply, cyberattacks are becoming an increasingly costly problem, which means cybersecurity software is more important than ever.
CrowdStrike is well positioned to benefit from that tailwind given its leadership position in several cybersecurity markets and its knack for product innovation. Yet, shares currently trade at 14.6 times sales, a bargain compared to the three-year average of 32 time sales. That's why this growth stock is worth buying today.
