The tech-laden Nasdaq Composite index is up roughly 3% so far this year as stocks in the technology sector come under pressure from macroeconomic and geopolitical factors. However, certain stocks continue to do well despite the broader market's weakness.
Cybersecurity specialist CrowdStrike (CRWD 1.73%) posted respectable gains of 44% so far in 2025, far outpacing the tech-laden index. Let's see why that has been the case and check if this cybersecurity stock is still worth buying.
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CrowdStrike showed resilience following an outage last summer
A defective software update from CrowdStrike knocked out global IT systems on July 19 last year. The company faced lawsuits because of the outage, and offered compensation packages to customers in the aftermath of the incident.
One segment of the business still being hit is its customer choice program (CCP), which gives its customers the flexibility to purchase more of its solutions, extend the duration of their contracts, or both. The compensation package offered to clients hit this program's margins, impacting CrowdStrike's revenue and earnings growth. The company's non-GAAP (adjusted) net income in the first quarter of fiscal 2026 (which ended on April 30) fell 8% year over year to $0.73 per share.
On the bright side, analysts expected a bigger decline and were forecasting $0.65 per share in earnings, suggesting that the impact of the compensation package isn't as bad as the market feared. It helps, too, that CrowdStrike delivered respectable year-over-year revenue growth of 20% to $1.1 billion.
CrowdStrike's full-year guidance indicates that CCP will weigh on its growth this year. The midpoint of its adjusted earnings guidance for fiscal 2026 stands at $3.50 per share, lower than the $3.93 per share in earnings that it generated in the previous fiscal year. The company expects its revenue to increase by almost 21% in fiscal 2026 at the midpoint of guidance, which would be slower than the 29% increase it recorded last year. CrowdStrike management estimates that CCP will impact its revenue to the tune of $10 million to $15 million in each of the remaining quarters this year.
However, the good part is that CrowdStrike's earnings growth should accelerate nicely beginning in fiscal 2027.
Data by YCharts.
That won't be surprising, considering that CrowdStrike sees its total addressable market increasing to $250 billion in the next three years from $116 billion last year, driven by new catalysts such as AI. The company is now offering multiple AI-powered cybersecurity tools to customers, such as protecting large language models (LLMs) in collaboration with Nvidia to agentic AI assistants that can speed up the response to cybersecurity incidents.
The revenue generated from sales of AI tools within the cybersecurity space is expected to jump by more than 4x between 2024 and 2030, generating $134 billion in annual revenue at the end of the decade. As a result, it won't be surprising to see an improvement in the adoption of CrowdStrike's cybersecurity modules by its customers, which should drive an improvement in both sales and margins.
The good thing to note here is that CrowdStrike's module adoption rates have improved despite last year's incident. The company said that 48% of its customers were using six or more of its modules, while 32% were using eight or more of its offerings at the end of the previous quarter. Both numbers were up by four percentage points as compared to the year-ago period.
As such, CrowdStrike could indeed clock robust earnings growth going forward and live up to analysts' expectations thanks to the huge addressable opportunity it is sitting on and its focus on product development to capture opportunities presented by catalysts such as AI.
Here's one big problem for potential investors
There remains one big problem for investors who are looking to buy this stock now. CrowdStrike stock has shot up 61% since the incident on July 19 last year, which means that investors have been buying this cybersecurity stock despite the drop in its earnings. As a result, the stock is now trades at an expensive 141 times forward earnings. That's well above its five-year average forward earnings multiple of 106 and the tech-laden Nasdaq-100 index's forward earnings multiple of 28 (using the index as a proxy for tech stocks).
So, investors who have missed CrowdStrike's rally in the past year would do well to stay away from the stock right now, considering its expensive valuation and the expected contraction in its bottom line in fiscal 2026. Of course, the company is expected to clock healthy growth from next year, but the stock seems to have gotten ahead of itself.
That's why it would be a good idea to add CrowdStrike to your watchlists and wait for a pullback in its share price so that you can buy it at a relatively attractive valuation to take advantage of the healthy growth that the company is likely to deliver in the long run.
