CrowdStrike (CRWD +1.14%) is a top cybersecurity vendor. Its Falcon platform is one of the industry's only all-in-one enterprise solutions, and thanks to artificial intelligence (AI), it offers a high degree of automation, so businesses can spend more time focusing on their day-to-day operations and less time worrying about cyber threats.
CrowdStrike stock has soared by 200% during the past five years, thanks to strong demand for Falcon, which is fueling rapid revenue growth for the company. However, the stock is currently trading at a sky-high valuation, which could serve as an impediment to further upside in 2026. Read on.
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The future of cybersecurity
The Falcon platform features 32 different modules (products) covering cloud security, identity security, endpoint (computer and device) protection, and AI security. Enterprises can select different modules based on their needs, and thanks to the recently introduced Falcon Flex subscription, they can even add and remove modules during their contract period as those needs change.
Falcon uses a cloud-based architecture, so each endpoint only requires the installation of a lightweight sensor. This means updates can be pushed autonomously in the background without disrupting workflows, so every computer and device is always ready to thwart the latest threats.
AI is transforming the cyber landscape. Not only are hackers using this technology to create sophisticated threats, but enterprises are also creating new targets for attack when they deploy chatbots and AI agents. Agents often have access to sensitive internal data and systems, and they are much easier to impersonate than human employees because they typically don't have the same secure identity credentials. If a hacker seizes control of one agent, they can cause a substantial amount of damage.
To combat these risks, CrowdStrike launched Falcon Next-Gen Identity Security, which protects all identities, whether human or digital. It uses the company's industry-leading threat intelligence to flag strange behavior and authenticate trusted users. It also adopts a "zero standing privileges" approach, meaning it revokes permission from all identities to certain applications when it isn't required, which safeguards them from unauthorized access.
NASDAQ: CRWD
Key Data Points
CrowdStrike's revenue growth is accelerating
CrowdStrike generated $1.23 billion in total revenue during its fiscal 2026 third quarter (ended Oct. 31), a 22% increase from the year-ago period. It marked the second consecutive quarter in which the company's revenue growth accelerated, which signals significant momentum.
CrowdStrike also reported a record $4.92 billion in annual recurring revenue (ARR) in the third quarter, which was up 23% year over year. Most customers use Falcon on a subscription basis with recurring monthly or yearly payments, so ARR is a very useful metric for investors.
CrowdStrike said about $1.35 billion of its ARR was attributable to Falcon Flex subscriptions at the end of the third quarter, which was up by an eye-popping 200% year over year. This subscription option was only launched last year, but it appears customers really like having the ability to add or remove security modules on the fly. CrowdStrike says Flex accelerates spending growth because it allows customers to try different modules under their existing contracts without having to renegotiate pricing, thus reducing friction.
In fact, the company said the number of "Reflex" accounts -- representing customers who renewed their Flex subscriptions with higher spending -- more than doubled year over year during the third quarter. The company said 10 customers, specifically, Reflexed with double the amount of spending compared to their original Flex subscriptions.
CrowdStrike stock is far more expensive than its peers
CrowdStrike's business is firing on all cylinders, but its sky-high valuation could limit further upside in the short term. Its stock is trading at a price-to-sales (P/S) ratio of 28, making it far more expensive than all of its peers in the cybersecurity sector. Palo Alto Networks (PANW 1.61%), for example, is the industry's largest vendor, and its stock trades at a P/S ratio of just 14.5:
CRWD PS Ratio data by YCharts
Palo Alto's revenue increased by 16% in its recent quarter, so CrowdStrike might deserve a premium valuation on the basis that its business is growing more quickly. However, I'm not convinced a P/S ratio of nearly double is appropriate, because Palo Alto is becoming a force in the AI cybersecurity space, with its Next-Generation Security segment experiencing a whopping 29% increase in ARR during the recent quarter.
I'm not suggesting CrowdStrike stock needs to crash from here to bring its valuation in line with its peers, but its elevated P/S ratio does make further upside a challenge. If the company's revenue grows by 20% through calendar year 2026 and its stock delivers zero return, it would still be expensive relative to Palo Alto and other vendors.
As a result, investors looking for blistering gains in the next 12 months or so might be left disappointed. However, longer term, CrowdStrike expects its ARR to more than quadruple to $20 billion during the next decade (by fiscal year 2036), so investors who are willing to hold the stock for a more extended period of time could still earn a great return.
