Software stocks as a whole have been getting slammed in recent weeks. There's really only one culprit for this mess: Anthropic. Anthropic is a leading company in the generative AI space, and is seen as the leader in coding generative AI. Some of its products have made it possible to write programs that replace several software products for which companies pay millions. This has caused several software stocks to tumble in valuation, as the market is unsure about their future.
Recently, Anthropic released its new capability: Cybersecurity. Essentially, it allows users to scan for security weak points and can develop the code necessary to patch these vulnerabilities. That release caused several cybersecurity companies to sell off, as there is now a worry that this could replace them, too.
However, I think this is overblown. This is a useful feature that helps software developers address vulnerabilities, but it is far from a cybersecurity platform that helps protect enterprise devices and data. That job is best left to experts like CrowdStrike (CRWD 0.04%), and the recent sell-off has opened up a rare buying opportunity.
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CrowdStrike is a leader in the security sector
CrowdStrike's primary offering is endpoint protection, which secures network endpoints (like a laptop) from being accessed by an external threat. It does this by monitoring every device on a network using AI. If it detects suspicious activity, then it can quickly shut down access before any harm is done. While Anthropic's product may ensure that developers can keep their software safe from vulnerabilities, CrowdStrike is actively working to prevent external threats. These are two important activities that accomplish different goals, which is why the sell-off on CrowdStrike's stock is a bit ridiculous.
NASDAQ: CRWD
Key Data Points
Following the release, CrowdStrike's stock fell 10%. This adds to further losses that CrowdStrike sustained from being in the software sector, and the stock is now down around 40% from its all-time high. This is a rare occurrence for CrowdStrike. The last time it was down 40% from its all-time high was after a botched update launched in July 2024 that crashed many devices. CrowdStrike isn't facing as large a threat as that one today, and I think now is a genius time to scoop up shares.
CrowdStrike's valuation is actually attractive for once
CrowdStrike has held a premium valuation for most of its life as a public company. Investors realize the need for a top-notch cybersecurity solution, especially in the age of AI, where attackers are assisted by generative AI models that can help identify and exploit vulnerabilities. CrowdStrike's profitability has been up and down over the past few years due to its goal of capturing as much of the cybersecurity market as possible, so the best way to compare its valuation to historical levels is the price-to-sales ratio.
Outside of the marketwide sell-off in 2023 and the drop following its failure in 2024, CrowdStrike hasn't been this cheap in a while.
CRWD PS Ratio data by YCharts.
19 times sales may not be cheap in the grand scheme of things, but it's a great price to pay for a cybersecurity product that's a leader in its field. Cybersecurity isn't something that you want internal programmers creating. You want a known, rock-solid solution that isn't going to fail.
While Anthropic's security feature is a great development for any company creating AI applications, it isn't going to replace CrowdStrike's solutions anytime soon. I think now is an excellent time to purchase a best-in-class company. Buying opportunities like this rarely come around, and if you fail to take action, you'll regret it years down the road.
