Cybersecurity Shares Outperforming Market in 2025 - Is There Still Value in Buying Heavily?
In the rapidly expanding cybersecurity industry, CrowdStrike, a leading player, continues to make strides, despite facing some setbacks. The company's focus on artificial intelligence and machine learning in threat detection aligns well with the evolving security landscape, potentially driving future growth.
According to recent reports, 32% of CrowdStrike's customers were using eight or more of its offerings at the end of the previous quarter, marking a four percentage point increase compared to the year-ago period. This growth is a testament to the company's diverse product portfolio and its ability to cater to the evolving needs of its customers.
However, CrowdStrike's stock is trading at an expensive valuation despite a drop in earnings and an expected contraction in fiscal 2026. This can be attributed to several factors. The company's leadership position in the cybersecurity industry, coupled with its focus on innovation and strategic partnerships, such as its collaboration with Microsoft, has fueled investor expectations of future growth.
CrowdStrike's high P/E ratio reflects this optimism. Despite short-term challenges, the market may be pricing in the company's potential for expanding margins and increasing demand for cybersecurity services globally. The stock has shown significant gains since its IPO, with a share price increase of over 620.2%. This historical performance, combined with its strong brand and market position, contributes to its valuation being perceived as expensive compared to its current earnings.
Despite the outlook, there are challenges ahead. Last summer, CrowdStrike experienced an outage due to a defective software update, leading to lawsuits and compensation packages for affected customers. The compensation packages impacted CrowdStrike's customer choice program (CCP), affecting its revenue and earnings growth.
Looking ahead, analysts expect CrowdStrike's earnings growth to accelerate nicely beginning in fiscal 2027. The company's full-year guidance indicates that CCP will negatively impact its growth in fiscal 2026. However, 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.
Investors who have missed CrowdStrike's rally in the past year would do well to exercise caution, considering its expensive valuation and the expected contraction in its bottom line in fiscal 2026. 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.
CrowdStrike is now offering multiple AI-powered cybersecurity tools to customers, including protecting large language models (LLMs) in collaboration with Nvidia. 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 the cybersecurity landscape continues to evolve, CrowdStrike remains a key player, leveraging AI and partnerships to drive growth and innovation. Despite the challenges, the company's long-term prospects remain strong, making it an interesting addition to any investment portfolio.
- The company's focus on AI-powered cybersecurity tools, as seen in its collaboration with Nvidia, aligns with the evolving cybersecurity landscape and could potentially drive future growth in revenue, given the expected increase in the revenue generated from sales of AI tools within the cybersecurity space.
- Technology companies like Nvidia, with their involvement in AI-related projects, could present fertile ground for investing, especially considering the projected growth in the cybersecurity industry and the potential increases in demand for AI-powered tools.
- Investors looking at the stock-market would need to be mindful of CrowdStrike's expensive valuation, given the drop in earnings and the expected contraction in fiscal 2026, and opt for a wait-and-see approach until the stock price presents a relatively attractive valuation.
- The evolving security landscape and the increasing need for cybersecurity solutions, fueled by advancements in technology and digitalization, highlights the potential for profitable investing opportunities in the finance sector, particularly in companies like CrowdStrike, which are innovating and adapting to the changing landscape through the use of AI.
