We came across a bullish thesis on CrowdStrike Holdings, Inc. (CRWD) on Substack by Bulls On Parade. In this article, we will summarize the bulls’ thesis on CRWD. CrowdStrike Holdings, Inc. (CRWD)'s share was trading at $380.24 as of Feb 27^th. CRWD’s trailing and forward P/E were 745.57 and 87.72 respectively according to Yahoo Finance.

CrowdStrike faced a severe reputational setback on July 19, 2024, when a faulty update caused a widespread computing outage, resulting in major operational disruptions for customers. This event, dubbed the "Blue Screen of Death" incident, led to an immediate and sharp decline in CrowdStrike’s stock, which fell from $343.05 to $263.91 within days, eventually hitting an intraday low of $200.81 on August 5. However, the company's long-term fundamentals remained intact, and its stock has since fully recovered, now trading around $400. The incident presented a rare buying opportunity, as the market reaction created a temporary dislocation in an otherwise strong business with a dominant position in cybersecurity.

The core thesis for investing in CrowdStrike remains unchanged, driven by a significant secular trend in cybersecurity: enterprises consolidating multiple security tools into single platforms to enhance efficiency and reduce costs. As businesses seek comprehensive, cost-effective solutions, CrowdStrike’s Falcon platform continues to be a leader in endpoint security, offering a cloud-native solution that provides a competitive moat. This trend has been further reinforced by macroeconomic pressures pushing companies to streamline their operations, making Falcon an increasingly attractive option.

Despite the long-term tailwinds, the Blue Screen of Death incident has introduced near-term headwinds that will likely impact the company's financials over the next several quarters. In response to customer dissatisfaction, CrowdStrike has implemented "customer commitment packages," including discounts and incentives to secure longer-term contracts. While this move is strategically beneficial for customer retention and increasing platform adoption, it will temporarily weigh on revenue growth, with net new Annual Recurring Revenue (ARR) and subscription revenue expected to take a $60 million hit in the back half of FY 2025. Additionally, these packages extend subscription terms, delaying the company's ability to upsell and potentially increasing customer churn risk.

Beyond revenue impacts, the incident is expected to negatively affect CrowdStrike’s free cash flow (FCF). The company is offering more flexible payment terms to customers, which may increase accounts receivable and reduce immediate cash inflows. Furthermore, legal fees, investigations, and additional customer support expenses will push up General and Administrative (G&A) costs, pressuring operating margins. Management has already refrained from providing full-year FCF margin expectations, suggesting a cautious outlook on cash flow generation in the near term.

Despite these challenges, CrowdStrike’s long-term financial strength remains evident. In Q2 FY 2025, its subscription revenue grew 33% year-over-year, with total ARR reaching $3.86 billion, up 32% annually. However, net new ARR growth decelerated to 11% from 22% in Q1, partially due to disruptions from the July incident. Management noted that prior to the outage, net new ARR was on track for a stronger quarter, with over $60 million in deals remaining open, expected to close in future quarters. The company’s non-GAAP operating income rose 46% year-over-year, demonstrating operating leverage. Moreover, CrowdStrike maintains a strong balance sheet, with $4.04 billion in cash and only $743.2 million in long-term debt, providing flexibility to navigate near-term challenges.

Looking ahead, CrowdStrike expects lingering headwinds for about a year, but management remains committed to achieving $10 billion in ARR by FY 2031. The stock's valuation will likely be influenced by the pace of net new ARR recovery, as well as improvements in FCF generation. Investors should closely monitor these metrics in upcoming quarters, as any further deceleration could pressure the stock, while a surprise acceleration could trigger a rally. While short-term risks remain, the company's strong positioning in cybersecurity consolidation and its robust financial profile reinforce the potential to hold the stock as a long-term investment.

CrowdStrike Holdings, Inc. (CRWD) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 77 hedge fund portfolios held CRWD at the end of the third quarter which was 74 in the previous quarter. While we acknowledge the risk and potential of CRWD as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than CRWD but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

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Disclosure: None. This article was originally published at Insider Monkey.