Jim Cramer Backs CrowdStrike as Cybersecurity Demand Grows

CrowdStrike Holdings, Inc. (NASDAQ:CRWD) was among the Nasdaq 100 winners Jim Cramer highlighted during Mad Money on October 1. Discussing the recovery in cloud software stocks, he commented:

Alright, what about the Nasdaq 100, which finished up 2.47%?… Cloud software cohort came roaring back and we got some takeover chatter. We know that cybersecurity is incredibly important. We own CrowdStrike for the Charitable Trust. Now, I’m feeling real good about it because it rallied 39%.

Previously, Cramer said that the company is emerging as a beneficiary of growing concerns over the cybersecurity risks created by artificial intelligence.

AI Security Expansion And Accelerating Customer Commitments

CrowdStrike Holdings, Inc. (NASDAQ:CRWD) expanded its Google Cloud relationship on September 1, announcing Falcon capabilities designed to protect enterprise AI applications. The integration extends protection against prompt injection, sensitive-data leakage, and malicious AI activity through Google’s Agent Gateway. The company also announced broader connections between Falcon and Gemini Enterprise for security operations and AI governance.

The expansion follows a fiscal second quarter in which revenue increased 26% year-over-year to approximately $1.47 billion. Annual recurring revenue (ARR) reached approximately $5.84 billion, up 25%, with $332.8 million of net new ARR added during the quarter. ARR from customers using Falcon Flex exceeded $2.29 billion, rising 101% from a year earlier.

Cash generation also improved. Operating cash flow increased to $530.3 million from $332.8 million, while free cash flow rose to $377.4 million from $283.6 million. Management raised its full-year fiscal 2027 net new ARR growth outlook to 34% at the midpoint. CrowdStrike ranks #9 on our list of 11 Best Agentic AI Stocks to Buy Right Now. See which 8 AI stocks ranked higher than CRWD.

The Stock Trades at a Large Premium

CrowdStrike Holdings, Inc.’s (NASDAQ:CRWD) valuation exceeds that of close cybersecurity competitor Palo Alto Networks. The company has forward earnings multiples of approximately 210x for CrowdStrike and 96x for Palo Alto Networks.

Additionally, the gap between adjusted and GAAP profitability remains significant. The company reported $371.6 million in non-GAAP operating income for its fiscal second quarter but a $33.2 million GAAP operating loss. Stock-based compensation expense and related employer payroll taxes totaled approximately $399 million in the quarter.

Legal exposure from the July 2024 outage also remains unresolved in the company’s latest quarterly filing. CrowdStrike reported that discovery was ongoing in Delta’s lawsuit, which seeks monetary and punitive damages. The filing also disclosed requests for information from the Justice Department and SEC concerning revenue recognition, ARR reporting for certain customers, and the outage and related matters. CrowdStrike said it was cooperating. These disclosures describe claims and inquiries, rather than findings of wrongdoing. The company also recently got cleared of one of its legal hurdles.

Fund Ownership Broadens As Short Interest Remains Limited

CrowdStrike Holdings, Inc. (NASDAQ:CRWD) appeared in 89 hedge fund portfolios at the end of Q2, up from 79 in Q1, according to Insider Monkey’s database of more than 1,000 funds. Among those hedge funds, D E Shaw was the largest shareholder. It is worth noting that the firm increased its holdings in the company by 18% in Q2 to 8.5 million shares. Other notable funds such as Renaissance Technologies and Polar Capital also initiated significant positions in the company with 3 million and 2.15 million shares, respectively. Short interest amounted to 2.77% of the public float, a relatively small proportion that does not, by itself, establish broad investor confidence.

Cramer’s enthusiasm accompanies rising recurring revenue and expanded AI security offerings. The valuation premium, GAAP operating loss, and unresolved legal matters provide the principal counterpoints to that operating progress.

While we acknowledge the potential of CRWD as an investment, we believe certain AI stocks offer greater upside potential and carry less downside risk. If you’re looking for an extremely undervalued AI stock that also stands to benefit significantly from Trump-era tariffs and the onshoring trend, see our free report on the best short-term AI stock.

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