In late January, cloud-based cybersecurity firm CrowdStrike (CRWD 2.38%) surpassed a $100 billion market cap valuation for the very first time in its historical past. That valuation locations CrowdStrike in rarified firm — few companies are value this a lot, whatever the business. However amongst pure-play cybersecurity firms, it is in much more elite firm.
Palo Alto Networks (PANW 1.88%) is the one different pure-play cybersecurity inventory that is achieved a $100 billion market cap. However there’s a distinction between these two firms. Palo Alto Networks was based in 2005 and handed a $100 billion valuation in late 2024. For its half, CrowdStrike was based in 2011 and handed this milestone in early 2025.
In different phrases, Palo Alto Networks handed the $100 billion threshold mere weeks earlier than CrowdStrike. However CrowdStrike had six fewer years to get there.
The street to $100 billion included velocity bumps — CrowdStrike had a disaster lower than one yr in the past. The corporate calls it the “July 19 incident.” A software program replace contained an error that knocked out info expertise techniques world wide. The inventory plunged greater than 40% as buyers puzzled if it might lose enterprise. However the inventory got here roaring proper again to new highs, as a result of CrowdStrike’s enterprise did not skip a beat.
Contemplating CrowdStrike is so huge already, is the inventory now as excessive as it would ever be? That is a query value exploring.
What might this imply for buyers at present?
For what it is value, Palo Alto Networks employed present CEO Nikesh Arora in 2018, and he quickly went on file predicting that his firm can be the primary $100 billion cybersecurity enterprise — rating one for Arora with this prediction come true. The corporate is thought for its management place in firewall {hardware} gadgets. However with quite a lot of acquisitions, Arora has positioned the corporate as a one-stop store for cybersecurity.
Being that it focuses on the whole cybersecurity area, Palo Alto Networks’ enterprise does overlap with CrowdStrike, which is extra targeted on cloud-based endpoint safety. However I imagine there’s room for each companies.
In keeping with a number of third-party analysis corporations, the cybersecurity area is value lots of of billions of {dollars} and is predicted to develop at a double-digit compound annual progress fee (CAGR) for years. In brief, the area is giant and rising quick, which signifies that a number of firms can take part within the upside, together with each Palo Alto Networks and CrowdStrike.
For its half, CrowdStrike does have a number of issues going for it. First, it is acknowledged as a frontrunner within the cybersecurity merchandise that it gives. For instance, Gartner named it a frontrunner in endpoint safety for the fifth straight yr in 2024. With this validation, clients are prepared to present it a strive, which unlocks an attention-grabbing alternative for CrowdStrike.
CrowdStrike does not supply a single software program product, however relatively a complete platform referred to as Falcon. Inside Falcon, the corporate gives 29 separate software program modules that work collectively and are simply deployed as wants come up. This has helped it obtain an unbelievable progress fee lately — present clients progressively subscribe to new modules, boosting their annual spend.
There’s a bonus to a enterprise mannequin reminiscent of this: There are up-front prices related to profitable a brand new buyer. However a lot of that expense (reminiscent of gross sales and advertising and marketing) is not there when clients purchase further modules. Which means that incremental income from new modules by present clients is increased margin.
This dynamic is why CrowdStrike is having fun with quick income progress in addition to quick free money movement progress. Its modules are simple to deploy, resulting in quick progress. And every new module is excessive margin, resulting in a lift in free money movement.
CRWD Free Money Move Per Share information by YCharts
Now, CrowdStrike clearly had a lot increased long-term upside when it was nonetheless a small firm. That mentioned, I do not imagine the nice occasions are over for shareholders now that the corporate is value $100 billion. Corporations that maintain excessive progress charges are persistently among the many finest long-term inventory performers. Those who additionally keep profitability are even stronger contenders. And I imagine that CrowdStrike can maintain doing each.
As famous, the cybersecurity market offers loads of further market alternative for CrowdStrike at present, so its income progress fee might keep excessive for the foreseeable future. Accordingly, its steering for the upcoming fourth quarter implies a powerful progress fee of over 20%. And since a lot of its progress might come from the adoption of further modules, there’s good motive to imagine free money movement will keep sturdy as properly.
In abstract, CrowdStrike’s speedy rise from start-up to $100 billion firm underscores progress developments in cybersecurity, the corporate’s management place within the area, and its advantageous enterprise mannequin. The long-term developments additionally stay in CrowdStrike’s favor, that means that $100 billion in all probability will not be the final momentous milestone on this journey.
Jon Quast has no place in any of the shares talked about. The Motley Idiot has positions in and recommends CrowdStrike. The Motley Idiot recommends Gartner and Palo Alto Networks. The Motley Idiot has a disclosure coverage.
