Will CrowdStrike's Goodwill Strategy Pay Off in Revenue Gains?

Key Points

• CrowdStrike stock is back in the green as investors believe the demand for cybersecurity will outweigh economic uncertainties.
• Revenue growth for CrowdStrike's Falcon platform slowed in FY2025 due to a customer compensation package after a 2024 outage; but analysts expect that headwind to become a tailwind.
• Analysts remain optimistic about CrowdStrike, with a recent Overweight rating and a price target of $450.

CrowdStrike Holdings Inc. NASDAQ: CRWD stock has turned positive after a peak-to-trough drop of around 12% after the Trump administration announced sweeping new tariffs that caught many investors off guard. The tariff announcement is the latest headwind for technology stocks, including cybersecurity stocks that were among the biggest gainers in 2024.

It’s too early to know the full impact of tariffs. Retail investors tend to sell first and ask questions later. However, conventional wisdom says the tariff announcement could be the catalyst that institutions needed to move overpriced stocks. If that’s the case, there could be more downside ahead.

Other analysts believe that cybersecurity stocks will be winners as the dust settles. That’s why insiders, including members of Congress, are buying CrowdStrike and other sector leaders like Palo Alto Networks Inc. NASDAQ: PANW.

Who Is Right About the Impact of Tariffs on Cybersecurity Stocks?

Markets hate uncertainty, and so do businesses. That’s why investors were selling CRWD stock along with other cybersecurity stocks. The thinking is that businesses would cut back on spending in other areas to manage the added cost from tariffs, which would mean cutting cybersecurity spending.

But Dan Ives of Wedbush is striking a more bullish tone. In a client note written on Apr. 7, Ives cited his belief that cybersecurity stocks are a defensive play as investors rotate away from semiconductor stocks. Morningstar shared this opinion, adding that cybersecurity tends to be among the last cuts that a company will make.

That makes sense because of the ongoing AI revolution. Cybersecurity increasingly relies on AI to combat the changing nature and scope of business threats.  

What Happens as the Test Drive Ends

CrowdStrike’s leading product is its Falcon platform. This series of modules allows customers to address the areas of cybersecurity that are most important to them. Over the past two years, the company has shown strong retention, and customers are starting to add additional modules. That’s one reason the company’s topline revenue has been surging higher year over year (YOY).

Remove Ads

After the much-publicized outage in July 2024, CrowdStrike took the important measure of offering customers some of the modules within its Falcon platform at no cost. This “customer commitment” package was an effort to mitigate the impact of the outage, which was sparked by a software update glitch.

That’s reduced YOY revenue growth, which was in the low 30% range, to around 25% in the most recent quarter. When the package was first announced, the company said it would impact net new annual recurring revenue (ARR) and subscription revenue by around $60 million in the second half of its 2025 fiscal year, which just ended.

But an important caveat is that CrowdStrike has delivered record revenue of over $1 billion in each of the last two quarters. Going forward, those packages will end. The bull case is that customers who have become accustomed to “test driving” these modules will now pay for them, increasing the company’s revenue and revenue growth.

Can CRWD Stock Regain Its Bullish Momentum

Since the sell-off, CrowdStrike stock has dropped below several key moving averages. And with being one of the last stocks to report earnings, there isn’t likely to be an immediate catalyst for the stock.

But the reversal in CRWD stock, no matter how tepid, suggests that as analysts have had a weekend to think about things, they’ve decided that cybersecurity is still a good sector in which to invest. Prior to the earnings call on Apr. 1, Stephens initiated coverage on CRWD stock with an Overweight rating and a $450 price target. That’s 12.5% above the consensus price of $400.88.