CrowdStrike shares slumped 11% in premarket trading on Thursday despite the cybersecurity company delivering better-than-expected quarterly results, as investors appeared unimpressed by annual recurring revenue growth and likely opted to lock in gains following a blistering rally.
The stock had been one of the strongest performers in the software sector, rising about 60% in May alone and roughly 65% so far this year, fueled by optimism that artificial intelligence would drive a new wave of cybersecurity spending.
That strong run-up, however, also raised the bar for quarterly results.
“The stock ran hard into the print on AI-security enthusiasm, and when a name is priced to perfection like this, even a strong quarter can get sold on the news,” Mark Malek, CIO at Siebert Financial, wrote on Wednesday ahead of the earnings release.
Earnings top estimates, but investors wanted more
CrowdStrike reported first-quarter earnings per share of $1.10 on revenue of $1.39 billion, exceeding Wall Street expectations of $1.07 per share and revenue of $1.36 billion, according to Fiscal.ai data.
The company also issued fiscal 2027 guidance that came in slightly ahead of analyst forecasts.
CrowdStrike expects revenue between $5.91 billion and $5.96 billion for the year, above estimates of $5.9 billion.
Earnings are projected between $4.88 and $4.96 per share, compared with consensus expectations of $4.87.
Yet investors focused on annual recurring revenue, a closely watched metric for software companies.
ARR grew 22% year over year to $4.44 billion, with net new ARR additions of $193.8 million during the quarter.
While growth remained healthy, several analysts said the upside fell short of elevated expectations.
Morgan Stanley analysts attributed the selloff to a “relatively skinnier net new ARR beat this quarter and elevated expectations following the stock’s 60% move over the last month.”
Jefferies echoed that view, noting that CrowdStrike’s ARR beat exceeded consensus by just $6 million, far below the $15 million to $29 million upside delivered over the previous four quarters.
AI investments drive costs higher
CrowdStrike has been positioning itself as a major beneficiary of the AI boom, rolling out products such as Falcon Data Security and Charlotte AI AgentWorks Ecosystem, a no-code platform developed alongside AWS, Nvidia, and OpenAI.
The company’s aggressive investment strategy has helped strengthen its competitive position but has also contributed to rising expenses.
Total operating expenses climbed 15% year over year to $1.07 billion, compared with $934.3 million in the same period last year.
Cybersecurity firms have largely emerged as winners from the AI wave, benefiting from growing enterprise demand for AI-powered security solutions even as broader concerns remain about AI disrupting parts of the software industry.
Shares of rival Palo Alto Networks fell nearly 3% on Thursday, though the company recently raised its annual profit forecast on strong demand trends.
Analysts remain constructive on the outlook
Despite the sharp market reaction, Wall Street analysts largely maintained their positive outlook on CrowdStrike.
Morgan Stanley said, “While near-term expectations may have been a bit elevated following the recent rally, we continue to see room for further multiple expansion as investors gain confidence in the durability of accelerating ARR growth through FY27.”
Jefferies lowered its price target slightly to $760 from $775 but maintained a Buy rating, while Barclays raised its target to $675 from $650 and reiterated its Overweight recommendation.
Barclays analyst Saket Kalia noted that net new ARR reached $256 million but missed the firm’s more optimistic upside scenario because deals tied to CrowdStrike’s Mythos launch in April are expected to take longer to close.
TD Cowen also remained bullish, raising its target price to $700 from $625 and reiterating a Buy rating.
The firm said investors were looking for a larger upside surprise after the stock’s rapid appreciation and added that the post-earnings decline should prove temporary.
Valuation remains a key debate
The sharp reaction also highlights growing scrutiny of richly valued AI beneficiaries.
CrowdStrike currently trades at 137.81 times estimated earnings for the next 12 months, according to LSEG data, compared with 68.91 times for Palo Alto Networks and 31.03 times for Okta.
Swissquote analyst Ipek Ozkardeskaya said the stock’s decline despite an earnings beat suggests investors are becoming increasingly willing to take profits after strong gains.
The move is “a sign that profit-taking is becoming increasingly attractive when valuations look stretched,” Ozkardeskaya writes.
She added that the reaction could be an early indication that parts of the technology sector may be vulnerable to a broader summer correction, particularly among stocks that have rallied sharply on AI enthusiasm.
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