CrowdStrike’s dramatic setback could be a boon for Palo Alto. CrowdStrike’s software update last week caused the largest IT outage in history, disrupting computer and technology systems around the world and damaging the reputation of cybersecurity companies. While there is a low risk that CrowdStrike will lose existing customers, the outage could affect its ability to attract new ones, BTIG wrote in a client note on Monday. Those customers could move to Palo Alto, a cybersecurity rival and Club’s holding company. “We see Palo Alto as a potential beneficiary because they may be able to get some business from it,” said Jeff Marks, director of portfolio analysis at Investment Club. BTIG analysts said CrowdStrike committed a “cardinal sin” for any security provider: hitting customer revenue generation. Early Friday morning, Microsoft Windows devices at airlines, banks and health care providers around the world were taken offline for a CrowdStrike-issued Falcon product update. This is a platform that CrowdStrike designed to prevent cybersecurity breaches using cloud technology, which requires deep access to each computer’s operating system. According to Microsoft, the incident affected 8.5 million Windows devices. The impact was widespread, as CrowdStrike’s services are used by many Fortune 500 companies. CrowdStrike says a fix for the flaw has been rolled out. CrowdStrike shares plunged 22.7% from Thursday’s close and 11% on Monday following some notable negative Street notes. Guggenheim Securities downgraded the company to “neutral” from “buy” on Monday. “The company’s stock is trading at the highest recurring revenue multiple across our software coverage, so we are exiting for now,” the analysts said. It will take time for the company to repair its image, but investors looking several years ahead will be able to weather this. Oppenheimer removed CrowdStrike from its list of top picks for 2024, citing near-term stock price pressure. Meanwhile, BTIG and Scotiabank both downgraded the stock to hold from buy. Palo Alto shares have yet to see a significant bounce on the news, up just 2.7% from Thursday’s close. Jim Cramer said the market reaction is unwarranted and that portfolio stocks should see a rise. PANW YTD Mountain Palo Alto Networks (PANW) Year-to-Date Performance We are bullish on Palo Alto long-term because Palo Alto has demonstrated great leadership under CEO Nikesh Arora and also dominates its respective market as the only truly integrated cybersecurity company. Additionally, Jim recently said Palo Alto is tied to “one of the greatest secular growth themes,” ensuring that demand for the company’s products will grow regardless of the macroeconomic environment. “There are only two companies doing this kind of cloud technology: Crowdstrike and Palo Alto, which is starting to perform better with this ‘platformization’ strategy,” Cramer said. Currently, Palo Alto shares are rated 2 with a target price of $360. (Jim Cramer’s Charitable Trust is long PANW and MSFT. See the complete list of stocks here.) Subscribers to Jim Cramer’s CNBC Investment Club receive trade alerts before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling shares in the Charitable Trust’s portfolio. If Jim talks about a stock on CNBC television, he waits 72 hours after issuing a trade alert before executing the trade. The above Investment Club information is subject to our Terms of Use and Privacy Policy, as well as Disclaimer. No fiduciary duty or liability is created by the receipt of any information provided in connection with the Investment Club, nor is there any guarantee of any particular results or benefits.
CrowdStrike develops software that helps businesses manage security in their IT environments.
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CrowdStrike This dramatic setback may be to Palo Alto’s benefit.
A software update from CrowdStrike last week The biggest IT blackout in history The disruptions to computer and technology systems around the world have damaged the reputations of cybersecurity companies. While there is a low risk that CrowdStrike will lose existing customers, the outages could affect its ability to attract new ones, BTIG said in a client note on Monday.
