This Super Software Stock Is Up 1,100% Since Its 2019 IPO, but Its Momentum Is Stalling. What Should Investors Do From Here?

Key Points

• CrowdStrike offers powerful cybersecurity solutions for businesses.

• The company's annual recurring revenue hit a record high of $4.6 billion in the recent quarter, but that figure could double over the next five years.

• The stock has soared more than tenfold since its IPO in 2019, but its valuation might be a barrier to further upside in the short term.

• 10 stocks we like better than CrowdStrike ›

CrowdStrike (NASDAQ: CRWD) is one of the fastest-growing vendors in the cybersecurity industry, thanks to its all-in-one Falcon platform, which makes it easy for enterprises to protect all of their critical assets.

Its stock has soared more than 1,100% since going public in 2019. After losing its momentum for the past several weeks, CrowdStrike released a very strong set of financial results for its fiscal 2026 second quarter (ended July 31) on Aug. 27.

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Shares have begun to bounce back with CrowdStrike's business firing on all cylinders. However, its sky-high valuation might put a ceiling on the stock, which is still down 18% from its all-time high. Should investors buy this dip, or is further downside on the way?

Image source: Getty Images.

Falcon is a true all-in-one cybersecurity platform

Many cybersecurity vendors specialize in a single area, whether it's vulnerability management or identity protection. With Falcon, businesses can streamline their cybersecurity stack and consolidate all of their spending in one platform because it features 30 different modules (products) that protect cloud networks, employee identities, endpoints (computers and devices), and more.

Not every employee can be a cybersecurity expert, so Falcon uses artificial intelligence (AI) to automate everything from threat detection to incident response. This means the platform operates seamlessly in the background with little human intervention required. However, CrowdStrike also developed the Charlotte AI virtual assistant to help businesses get to the bottom of breaches quickly when necessary, which is saving managers an average of 40 hours per week, according to the company.

Businesses are also turning to Falcon to help them deploy AI software safely. Since it already defends cloud networks and endpoints, which are where AI models are typically deployed and accessed, it's an ideal solution.

CrowdStrike's revenue growth just reaccelerated

CrowdStrike generated $1.17 billion in revenue during its fiscal 2026 second quarter, which was above management's forecast of $1.15 billion. It was an increase of 21% year over year, which marked an acceleration from the 20% growth the company delivered in the first quarter. This was a welcome development after a years-long streak of decelerating growth.

The strong Q2 result was partly attributable to CrowdStrike's relatively new Falcon Flex subscription option, which allows businesses to shift their annual contracted spending between different modules as their needs change. Over 1,000 customers are already on Flex plans, which is impressive considering it was only launched in 2023. Furthermore, 100 of those customers "re-flexed" during Q2, meaning they exhausted their budgets and came back for more.

Importantly, Flex encourages customers to try more modules, which ultimately drives more spending.

CrowdStrike also made progress on the bottom line last quarter. It generated $237 million in adjusted (non-GAAP) net income, which translated to earnings of $0.93 per share. That was above management's guidance of $0.83 per share.

CrowdStrike's valuation leaves little room for short-term upside

The main reason CrowdStrike stock has trended lower over the last couple of months is its sky-high valuation. It's trading at a price-to-sales (P/S) ratio of 25.3, making it by far the most expensive pure-play cybersecurity stock in the industry.

In fact, CrowdStrike is trading at a whopping 54% premium to Palo Alto Networks, which is the company's biggest rival in the all-in-one, AI-powered cybersecurity space.

Data by YCharts.

Unless CrowdStrike regularly delivers spectacular quarterly results that top the market's expectations, it's going to be very hard for the stock to deliver sustainable upside from this level in the short term.

However, there is certainly a path to further upside over the long run. The company is aiming to achieve $10 billion in annual recurring revenue (ARR) by fiscal 2031, more than doubling from the $4.66 billion in ARR it reported at the end of Q2. If that forecast comes to fruition, CrowdStrike stock is probably a bargain today for investors who are willing to hold it for the next five or more years.

Moreover, the company values its total addressable market at $116 billion today, and it expects that number to more than double to $250 billion over the next four years. Therefore, even with $10 billion in ARR, CrowdStrike will have only scratched the surface of its opportunity.

Investors who are looking for quick gains over the next 12 months or so should probably steer clear of this stock, but those willing to hold it long term could still see market-beating returns.

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Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends CrowdStrike, SentinelOne, and Zscaler. The Motley Fool recommends Palo Alto Networks. The Motley Fool has a disclosure policy.