CrowdStrike Stock Has Soared This Year. But Are Shares Overvalued Now?

Shares of CrowdStrike (NASDAQ: CRWD) have been on a tear this year as investors focus on the cybersecurity leader's growth prospects. The company, which sells cloud-based security software that helps businesses protect their data and devices, has seen impressive growth this year. Helping bolster the bull case, management recently laid out some impressive long-term financial targets.

That backdrop, combined with upbeat commentary on the company's AI (artificial intelligence)-native platform, has helped the case for the stock. But has the stock's valuation gotten ahead of itself? Or are shares still attractive?

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Growth remains impressive

In its second quarter of fiscal 2026, CrowdStrike grew revenue 21% year over year to $1.17 billion, an acceleration from the 20% growth it posted in the fiscal Q1.

Fiscal Q2 subscription revenue rose 20% as customers continued to add more modules and expand their spending on the Falcon platform. Net new annual recurring revenue climbed to a record $221 million, and total annual recurring revenue reached $4.66 billion, up 20% year over year.

Highlighting how lucrative CrowdStrike's business is on a cash flow basis, the quarter's free cash flow came in at roughly $284 million, or 24% of revenue.

In CrowdStrike's fiscal second-quarter earnings call, chief financial officer Burt Podbere highlighted strong demand for the company's AI-native Falcon platform and Falcon Flex subscription model. That demand helped increase the number of large deals and pushed the count of customers with at least $1 million in annual recurring revenue to new highs. Even more, the company's total deals valued at over $10 million doubled year over year.

Looking ahead

CrowdStrike's business seems to be inflecting. Indeed, management said it expects at least 40% year-over-year growth in net new annual recurring revenue in the second half of fiscal 2026.

For the third quarter of fiscal 2026, CrowdStrike expects revenue to grow 20% to 21% year over year.

But not everything is positive. The overhang from last year's high-profile outage continues to drag on the business. Management expects outage-related incentives to trim between $10 million and $15 million from revenue each quarter. In addition, the company plans to make $51 million in cash payments tied to the incident in fiscal Q3. But as these outage-related costs fade into the rearview mirror, CrowdStrike will finally escape this headwind, and this should ultimately help growth.

Worth more than $500 per share?

With such strong year-to-date growth and upbeat expectations from management for the second half of the fiscal year, shares have surged this year. As of this writing, they are up more than 50%. That move has lifted CrowdStrike's market capitalization to more than $130 billion and pushed its price-to-sales ratio to more than 30.

That multiple notably sits well above the roughly mid-20s range investors were paying for most of the past year -- a level that was already a stretch, even for a company with CrowdStrike's growth profile.

Of course, the bulls would likely counter, saying that the company has plans to more than double its annual recurring revenue to $10 billion by fiscal 2031. But I still don't believe this is enough to justify the growth stock's current valuation. Sure, if CrowdStrike pulls this off, there's always a chance that the stock does decent from here. But the current price doesn't leave much room for any slip-ups -- an important factor investors should look for when buying shares of a company in a fast-changing and intensely competitive industry.

The risks are real. Deep-pocketed tech giants like Microsoft offer cybersecurity services as well -- and they could potentially take market share by outspending CrowdStrike on product development, advertising, or both -- or by bundling more of its cybersecurity services with other offerings.

Overall, CrowdStrike is a great company. But the current price doesn't leave enough margin of safety, in my opinion.

Daniel Sparks and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends CrowdStrike and Microsoft. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.