Alphabet Just Slashed Its Stake in This Monster Artificial Intelligence (AI) Cybersecurity Stock. Should You Follow?

Each quarter, investment firms that manage over $100 million are required to file a form 13F with the Securities and Exchange Commission. Essentially, a 13F breaks down which stocks institutional money managers bought and sold during the last quarter -- thus providing some clues as to what the "smart money" on Wall Street is thinking.

Outside of traditional investment funds, though, large corporations with investments in other companies are also required to file a 13F. Last quarter, artificial intelligence (AI) behemoth Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG) trimmed its stake in a red-hot cybersecurity stock by 83%.

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Let's analyze what stock Alphabet just sold, and explore why it may have done so. From there, I'll provide my opinion on whether or not now is a good time to follow Alphabet's lead.

What stock did Alphabet just dump?

One of Alphabet's bigger sells during Q1 was in CrowdStrike (NASDAQ: CRWD). The table below illustrates the number of shares Alphabet owned in CrowdStrike over the last year.

Data source: 13F.info.

While Alphabet started to meaningfully trim its position in CrowdStrike around this time last year, the internet and cloud leader hadn't made any changes to its exposure in the cybersecurity stock for the last three consecutive quarters.

So why now? I can think of two big reasons why Alphabet may have just significantly reduced its position in CrowdStrike.

Image source: Getty Images.

Why might Alphabet have sold CrowdStrike stock?

Since the end of Q1 2024, shares of CrowdStrike have gained 43% (as of this writing). Not only does that demolish the returns generated by the S&P 500 and Nasdaq Composite, but it's also considerably higher than many of CrowdStrike's peers in the cybersecurity space.

CRWD data by YCharts

Remember, last summer CrowdStrike was at the center of a public relations disaster after a bug was found in its software platform -- causing widespread outages across the globe in many of its customers. Despite this minor crisis, CrowdStrike stock has proven resilient and bounced back from its epic sell-off last July. Given these dynamics, I think Alphabet chose to sell into some momentum and take some gains off the table.

Given CrowdStrike's most recent financial guidance didn't exactly impress investors, I think Alphabet's decision to sell when it did could prove quite savvy.

The bigger reason I think Alphabet reduced its exposure to CrowdStrike, however, is due to the company's recent acquisition of Wiz.

Over the last few years Alphabet has made a flurry of acquisitions in the cybersecurity space. To me, rolling Wiz into its cloud-based cybersecurity products -- which is also part of Alphabet's growing AI division -- represents an opportunity to compete more directly with CrowdStrike.

Is CrowdStrike stock a buy right now?

The chart below benchmarks CrowdStrike against a peer set of other cybersecurity software stocks based on the price-to-sales (P/S) multiple.

CRWD PS Ratio data by YCharts

CrowdStrike is one of the priciest stocks in this cohort, trailing only Cloudflare by a narrow margin. What's more is the disparity between the multiples in CrowdStrike and its peers is huge and appears to be widening!

Even with this valuation expansion, CrowdStrike's current P/S of 28.8 is 56% below its five-year high of 65.7.

With that in mind, I think CrowdStrike is actually beginning to show signs of a maturing business. What I mean by that is the valuation may appear overextended upon first glance, but when you consider longer-term trends, shares could be seen as reasonable right now. In fact, CrowdStrike's P/S levels have essentially rebounded back to where they were prior to the sell-off last summer when news of the outage broke.

To me, Alphabet trimmed its stake in CrowdStrike for strategic reasons due to the ongoing integration with Wiz and perhaps is looking to reallocate capital into less volatile opportunities. I don't think there was much else driving the decision to sell CrowdStrike stock.

I see CrowdStrike as a compelling opportunity at the intersection of AI and cybersecurity -- both of which are enormous and expanding addressable market opportunities. Investors with a long-run time horizon may want to consider scooping up shares of the cybersecurity leader right now at its current valuation.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Adam Spatacco has positions in Alphabet. The Motley Fool has positions in and recommends Alphabet, Cloudflare, CrowdStrike, Datadog, Fortinet, Okta, and Zscaler. The Motley Fool recommends Palo Alto Networks. The Motley Fool has a disclosure policy.