CrowdStrike stock sinks as forecast disappoints and IT outage impact lingers

CrowdStrike Holdings Inc. shares slid almost 6% on Wednesday, after the cybersecurity firm forecast revenue for the current quarter that missed Wall Street expectations, raising concerns among investors even as the company posted strong first-quarter results.

In a statement issued Tuesday, the Austin-based firm said it expects revenue of up to $1.15 billion in the second quarter, slightly below the average analyst estimate of $1.16 billion.

The cautious outlook overshadowed better-than-expected earnings and positive recurring revenue metrics for the three months ended April 30.

CrowdStrike first-quarter earnings beat fails to impress investors

For the April quarter, CrowdStrike reported adjusted earnings of 73 cents per share, comfortably ahead of Wall Street’s projections.

The company also posted annual recurring revenue (ARR) in line with analysts’ estimates, while new ARR came in above expectations.

Despite these positive figures, shares dropped in New York trading, reflecting the market's disappointment with the revenue guidance and ongoing concerns about the company’s long-term trajectory.

Layoffs and investigations continue to weigh

CrowdStrike’s stock had already faced scrutiny in recent months following a decision in May to cut about 500 employees as part of its broader strategy to achieve $10 billion in annual recurring revenue.

The move, which came with an estimated charge of up to $53 million in severance and other costs, sparked debate over whether the company’s aggressive growth plans stemmed from strategic foresight or underlying challenges.

Further complicating matters, the company remains under investigation by US prosecutors and regulators over a $32 million transaction with technology distributor Carahsoft Technology Corp.

Officials are examining whether CrowdStrike executives had prior knowledge of the deal’s implications and are reviewing other similar transactions.

The company has stood by its accounting practices in public statements, while Carahsoft has declined to comment.

Fallout from last year’s outage still lingers

Tuesday’s report marked the fourth quarterly update since a high-profile outage last July, when a CrowdStrike software update triggered system crashes that impacted major businesses and critical services worldwide.

The company launched a “customer commitment package” in response to the crisis but ended that program earlier this year.

Analysts and investors continue to assess the long-term reputational effects of the incident.

Valuation premium raises concerns

Even with the recent decline, CrowdStrike shares are up around 32% year-to-date.

However, its valuation remains steep — trading at nearly 124 times forward earnings, compared to 54 times for Palo Alto Networks and 82 times for Zscaler.

Bank of America downgraded CrowdStrike to Neutral from Buy on Wednesday, citing limited upside potential given the stock’s current valuation and emerging concerns over its future growth trajectory.

While the brokerage expressed confidence in CrowdStrike’s business fundamentals and long-term growth prospects, its analysts said the stock’s premium valuation—currently trading at 20 times estimated 2026 enterprise value-to-sales—offers little room for near-term gains.

Despite the downgrade, Bank of America raised its price target on CrowdStrike shares to $470 from $420, reflecting broader multiple expansion across the cybersecurity sector.

However, the new target suggests a modest upside of just 3% from the stock’s recent closing price of $457.

Some analysts remain optimistic.

"We believe CRWD is taking share from other vendors across their product offerings," Truist Securities said.

At least 18 brokerages raised their price targets following the Q1 results, citing confidence in the firm’s operational strength and recurring revenue model.