Shares of cybersecurity company CrowdStrike (NASDAQ:CRWD) jumped 6% in the afternoon session after major indices rose on strong momentum, with the S&P 500 set to hit 5,000 points for the first time. The Nasdaq also gained 1%, while the Dow Jones index rose 0.55% as stocks continued to report earnings. The earnings season has been good thus far, with positive reports from tech giants including Microsoft, Amazon, and Meta. These encouraging prints should likely help sustain growing optimism stemming from the expectations for positive gains in 2024, especially for AI-related stocks. Also, there are hopes that the Fed will begin to cut rates in the first half of 2024, a move that should help ease business conditions.
As a reminder, the driver of a stock's value is the sum of its future cash flows discounted back to today. With lower interest rates, investors can apply higher valuations to their stocks. No wonder so many in the investment community are optimistic about 2024. We at StockStory remain cautious, as following the crowd can lead to adverse outcomes. During times like this, it's best to own high-quality, cash-flowing companies that can weather the ups and downs of the market.
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What is the market telling us:
CrowdStrike's shares are quite volatile and over the last year have had 13 moves greater than 5%. In context of that, today's move is indicating the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The previous big move we wrote about was 29 days ago, when the company gained 5.4% on the news that Morgan Stanley analyst Hamza Fodderwala upgraded the stock's rating from Equal-Weight to Overweight and raised the price target from $203 to $304. The price target implied a potential 10% upside from where shares traded when the upgrade was announced. Fodderwala noted, "We see an improving demand outlook for CRWD as accelerating cyberattacks, multiple new products and [generative AI] tailwinds drive estimates upside." This upgrade aligns with a period marked by an uptick in geopolitical conflicts, which often result in attacks aimed at cyber assets. As a result, these trends could generate more demand for cybersecurity vendors as businesses must keep their networks and devices safe from threat actors.
CrowdStrike is up 29.3% since the beginning of the year. Investors who bought $1,000 worth of CrowdStrike's shares at the IPO in June 2019 would now be looking at an investment worth $5,504.
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