Why CrowdStrike (CRWD) Shares Are Getting Obliterated Today

Anthony Lee /
2024/03/05 2:11 pm EST

What Happened:

Shares of cybersecurity company CrowdStrike (NASDAQ:CRWD) fell 6.8% in the afternoon session after stocks declined, with investors likely taking profits. The Nasdaq fell 1.6%, while the S&P 500 was down 0.9%. Some of the big tech names felt the heat, with Tesla, Netflix, and Microsoft all declining by more than 2%. Notably, iPhone manufacturer Apple was also down nearly 3% following a research report by Counterpoint that suggested a decline in iPhone sales in China in the first six weeks of the year. The weak demand report could signal that the purchasing power of consumers in the region is weakening. Otherwise, we have found no other fundamental or rate-related reasons explaining the broad market decline. 

It is a week packed with information for investors to digest. Fed Chair Jerome Powell will give updates to Congress on March 6th and 7th, 2024, about the current monetary outlook, recent policy actions, and progress toward bringing inflation back down. Finally, on March 8th, the Bureau of Labor Statistics will report nonfarm payrolls for the month of February. The insight gleaned from the economic data and updates during the week could inform the market's outlook on equities and other assets for better or worse. Investors expect the Fed to begin cutting rates this year, with the expectation of the first rate cut as early as the first half of the year. 

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.

The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks. Is now the time to buy CrowdStrike? Access our full analysis report here, it's free.

What is the market telling us:

CrowdStrike's shares are quite volatile and over the last year have had 16 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 12 days ago, when the company gained 5.8% as chip and AI stocks surged alongside broader market gains, with the Nasdaq rising by 2.1%, the S&P 500 by 1.5%, and the Dow gaining 0.57% following Nvidia's outstanding earnings results. 

During its Q4'2024 earnings, Nvidia reported impressive topline results (7.6% revenue beat), big gross margin improvement, and EPS outperformance vs. Wall Street's estimates. Notably, revenue grew 265% year-on-year and 22% sequentially during the quarter. The strong topline performance was mostly driven by the data center segment, which was up 409% year-over-year and 27% sequentially as demand for Nvidia processors optimized for generative AI, LLMs (large language models), and other AI workloads continued to accelerate. The company estimated that roughly 40% of Data Center revenue was driven by AI-related applications. Guidance for the next quarter was also good, with revenue, gross margin, and implied operating profit coming in ahead of expectations. Overall, Nvidia's strong performance during the quarter highlighted the growing demand for AI-related technology and demonstrated the abundant growth opportunity for innovators within the space.

CrowdStrike is up 18.3% since the beginning of the year, but at $291.93 per share it is still trading 12.7% below its 52-week high of $334.55 from February 2024. Investors who bought $1,000 worth of CrowdStrike's shares at the IPO in June 2019 would now be looking at an investment worth $5,034.

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