Episode 83 | CrowdStrike Sells Off. Where Does Cybersecurity Fit in the AI Era?

In Episode 83 of “Market News with Rodney Lake,” Professor Lake, director of the GW Investment Institute, provides a deep-dive analysis of CrowdStrike following a recent sell-off in cybersecurity. Lake highlights CrowdStrike’s strong fundamentals, including revenue growth above 20%, elite gross margins around 74%, and rising free cash flow. He also praises the company’s clean balance sheet, significant net cash, and founder-led management under George Kurtz. The episode examines potential risks, including the company’s high forward PE at 95x and the possibility that emerging AI platforms could require greater capital expenditure. Overall, Lake concludes that despite these uncertainties, CrowdStrike remains a high-quality business with strong long-term positioning as cybersecurity remains essential to modern technology.

Transcript

Thank you for joining Market News with Rodney Lake. This is a regular program for the GW Investment Institute where we talk about timely market topics. I'm Rodney Lake, the director of the GW Investment Institute. Let's get started. Welcome back to Market News with Rodney Lake. I'm your host, Rodney Lake. All right. Today's episode, we're coming to you from the George Washington University.
Duquès Hall. Duquès family studio, School of Business right here in the heart of Foggy Bottom. Welcome back. This is a GW Investment Institute podcast. This is for educational and informational purposes only, and hopefully some entertainment is spiced in there as well. All right. So today we're going to talk about a specific company. Now we do own this company again, not investment advice, in the student investment funds.
But it's been in the news. Today is February 24th 2026. When we're talking about this company that is CrowdStrike and so CRWD, cybersecurity company. We're going to go through, we're going to use the framework: business, management, price valuation, and balance sheet. So today we're diving into a specific company, not a general overview. But we're going to tackle this.
Now why are we tackling CrowdStrike right now. Well because we own it in the portfolio or some of the portfolios for the Investment Institute and it's sold off hard yesterday, and a lot of these companies have been hit hard because anthropic and, you know, specifically Anthropic, said, well, we have some security things and now, you know, so all security companies, CrowdStrike down 10% on that news.
And so but let's, given the circumstance, check it out. Let's dive in. Let's do, a little bit of our own work on this company will score each component. Remember we do one through ten for each component component. So business, management, price valuation, and balance sheet. Then we have a composite score. Pretty simply we weight them equals to 25 each for the category.
And we'll talk about each of those categories. But let's dive in. Let's try to get some basic stats on this company. So CrowdStrike again this is a cloud cybersecurity company. If you have not heard of it. Obviously an important role in the world of AI in the world of cybersecurity, it is important to have cybersecurity in the first place.
And certainly threats are seeming to go in one direction. And that is up. And they have been benefiting from that. And so but let's talk about what's happening with this company. Again, let's get some stats. So this company is, almost a $90 billion market cap again, as of Feb 24, 2026. So this is not a, this is not a, you know, an elite company, part of the mag 7, trillion category here.
But this is not a small company. Right. And so it's a approximately $90 billion market cap. So not not a smart and small company by any measure. But again, not the behemoths that sometimes we talk about with the mag seven and all the trillion dollar, you know, Microsoft, Apple, Nvidia, type of category. So, so when we talk about this company, on the business side.
So let's break down a little bit. Again, this is a cybersecurity company. So let's get some of the revenues, together here. Again, we mentioned the market cap. So what's the revenue for. And we, we if you've watched episodes before, we go back and by the way, shout out to our viewers and listeners in Germany. Thanks for tuning in.
There's a group of you out there. We appreciate you. Please keep coming back. All right, back to the analysis here. So what's revenue for 10/31/2025? That's the latest data here available, that we have. And so this is and so their fiscal year, by the way, is is a 1/31. So it's a little bit different.
That's why it's a little bit different on the data that we have. We'll, we'll soon be getting the, the 1/31/2026 data. And so that's why if it sounds like, why do we have 10/31/2025 data, that's because the fiscal year is 1/31. So here we go. So the revenue last 12 months through 10/31 here you're talking 4.5 billion.
And that's an increase of 22%. So that's a pretty good number right there. And now let's look back as we try to always do okay. That's one point of time. What's been happening. So 2022 was 1.4 up 66% to that point. Then I went up another 54% to 23 and I went to 2.2. And then to 24, it went up 36% to 3 billion and then 3.9,
So 30%, for 25. And that gets you to the 4.5 for 10/31/2025. And so the trailing 12 months. So those are big numbers right in the, the expectation for the 1/31, the estimate right now is 4.8. That's up 21%. And if you look at the 2027, they're expecting another 22% growth consensus here. For the 1/31/2027 number, which is obviously important.
And that's what that's what's getting compressed here. When you talk about people are starting to eat their lunch, specifically anthropic in the AI game in general. But right now, 5.8 22%, you know, move off of the 2026 number. So and that's a pretty big move for pretty big numbers. Right. So that's still growing really well. Now. what what's the quality of this business.
So when we talk about the quality of these businesses, you know, we generally go right into the gross in the net margin. So let's tackle those up next. So what are the gross margins for CrowdStrike? So again, ticker CRWD. This so for that 10/31, as we've been talking about 2025 gross margin, 74%. So this is exceptional.
This put puts this in the exceptional category. This is cloud native cybersecurity business. So right this you would think if you didn't know anything else about this business, that that could have the possibility of having high net gross margins. And it certainly does. So it's software, it's cloud enabled. You know, they have good high gross margins.
And so but let's look back. Is this a one off, just happened this year? No that's not the case. If you look in 2022 you're talking almost 74, in 23 73, 75 in 24, 75 in 25, and 74 for the 10/31 projected, actually going up to 78 and 78, that 1/31/2026 and 1/31/2027. So actually margin expansion from here.
Very good for a business. And so now what is different right now about this company that it's been growing, investing heavily and, and certainly, in a different category compared to some of the behemoths is that it has not been profitable. And, but it is projected to be profitable for the first time this year, for the full year.
And so if you look at check that it's been profitable once before in the last few years, but just mildly. So if you look at what's the net profit margins here? You're talking -15 in 2022, -8 in 2023 minus plus this is where it was mildly plus. So check what I had mentioned before. But you know not a huge problem but profit 3.2%.
And then -0.4 through ten 1/31/2025 and then the trailing 12 months, -3.9. Now it is projected come the end of the month that we get the numbers 1/31/2026 numbers that they're going to generate, a profit. So they're going to have, nearly a 20% profit margin. So that's a pretty big jump. And then the 2027 number is, is even it stays high and jumps up a bit more at 21%.
So those are really great metrics. And now so what else should we be tracking? We're talking about the quality of the business. And we'll bring this back when we talk about the balance sheet as well is. So maybe before we move on to that something about that. So the trajectory for those profit margins are very good. Right. We're seeing now that they're turning on that cash flow machine.
And they're going to go from, you know, eking out a profit in 2024, kind of break even the last couple of years, basically break even in 25. And right now, the trailing 12 months minus, you know, 4% to say for the full year, okay, fiscal year 1/31, we're going to be nearly a 20% profit. And we're projecting consensus 2027 1/31 at, almost 22%, 21.5 really.
So that's look, those are that's a big move off of where it is. And certainly that's then starts to generate more and more free cash flow. And so if you look at now back to the free cash flow, free cash flow in 2022 441 million, 676 in 23, 940 in 24. So, you know, a nice steady increase here in 25 a billion.
10/31/2025, is 1.1 billion and a projected 1.2 billion through the 1/31/26. And then next year, the 27 number 1/31 1.7. So pretty significant. And consistent increase in free cash flow. So as an investor, these things you love, you love seeing more free cash flow. And the company has been investing. So let's check out the CapEx numbers now these are not the these are not the enormous numbers that we've been talking about.
200 billion for Amazon, 150 billion for Google/Alphabet. But let's check where is the CapEx? Where is it here? So in the most recent period, we'll start in 25. So the trailing 12 months, through 10/31 is -356. And then the projected for the full year fiscal year 2026 1/31 284. So million, not billion. Just to be super clear, that's an M, not a B.
Very big difference. So if you look back actually it's actually declined, you know, which is the projected is declined a little bit. So if you look at the 2022 numbers, you're talking 131 million and then 264 in 23, 226 in 24, 313 in 25, 356 again through the 10/31 number projected, 284 for the 1/31/2026. And then it bumps up actually, back to 350 here for 2027 consensus.
So this is nowhere in the same neighborhood as what we've been talking about with the Mag seven and these these people playing to win. Now, maybe with the threats that we've talked about from AI, that they're going to have to bump up that CapEx and it's going to have to be spent on AI AI related activities to better position them to help basically fend off, so what's going to be maybe a competitor, which is could be Claude by anthropic and other AI, players that are running frontier models, maybe even Gemini, and others, or Grok or whoever it happens to be, or ChatGPT that says, okay, well, we actually can build stuff, that does at least part of their business, maybe not the whole thing.
Maybe you're not replacing the whole thing. But if you put a dent in their business, well, okay, that starts to put a dent in the gross margins, that starts to put a dent in the in the net margins that over time deteriorates free cash flow. And you got to invest more. And so it becomes a more competitive business. Then the gross margins come down, the net margin start to come back down.
And they just got them on the up side trajectory. The free cash flow slows down your and you have to invest more, to get to the same place so that that free cash flow number, even if everything else stays the same, which it's not deteriorating is going to go also go down because you got to put more capital to work, to make that happen.
So return on invested capital, you know, going lower, return on equity going lower, generally speaking. All right. All else being all is being equal. All right. So the business. So let's get back to the framework here for a moment to talk about okay. Well what would we grade that business. So generally speaking that's a pretty good business though.
The numbers that we have and the trajectory. Now waiting in how that's going to play forward for AI. So I think you ding it a little bit there. Right. And so certainly I think this is maybe a nine for the business given the trajectory and where it's going. The in it's kind of capital light generating a lot of free cash flow.
So I would then say at least a little bit you could say an eight. Let's give it an 8.5 for this category business as 25%. But we went over those numbers. Those are super solid numbers. That's elite territory for those gross margins. And the net margins are now coming to good territory. But but not elite. But the gross margins are elite.
And so that starts putting you in the right category. Taking a sip for my George Washington University School of Business smug excuse me.
And now let's dive into the management. So George Kurtz, founder and CEO, one of the things that investment advice, one of the things that we love about investing in companies are founders. And so Jensen Huang, for example, obviously. Great. And there are other examples. But it's, but here, you know, when a founder is leading the company, we generally consider that a great thing now.
Not that can you know, that doesn't always happen. It's not always the case that the founder can stay all the way through. And this becomes a bigger and bigger company. But, certainly at this point, Mr. Kurtz probably has plenty of money. But he, I think, wants to build an exceptional company. He navigated through, you know, they had a little bit of a crisis.
If you heard about the software update last year, they canceled a whole bunch of flights. That was CrowdStrike and with with Microsoft included there. But they cleaned that up. Retention was still very high in the 90s. From the even with that, that faux pas, I think it shows that there's an example of, well, this solution must be good.
If you had such a colossal public failure, and people stuck with it. And so, kudos to, Mr. Kurtz and his team for sorting through that. But also, it is a way that you can understand that if people were willing to stick with CrowdStrike through that, when, again, it was such a public failure and people understood what happened and, you know, you know, they had to do the mea culpa here.
But people stuck with the software retention still very high. Founder led company, capital allocation, we went through the stats has been very good again, capital light. They've been high gross margins generating good free cash flow increasing. And so the management team I think has been super solid. Very good track record their absolutely aligned, the track record has been aligned with investors and absolutely putting money to work in the R&D space, but certainly, again, not in the, you know, category of the Mag seven, but putting money to work and making the business better.
Now, maybe they're gonna have to do more of that. And I do think that's something to pay attention to. So what should we give the business there? Well, I would give that a nine. Excellent founder-led high points and high praise. So far again went through a tumultuous period there last year in 2025. Navigated through that and came out I think probably stronger on the other side.
So let's now move down to price versus valuation. All right. So let's start digging into some stats. And this is where sometimes it gets quite tricky to say okay well what is this actually worth. Are we paying too much. How is this company look from the perspective of valuation. Now remember the trailing PE, which we never really talk about, but here it's not going to exist because they haven't been really profitable consistently.
But there is a forward PE. But when you look at the forward PE it's 95. So the forward PE is still very high. Now a company that's growing this fast, has these gross margins is in a space that's probably going to continue to grow. Dan Ives consistently mentions this, as one of his favorites in the AI world, on the AI play when you talk about okay what's the play then in cybersecurity.
CrowdStrike is is one of his faves there. And he was on the show as a reminder. But the valuation is quite high, right? 95 it's not for the faint of heart. Now, when you factor in that, it seems like for cybersecurity, the trajectory is one way up. The threats are going up. So the demand for this is up now.
Then the countervailing force right now is, well, how's AI possibly going to eat their lunch? And even if they don't eat their full lunch, if they eat half of it, well that means earnings are down. And then that probably means that they have to invest more in the business to achieve the same results. So what does that mean?
Free cash flow is down. Return on equity is down. Return obviously capital down. So this happens when the competition starts coming in. So then very likely what's the multiple going to do. Likely that compresses. Right. And so even if you said well they're going to figure out a way to get the earnings and they're still going to grow at 20%.
So even if you say, okay, well we're going to get those earnings. Another challenge is, well, if they have to spend more to achieve the same earnings, the multiples are probably going to compress anyway because the business is not going to be as profitable. It's not going to generate as much free cash flow over time. And so that becomes an issue.
And so even though, okay, we're keeping up with the earnings, but we're going to still get pressed down. So we're not going to trade at a 95. We're going to get we're going to trade at a 75 or 65. And so that, you know, that's something that we need to watch for. And I think that's the price discovery that everyone's trying to work on in the market, certainly as a collective of individuals and institutions that are there in the market doing the price discovery, that's something that we're all working on now is 95 justify I don't know, some of these things.
If they're growing well and they're well positioned, and there's just going to be a few players that kind of an oligopoly that take the high end of the cybersecurity market. Well, maybe that is a deserved multiple. And if you look in the past Amazon as an example, Amazon looked expensive all the way up. And so the traditional metrics sometimes are very challenging to use for companies that are growing quickly in industries that are growing quickly.
And so be careful. The 95 is high, but if it's in a space that you think has good tailwinds, remember that investment advice, has super strong tailwinds and effectively is an oligopoly with some other players like Palo Alto. As an example, maybe they're going to take a huge chunk of that market share. Now, again, that AI has to be factored in now.
And they're going to have to work their own magic with AI as well. All right. So let's get back to scoring then on this. And so because of that ding in the valuation a little bit here. Right. And so let's call this is 7.5 on the value at price versus valuation. All right. Now let's move on to the balance sheet.
Now the balance sheet is quite clean. But let's take a quick look here. What's on the balance sheet? 4.8 billion in cash and and 800 million in debt. So really 4 billion in net cash just to make the numbers round here and generating again this this year 10/31 but you can do the projected here, 1.2 billion and free cash flow.
So not worried 4 billion in cash generating 1.2 billion. You know again nobody's, losing sleep. You're going to sleep like a baby with this, old reference brought back with this balance sheet. No worries. We're all sleeping well at night with the CrowdStrike balance sheet now. Well, we do also is. Okay. Well, is this a recent phenomenon?
Or have the management team, which is also a call on the management team, how have they been responsible with the balance sheet? And they have and so if you look back in 2022, you're talking one point to 1.9. Excuse me, almost 2 billion, in cash and 770 million. And that's a net cash that year. 2023 2.7 versus 780 net cash, 3.4 billion in 24 versus 800 net cash. And and 1/31/2025 4.3 billion 788 debt, net cash.
And we just did right now the through the 10/31, you're talking about 4 billion in net cash. And so for the past few years they've been very responsible with the balance sheet, which also gives you some marks to the management team. Those are the people in charge of this. And so I think we can give high marks to the balance sheet plus the free cash flow.
So now let's get back to the framework here. So you can probably give it an even higher score. But let's give him an an 8.5. Just because and the reason to do that is they might need to start spending some of that money to ramp up on AI spend. And so we'll have to see how how that plays out.
So, but excellent balance sheet 8.5. There. All right. So if we pull all that together. So let's start pulling all the scores together. So business we said an 8.5. Excellent business. Fantastic gross margins now starting to be profitable. Very good. Now has these, you know, both AI tailwinds but also could be, you know, 22% year over year growth in the revenue.
But also could be, you know, AI, you know, headwinds, that they're going to come after them. So we'll have to see how that plays out. But giving them an 8.5 for right now, George Kurtz on the management side doing a great job. We gave them a 9. Their capital allocation has been solid. They've been growing the business generally capital light.
But they're they're investing their acquired amount of capital to make this capital right versus the, you know, the mag seven, for example. They still have to invest real money to make this work. 9 on the management side, the price versus valuation, you know Ding 95 is the PE forward. That's a 7.5 for that. And then the balance sheet clean little ding because they might need to start spending some more money 8.5 to that.
That weights everything to eight about eight four. And so look that's a solid company. I do think with all the news that's happening you have the sell offs. This is a very solid company by the way. It's 8.375 if you're keeping track and score at home. Just it's the round to 8.4. But I think you have to do this analysis, especially when these things happen.
This is in our portfolio not investment advice. But I think when you look in the total right now, we're certainly, we'll wait to see, what some of the trades come through at the end of the semester and what people do here, but still a very high quality business has some, really good AI tailwinds, but has some AI headwinds as well.
But it's well positioned. Clean balance sheet. Great management team. Let's see what happens. Pay close attention as a business person, analyst, investor. That is it for this episode of Market News with Rodney Lake. We'll see you back on the next one. Thank you.