Generative artificial intelligence (AI) applications have been gaining popularity since late 2022 because the technology is user-friendly and users can quickly get answers to their questions using simple text prompts.
From generating search results to creating marketing campaigns to writing code and creating images, the use cases of generative AI applications like chatbots have increased tremendously this year. The good thing is that the adoption of generative AI is expected to increase significantly over the next decade. Bloomberg Intelligence predicts that the generative AI market could be worth a whopping $1.3 trillion in 2032, compared to just $40 billion last year.
The cybersecurity market is expected to be one of the big beneficiaries of the growth of generative AI. According to Bloomberg Intelligence, spending on generative AI-based cybersecurity could rise from just $9 million last year to nearly $14 billion in 2032, representing a massive compound annual growth rate (CAGR) of 109% over the next decade .
CrowdStrike (CRWD 0.67%) allows investors to tap into this lucrative niche. The cybersecurity specialist’s share prices have more than doubled this year, gaining 123%. More importantly, the latest results sent the stock up 10% on November 29th and also suggests that it is poised for further upside in the future. Let’s see why that might be.
Generative AI could accelerate CrowdStrike’s impressive growth
CrowdStrike reported third quarter fiscal 2024 results (for the three months ended October 31, 2023) on November 28. The company’s revenue rose 35% year-over-year to $786 million, beating the consensus estimate of $777 million. CrowdStrike’s adjusted earnings rose to $0.82 per share in the most recent quarter, from $0.40 per share in the year-earlier period. Analysts were satisfied with sales of $0.74 per share.
More importantly, CrowdStrike ended the quarter with annual recurring revenue (ARR) of $3.15 billion, up 35% from the year-ago quarter. The Company calculates ARR as the annualized value of its subscription contracts at the end of a period. The healthy growth of this metric suggests that the company is building a solid revenue pipeline for the future.
One of the reasons the company’s ARR is growing so much is that customers are purchasing more cybersecurity solutions from the company. For example, the number of CrowdStrike subscription customers using seven or more of the company’s modules was 26%, up from 21% in the same period last year. Additionally, the number of CrowdStrike customers using five or more of its modules rose to 63% last quarter, compared to 60% a year ago.
One of the reasons for the growing customer adoption of CrowdStrike’s security offerings may be the company’s focus on integrating AI into its solutions. The company’s AI-powered advanced detection and response platform, known as Falcon, is seeing “strong demand” that is “driving our pipeline to new heights,” CFO Burt Podbere said on the company’s third-quarter earnings call.
The Falcon platform leverages the power of AI to collect data across multiple security endpoints to improve the speed of threat detection, investigation and response. In May of this year, CrowdStrike Falcon added a generative, AI-powered virtual security analyst called Charlotte AI, noting that this security assistant is built into the “core” of the platform.
CrowdStrike notes that Charlotte AI is designed to “help users of all experience levels improve their ability to stop security breaches while reducing the complexity of security operations.” The company claims that even novice users of the Falcon platform could work with Charlotte AI like power users, as they can easily ask questions to the generative AI-powered assistant to get relevant answers about the company’s cybersecurity operations.
On the third-quarter earnings call, CrowdStrike CEO George Kurtz claimed that generative AI can “turn man-hours into minutes while democratizing cybersecurity,” and he believes this was a key factor in the increasing adoption of the Falcon platform . Management points out that Charlotte AI is currently in preview mode, but customers who use it “will be able to do things much faster than ever before and explore and ask questions that they haven’t before were able to “the past.”
CrowdStrike says Charlotte AI’s pricing has been “incredibly well received,” so there’s a good chance this solution could provide the company with even greater growth once it’s commercially available.
Stronger growth could be on the horizon
CrowdStrike expects to close the current fiscal year with revenue of nearly $3.05 billion, an increase of 35% year-over-year. That’s impressive considering CrowdStrike is currently experiencing a “challenging macro environment and geopolitical tensions” that are causing customers to scrutinize their cybersecurity budgets.
Analysts expect CrowdStrike to see revenue growth of more than 25% over the next few years.
Additionally, the company’s profits could grow 40% annually over the next five years, according to analyst estimates. However, the emergence of generative AI in the cybersecurity market and CrowdStrike’s moves to capitalize on this opportunity could ultimately help the company grow faster.
Assuming CrowdStrike’s earnings grow 41% annually over the next five years, its bottom line could reach $15.22 per share at the end of fiscal 2029 (using estimated earnings of $2.83 per share for the 2024 financial year). CrowdStrike is currently trading at 60x forward earnings, which is on the expensive side. But that’s well below the average five-year earnings multiple of 388.
Even if CrowdStrike trades at 30 times expected earnings after five years, its stock price could rise to $456 based on forecast earnings of $15.22. That would be nearly double the company’s current share price, which is why investors looking for a fast-growing cybersecurity company to benefit from the AI boom may want to buy CrowdStrike shares before they skyrocket.