Latest / Bull Market Conversations with Fexingo: Rallies, Momentum, and Riding Market Strength / How Bull Markets Are Reshaping the CrowdStrike Playbook
Transcript
- Lucas: So the S&P 500 is down about eight-tenths of a percent over the past five days. The Nasdaq's off one point four. Growth ETFs are getting clipped. And then you look at CrowdStrike — up eight percent in the same window. Luna: That's a pretty sharp divergence. What's driving it? Lucas: I think the short answer is that CrowdStrike is executing on a product cycle that lines up exactly with what enterprise buyers want right now. Specifically, their Charlotte AI platform — the generative AI assistant for security operations — is starting to show up in deal sizes. Luna: If today's conversation helps you think about any of this differently — maybe you're weighing a position in a cybersecurity name, or just trying to understand what separates the leaders in a bull market — the way this show stays ad-free is listener support. You can find us at buy me a coffee dot com slash fexingo. Lucas: Yeah, it's a small thing that keeps the whole thing going. So, back to CrowdStrike — the Charlotte AI ramp is real. They launched it broadly late last year, and by the April quarter it was already contributing to larger contract values. The key metric is net new annual recurring revenue, and they've been beating consensus on that for three straight quarters. Luna: And this is happening while the broader market is rotating away from high-beta growth. I mean, ARKK is down almost four percent in the same five days. Lucas: Right, and that's what makes the divergence interesting. CrowdStrike is not cheap — it trades around sixty times forward earnings. But the market seems to be saying that its growth is durable enough to justify the premium. And part of that durability is the land and expand model. They get into an organization with endpoint protection, then they upsell identity, cloud security, and now the AI layer. Luna: So it's less about a single product and more about the platform story. Lucas: Exactly. And there's a bull-market dynamic at play here that I don't think gets enough attention. When corporate budgets are growing — which they are, given GDP growth around two percent and corporate profits still strong — IT security spending tends to consolidate around the top vendors. Why manage seven different tools when you can buy more from CrowdStrike and get better integration? Luna: That vendor consolidation argument — does it show up in the data? Lucas: It does. CrowdStrike's dollar-based net retention rate has been consistently above 120 percent. That means existing customers are spending more than 20 percent more year-over-year without adding a single new logo. That's the land and expand machine working. Luna: And it's happening at a time when some of its competitors are struggling. Palo Alto Networks had a bit of a reset last year on its platformization strategy. SentinelOne has been growing but not as profitably. Lucas: Yeah, CrowdStrike has been the most consistent on both growth and margin expansion. They're guiding for non gaap operating margins north of 20 percent this year. In the cybersecurity space, that's a differentiator. The market rewards that combination — growth plus improving profitability — especially when rates are staying higher for longer. Luna: Speaking of rates — Dallas Fed President Logan just called for modestly higher rates. Does that change the CrowdStrike thesis? Lucas: In the short term, it probably adds some pressure to the valuation multiple. Higher rates mean higher discount rates, which compress the present value of future cash flows. But for a company that's generating real free cash flow now — CrowdStrike had over 800 million dollars in free cash flow last fiscal year — the impact is more muted than for a pre-revenue growth story. Luna: So the market is differentiating between high-beta stocks with good fundamentals and high-beta stocks that are still burning cash. Lucas: That's exactly what we're seeing this week. CrowdStrike goes up, ARKK goes down. And within cybersecurity, the pattern holds. The companies with strong balance sheets and proven upselling motion are holding up better. The ones still investing for growth without profitability are getting hit. Luna: What about the competitive landscape? Microsoft is pushing its own security stack hard. Does that threaten CrowdStrike? Lucas: It's a factor, but so far CrowdStrike has held its own. Microsoft Defender is bundled with E5 licenses, so it's basically free for many large customers. But CrowdStrike's advantage is in detection speed and the quality of their threat intelligence. They have something like 50 billion events per day going through their Falcon platform. That data advantage is hard to replicate. Luna: And they've been expanding into new areas like cloud security and identity protection, which are growing faster than the core endpoint market. Lucas: Right. The endpoint security market grows maybe 10 to 12 percent a year. But the cloud security market is growing closer to 25 percent. If CrowdStrike can capture share there, it extends that growth runway considerably. And they've been winning some pretty high-profile cloud security deals. Luna: So the bull market case for CrowdStrike is not just that cybersecurity spending is increasing. It's that they're positioned to take a bigger share of a faster-growing pie. Lucas: Exactly. And that gets to why the stock can outperform even when the broad market is pulling back. The market is pricing in that this growth trajectory is sustainable. The question is whether the current valuation — around 15 times forward revenue — still leaves room for upside. Luna: Fifteen times revenue. That sounds rich for any company. Lucas: It is. But compare it to where it traded in 2021, when it was north of 40 times revenue. The multiple compression over the last few years has been driven by rising rates and a general reevaluation of growth stocks. But the business itself has gotten stronger — more recurring revenue, better margins, a broader product set. So you're paying a lower multiple for a better business. Luna: That's a helpful framing. So the bull market isn't just lifting all boats — it's rewarding companies that have executed well through the cycle. Lucas: And punishing the ones that haven't. I think that's the real takeaway here. We're in a bull market that's increasingly selective. The index is up, but underneath the surface, the dispersion is wide. CrowdStrike is a case study in what it looks like when a company gets the execution right at the right moment. Luna: So if you're an investor looking at cybersecurity names, what's the one thing to watch going forward? Lucas: I'd watch the net new annual recurring revenue number in the next earnings report. That's the leading indicator for whether the Charlotte AI tailwind is accelerating or leveling off. If they can keep that growth rate in the mid-20s percent range, the stock can probably hold its premium. If it decelerates, the multiple will compress fast. Luna: And earnings are coming up in late August, right? Lucas: Right, the fiscal second quarter. So we'll get a real-time check on whether this momentum is sustainable. Until then, the market seems to be betting that it is.