Overlooked Structural Earning Power Puts CrowdStrike (CRWD) Bulls in Charge

CrowdStrike Holdings (CRWD) has delivered strong and consistent performance this year, extending a bullish run that’s now been going on for a couple of years.

Since 2023, the gradual reopening of IT budgets—driven by falling inflation and the prospect of lower rates, following massive multiple compression during the 2022 bear market—created a meaningful tailwind for cybersecurity. That tailwind strengthened even further with the explosion of corporate interest in AI. From 2024 onward, cybersecurity effectively became a secular winner, with almost the entire sector appreciating strongly, particularly the platform-based players.

Throughout this year, cybersecurity has cemented itself as an essential layer of AI architecture, supported by the rapid adoption of corporate LLMs. Within that trend, CrowdStrike emerged as one of the biggest “AI beneficiaries,” reporting acceleration in ARR, strong cloud workload growth, and very robust margins. As one of the best operators in the space in terms of execution and scale, it’s no surprise that CrowdStrike trades at extremely rich valuation multiples.

Much of this premium is justified not only by current growth, but also by the long-term narrative of the company evolving from being just an “endpoint leader” into a broader “AI security layer.” This shift reinforces the idea that companies with high NRR, predictable ARR, and premium gross margins—such as CrowdStrike—are positioned to disproportionately capture the sector’s secular growth in the years ahead. Fighting this bullish backdrop right now seems misguided, so I maintain a Buy rating on CRWD.

Inside CrowdStrike’s Recurring Revenue Flywheel

One of the main pillars of CrowdStrike’s bullish thesis is growth that is not only robust but also remarkably stable. In Fiscal Q3, for example, subscription revenue reached $1.17 billion—a 22.2% year-over-year increase—following a solid 21.3% sequential acceleration in Fiscal Q2. Zooming out a bit, in less than ten quarters, CrowdStrike has managed to more than double its recurring revenue base, going from just over $650 million to roughly $1.2 billion per quarter.

This level of consistency is extremely valuable because CrowdStrike is one of the best global operators of the “land-and-expand” model (widely used in SaaS). Customers typically start with one or two Falcon modules—often Endpoint Protection—and, over time, end up adding Cloud Workload Protection, Threat Intel, and several others, eventually using six, seven, or even more modules.

The result is a virtuous cycle of steady expansion in average revenue per customer, something very few SaaS companies are able to maintain at scale. On top of that, CrowdStrike continues to deliver non-GAAP subscription gross margins of around 81%, which is typical of pure-software businesses. This margin profile channels recurring revenue into increasing future operating leverage and places CrowdStrike firmly within the elite of the cybersecurity space.

The Key Indicator Behind CrowdStrike’s Valuation Premium

If there’s one specific indicator that truly helps justify why CrowdStrike trades at 138x forward earnings, it’s ARR (annual recurring revenue). Over the past year, ARR expanded from $4.24 billion to $4.92 billion—a 16% jump.

But more important than the absolute growth is its predictability. CrowdStrike has built a model with extremely low churn and consistently strong net expansion (NRR, “net recurring revenue” historically close to 120%). In practice, once a customer enters the platform, they rarely leave—and their spend tends to grow over time.

This type of large-scale recurring growth is rare in the market. Very few companies can sustain high mid-teens ARR growth after reaching multiple billions in recurring revenue. I believe this is one of the key reasons institutional investors accept seemingly “absurd” multiples like 138x P/E: current earnings simply don’t capture the true size of the future monetization cycle embedded in the installed base.

Looking at CrowdStrike through a cash-flow lens, the $1.1 billion in free cash flow generated over the last twelve months (a 28% YoY increase in Q3) implies an EV-to-FCF multiple of about 117x—arguably not unrealistic when adjusted for a growth rate similar to what we just saw. But even more important than the headline multiple is the quality of these cash flows: subscription gross margins above 80%, a steadily rising average ticket, and churn close to zero.

It’s also worth noting that EBITDA and GAAP earnings are currently suppressed by heavy stock-based compensation and elevated S&M spend required to fuel growth. If CrowdStrike eventually chooses to dial back SBC (stock-based compensation) or slow down S&M (sales and marketing) as a percentage of revenue, GAAP earnings would likely surge—and valuation multiples would compress just as quickly.

Is CRWD a Buy, Hold, or Sell?

The consensus on Wall Street is broadly bullish, though there’s still room for some skepticism. Of the 38 analyst ratings issued over the last three months, 26 are Buys, eleven are Holds, and only one is a Sell. The average price target sits at $562.75, implying roughly 9.67% upside from the latest share price.

See more CRWD analyst ratings

Finding the Alpha in CrowdStrike

I would place the alpha in CrowdStrike’s thesis precisely in the disconnect between GAAP profitability and future structural profitability. When investors look at 138x forward P/E, compressed GAAP earnings, and high stock-based compensation, the obvious reaction is to say the stock looks expensive. But the alpha lies in recognizing that these numbers don’t reflect CrowdStrike’s real earning power.

As SBC gradually comes down, S&M naturally decelerates as a percentage of revenue, and operational leverage from cloud and ARR scaling past $6 billion kicks in, GAAP earnings are likely to surge—bringing valuation multiples down automatically, with institutional flows likely following soon after.

In short, CrowdStrike’s alpha isn’t in what it shows today, but in what isn’t fully priced in yet, which is the transition to a complete cloud-native security platform, the strength of internal expansion driven by high NRR, and the future monetization of AI workloads. For that reason, I maintain a Buy rating on CRWD.