CrowdStrike gets upgraded despite last week's AI-driven selloff
Although shares of both CrowdStrike Holdings, Inc. (CRWD) and Palo Alto Networks, Inc. (PANW) sank nearly 6% on Friday due to the latest AI-driven scare leading to a broader industry-specific selloff, Wall Street doesn't appear to be concerned about either company's business at the moment.
The selloff happened after Fortune got access to a draft of a blog post from Anthropic detailing its latest AI system called Claude Capybara, which it calls “by far the most powerful AI model we’ve ever developed."
Cybersecurity stocks tumbled after the article by Fortune was published because Anthropic claims in its draft that Capybara is “currently far ahead of any other AI model in cyber capabilities.”
The company essentially fears that hackers could use the system to wage attacks that cybersecurity firms would be incapable of preventing.
In fact, Anthropic is currently giving early access to companies in the cybersecurity industry, with Anthropic noting in its blog post that it is "giving them a head start in improving the robustness of their codebases against the impending wave of AI-driven exploits.”
The selloff on Friday mimicked the market rout in February that sent software stocks plunging after Anthropic released a new AI-powered plugin for Claude aimed at the legal industry, raising fears of a potential significant disruption to the software as a service (SAAS) industry caused by artificial intelligence.
But while traders might have had their confidence in cybersecurity firms shaken last week, Wall Street appears to be shrugging off the latest warning of an industry's potential demise at the hands of AI.
In a client note on Monday, Wolfe Research analysts, led by Joshua Tilton, upgraded CRWD shares to Outperform from Peerperform, calling the recent pullback on the stock a "compelling entry opportunity."
Tilton noted that CRWD was down 21% YTD at the time of his writing, but was still outperforming the iShare Expanded Tech-Software Sector ETF (IGV), which was down roughly 27%, as well as the firm's Scaled Heavyweight Growth comp group which has dropped about 30% for the year.
CRWD trails Wolfe's proprietary All Security Index, which has fallen about 15% YTD.
But while the latest Anthropic AI model sent cybersecurity shares down on Friday, Wolfe actually sees it as a bullish catalyst for CrowdStrike.
"While relatively to our comp group, CRWD trades at a premium, we view it as deserved given the accelerating growth profile, strong and expanding margins, and its platform position in the security market that should benefit in an increased threat environment," Tilton said.
Meanwhile, Barclays analysts, led by Saket Kalia, reiterated an Overweight rating on shares of Palo Alto Networks in a client note on Monday, citing the disclosure by CEO Nikesh Arora in an SEC filing on Friday that he'd purchased $10 million of the company's common stock.
It was Nikesh's first share purchase since November 2019, and sent the stock up nearly 5% on Monday.
"One criticism of software management teams since the beginning of this year is that they have not repurchased their own shares to reflect confidence in the face of terminal value worries," Kalia said. "This is the largest open-market purchase by our management teams that we have seen, and thus bullish in our view."
Kalia also suggested that the selloff might've been an overreaction, noting "our view is that horizontal tech companies have historically had mixed success in cybersecurity, and we think Mr. Arora's purchase reflects this."