Anthropic and OpenAI's inevitable move into cybersecurity threatens CrowdStrike and Palo Alto Networks' valuations. They look like the market's biggest bubble stocks right now; CrowdStrike trades at 40x ARR despite 25% growth and negative GAAP EBIT. x.com  x.com 

CrowdStrike and Palo Alto Networks' strength is an ultra-overcrowded trade that is likely to flip this quarter. x.com 

CrowdStrike and Palo Alto Networks should be enormous winners as agentic AI makes cybersecurity every enterprise's top priority, even ahead of AI investment. Threats from rogue internal agents and adversaries mean firms will rush to upgrade security, move to best-of-breed vendors and sharply raise budgets. Expected acceleration at leaders like CrowdStrike over the next 2-6 quarters looks far too low. CrowdStrike is the most advanced; Palo Alto is also favored, though some easy money is made. … Show more

CrowdStrike and Palo Alto Networks need 50%-plus growth to deliver even a 10% IRR over a realistic horizon, but almost no conceivable case gets them there. They feel as dumb as Zoom and Peloton in 2021. Even if revenue doubles over four to five years, Palo Alto would still trade at 10x revenue and CrowdStrike at 20x, leaving little prospect of a real IRR; Palo Alto is growing in the teens today. x.com  x.com  x.com 

CrowdStrike is not worth buying at 40x revenue, and there are very few plausible scenarios in which it is ever worth that multiple. AI is not overhyped, but the argument that massive tech disruption justifies the price echoes 2021, when Covid was said to be changing how people worked. As in 300 years of technological change, there are likely far fewer losers than expected. x.com  x.com 

CrowdStrike and Palo Alto Networks benefit from AI because it creates more security problems, so companies will need more advanced cybersecurity, not less. More than half of enterprise AI use happens outside IT oversight. Per JPMorgan, both are in good shape after Anthropic launched its Claude Mythos Preview security tool: instead of competing with them, Anthropic made them partners, which JPMorgan reads as a sign established vendors are essential to AI-driven defense, not replaceable by it. … Show more

Hyperscaler cloud integration and frontier AI labs could take a fair bit of cybersecurity's economics. Rising AI-token budgets also make higher cyber spending a stretch. Palo Alto Networks, CrowdStrike and Cloudflare have nearly $1 trillion in market cap on less than $20 billion in revenue; even high-quality Palo Alto and Cloudflare look too expensive, while Okta looks indefensibly expensive. The theme has real demand, but these valuations look too high in the short to medium term. x.com 

Cybersecurity is the real bubble right now, because greater importance in the age of AI does not justify paying valuations like 40x sales for names such as Cloudflare, CrowdStrike and Palo Alto Networks. x.com 

CrowdStrike may distinguish itself from an expensive cybersecurity group by showing more breakneck growth at earnings next month. Fortinet's slowing product revenue exposed how much relentless execution investors had priced into the group's extreme multiples, pulling CrowdStrike down in sympathy. CrowdStrike remains in a higher tier than Fortinet, which itself ranks above SentinelOne. x.com  x.com 

CrowdStrike's AI risk is limited but real, because it is tied to white-collar workers and their devices. A prolonged fall in white-collar employment could cut Falcon agents deployed, and an advanced AI that clearly solved big parts of cybersecurity could squeeze budgets. Against that, its core has been machine learning from day one, and AI raises security spending as attackers use it; its CEO says Charlotte usage rose over 6x. It trades at 21x EV/ARR with ARR up 24% and 0% GAAP operating margin. … Show more