CrowdStrike Holdings Inc. (NASDAQ:CRWD) and Palo Alto Networks, Inc. (NASDAQ:PANW) are two stocks that Jim Cramer has consistently praised over the past couple of months. The ongoing expansion of AI systems is at the heart of the CNBC TV host’s optimism as he has repeatedly asserted that the two companies can play a key role in an era where reports of rogue agentic AI software are the norm. In his morning appearance on October 12th, Cramer built on this argument and discussed the two, along with identity management provider Okta, in the context of an AI kill switch:
“This is the kill switch, that everyone said, well no that was widely derided as not really possible. Well I think that if you combine CrowdStrike and Palo Alto with Okta, it is totally doable. It’s just that, these companies, Anthropic and OpenAI they should be more in touch with what’s going on with the cybersecurity people. Cause they’re ahead of the game.”
For both firms, their ability to target the market, both through AI-driven products and for products that cover AI systems, are key to their narrative. CrowdStrike’s Falcon Flex platform, which provides access to AI products, generated $2.29 billion in new ARR to mark a 101% annual growth. The growth was twice CrowdStrike’s overall net new ARR which jumped by 51% to $332 million to set a new record. To top it off, CEO George Kurtz, during the earnings call, mirrored Cramer’s sentiment and remarked:
“Every enterprise will run on AI, and securing it is the largest market opportunity in our history.”
However, while CrowdStrike’s financials are surging, so are the shares. They are up by 87% over the past year and by 100% year-to-date despite dropping by 17% this week amidst fears related to AI. The strong share performance raises the question of whether the financial growth will be sufficient to justify the share price performance and the recent dip has removed all post-earnings gains for the shares. While CrowdStrike might be growing, it isn’t a growth stock preferred by billionaires. To see which stocks are, check out 10 Best Growth Stocks to Buy Now According to Billionaires. These stocks were compiled from Insider Monkey’s billionaire index, which has outperformed the S&P 500 by 11 percentage points.
For CrowdStrike, the fact that it is still unprofitable on a GAAP basis and overall ARR growth of 25% is slower than new ARR growth point out towards deeper concerns about profitability and business trajectory for a stock that trades at a forward P/E of 208x.
Looking at Palo Alto Networks, the debate is whether its platformization strategy to bundle platforms can drive sufficient growth to outweigh the costs. On this front, the firm’s next generation security (NGS) ARR jumped by 63% to $9.1 billion in the fiscal fourth quarter. Management also outlined that the firm had entered into 220 platformization deals in the quarter, in an attempt to assuage worries. On the AI front, Palo Alto’s Prisma AIRS – which is Palo Alto’s diversified AI security platform covering LLMs and agents – crossed $100 million in ARR for the first time to become the fastest growing product in its history. The growth ties into Cramer’s narrative of Palo Alto being integral for AI security.
Prisma AIRS is now even more important since the firm’s FY27 NGS ARR growth guidance ranges between 22% to 23% to indicate a deceleration over the Q4 figure. Not to mention, Palo Alto’s GAAP operating income dipped to $172 million in Q4 due to acquisition expenses and stock-based compensation.
On the valuation front, Palo Alto’s forward P/E multiple of 94x, while substantially lower than CrowdStrike’s, is nevertheless high. It implies expectations of explosive growth and a 1% yield to indicate that investors are concerned more about the future. As for the hedge funds, 89 funds disclosed a stake each in both firms in Q2 according to Insider Monkey’s database. For CrowdStrike, this marked a jump over the 79 in Q1 for a much sharper jump.
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This article is originally published at Insider Monkey.
