Stock Story -
What Happened: Shares of cybersecurity company CrowdStrike (NASDAQ:CRWD) fell 13.7% in the afternoon session as investors continued to assess the potential implications of the recent technology outage. On Friday, July 19, 2024, a security update pushed by CrowdStrike caused a global tech outage, with millions of Windows devices malfunctioning. Some displayed the dreaded "blue screen of death—an error screen that indicated a system crash."
In a press statement released after the incident, Microsoft (NASDAQ:MSFT) estimated the total number of affected Windows systems to be 8.5 million devices. While it represented less than 1% of all Windows devices, the impact appeared severe, disrupting critical systems such as hospitals, banks, and airports.
The company has since deployed a fix. However, it appeared the damage had already been done, with the stock falling more than 20% since the incident. This suggests investors are uncertain about the knock-on effects of the incident. There could be concerns about the potential impact on the company's brand as markets access the losses caused by the incident. There is also uncertainty about the magnitude of expenses that will be incurred in the coming months due to the incident, which could include compensation to the affected parties.
Multiple Wall Street analysts have since downgraded the stock's rating, citing some of these concerns. Guggenheim analyst John DiFucci moved from a Buy to a Neutral rating, highlighting potential " resistance to new deals in the near term." The analyst provided more reason for the downgrade, adding, "The company's response to the issue it caused was impressive, but nevertheless, it caused significant disruption to businesses (and people) across the world. The restoration of its reputation may take more time and will likely affect new business signings, at least in the near term."
Similarly, a BTIG analyst downgraded the stock's rating from Buy to Neutral, expressing worries about the incident, and cited "more negative feedback than expected."
Overall, these sentiments imply the market is still unsure about the overall impact of the incident. The stock's decline also suggests CrowdStrike has a huge task ahead as it works to regain the trust of all parties impacted by the incident.
The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks. Is now the time to buy CrowdStrike? Find out by reading the original article on StockStory, it's free.
What is the market telling us: CrowdStrike's shares are very volatile and over the last year have had 15 moves greater than 5%. But moves this big are very rare even for CrowdStrike and that is indicating to us that this news had a significant impact on the market's perception of the business.
The previous big move we wrote about was 3 days ago, when the company dropped 14.7% following a global technology outage. The outage was caused by a faulty update deployed by CrowdStrike to computers running the Microsoft Windows operating system. CrowdStrike has clarified that the issue wasn't caused by "a security incident or cyberattack."
CEO George Kurtz noted on the social media platform X (formerly called Twitter) that "the issue has been identified, isolated, and a fix has been deployed."
However, the issue had far-reaching consequences, affecting systems in industries delivering critical services, including hospitals, banks, and airports.
CRWD stock's decline suggests markets might be struggling to understand the long-term implications of the issue, especially as it relates to CrowdStrike maintaining its dominance in the highly competitive cybersecurity space, which often permits little to no room for mistakes.
Wedbush analyst Dan Ives provided insights on how this might play out, adding, "It could create opportunity for some competitive displacements, but this will take time to determine the path of CIOs and companies looking ahead and related legal actions related to this outage."
CrowdStrike is up 8.3% since the beginning of the year, but at $267.73 per share it is still trading 31.7% below its 52-week high of $392.15 from June 2024. Investors who bought $1,000 worth of CrowdStrike's shares 5 years ago would now be looking at an investment worth $3,050.
