CrowdStrike downtime aftermath difficult to dissipate, Wall Street bullish sentiment starting to ebb

According to the financial news app Zhitong Finance, the leader in the field of cybersecurity, CrowdStrike (CRWD.US), continued to be the focus of the market during the U.S. stock trading session on Wednesday. Following a more than 9% plunge on Tuesday due to the "aftershock" of the outage, the stock fell nearly 1% to $231.96 by the close of trading on Wednesday, dropping over 32% since the global Windows system outage on July 19. Recently, media reports stated that Delta Air Lines (DAL.US), which was affected by flight cancellations due to the outage, has hired a law firm to sue CrowdStrike and Microsoft (MSFT.US) over the global IT disruption event. Subsequently, in a report, the Wall Street firm Jefferies significantly lowered its target stock price for this cybersecurity company from $400 to $300.

A poor software update by the cybersecurity leader CrowdStrike caused a brief collapse of the Microsoft Windows operating system on a global scale, severely affecting various industries worldwide. This led to flight cancellations, medical procedure cancellations/interruptions, interruptions in financial services such as stock trading, and major program interruptions, resulting in the worst two-day consecutive drop in its stock price in history.

A team led by Jefferies analyst Joseph Gallo wrote in an investor report, "We do not expect CrowdStrike to compensate customers for the losses caused by the outage, but litigation costs and the CEO appearing before Congress for questioning will definitely have a negative impact on the company's fundamentals and market value." "Although our checks indicate almost no significant fluctuations, we expect some new business expansions to be negatively affected, so we are lowering our estimates for the company's 2025 and 2026 fiscal year ARR by 1%."

The Jefferies analyst team led by Gallo has significantly lowered Jefferies' 12-month target price for CrowdStrike from $400 to $300, but the firm still maintains a "buy" rating on CrowdStrike.

Gallo and other analysts stated that as CrowdStrike's stock price has dropped by over 40% in the past month, the company may issue preliminary performance guidance regarding the negative impact of this event. The analyst team believes that the stock "may remain under pressure until the release of F2Q earnings/update FY25 performance guidance."

"While the possibility of CrowdStrike releasing a strong but cautious 2025 fiscal year performance guidance remains high, we believe that CrowdStrike is increasingly likely to release a 'kitchen sink' weak 2025 fiscal year guidance, which may encourage investors to intervene promptly and defend some key figures that are temporarily de-risked," added Gallo and other analysts.

Coincidentally, the day before Jefferies released its cautious stance on CrowdStrike in the research report, another well-known Wall Street investment firm, Needham, stated that the significant impact of the sensor configuration update leading to the Windows operating system outage will eventually become a thing of the past. However, the reputational impact of the outage event will still take some time to dissipate, and for about the next year, CrowdStrike will pay a certain price in both stock price and fundamentals Needham still maintains a "buy" rating on CrowdStrike's stock, but has lowered the target price from $425 to $375.

Analysts at Needham stated that the reputational damage to CrowdStrike may gradually fade next year, along with the impact on its market share. They expect that it will take at least a year for CrowdStrike's total revenue scale, net new ARR, and sales of new cybersecurity products to recover to the slightly slower growth trajectory before the incident, as major clients like Delta Air Lines have initiated claims post-event.

The analysts at the firm believe that this level of reputational damage will manifest in hindering clients' willingness to heavily rely on a single platform, as such a choice brings concentrated cybersecurity risks. The analysts at the firm have lowered their revenue scale, ARR, and EPS future expectations for CrowdStrike.

According to reports, the U.S. aviation giant Delta Air Lines swiftly hired a law firm to pursue loss claims after the CrowdStrike update on July 19 caused a Microsoft (MSFT.US) Windows operating system failure event. Due to this Windows OS crash event causing the airline's software systems to be paralyzed for several days, the airline is seeking compensation from both tech giants.

Wall Street investment firm Evercore ISI recently lowered its target price due to the lingering impact of the crash event, further reducing CrowdStrike's target price from the previously lowered $350 to $325, and adding CrowdStrike to its "tactically underperforming the market" stock list; Barclays Bank significantly lowered CrowdStrike's target price from $400 to $285, stating that the stock's trend "may deteriorate significantly first, then improve"; JP Morgan substantially lowered CrowdStrike's target price from $400 to $330, removed the stock from the analyst watchlist, emphasizing that the crash event significantly damaged CrowdStrike's reputation