CrowdStrike Reports Strong Results. But Shares Are Overvalued.

Earlier this week, CrowdStrike (NASDAQ: CRWD) reported fiscal third-quarter results that reinforced why the stock has been one of 2025's standout cybersecurity names. Revenue growth accelerated as key customer metrics improved following a turbulent period tied to last year's high-profile platform outage.

The cloud-native cybersecurity specialist, best known for its Falcon platform that protects endpoints and cloud workloads, continued to benefit from customers consolidating multiple tools with one vendor. Management also highlighted mounting demand for its AI (artificial intelligence)-driven security capabilities.

But the growth stock's soaring price has created a problem for new investors. The valuation is at a level that already bakes in years of robust growth and high profitability. Sure, the business keeps delivering. But the expectations may be too high.

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Strong business momentum

CrowdStrike's fiscal third-quarter revenue rose 22% year over year to $1.23 billion, a slight acceleration from the 21% growth it posted in the second quarter of fiscal 2026.

Importantly, CrowdStrike's annual recurring revenue (ARR) trends have been particularly impressive. Fiscal third-quarter ARR grew 23% year over year to $4.92 billion as of Oct. 31, 2025, up from 20% in the previous quarter. Even more, net new ARR hit a record $265 million in the quarter, rising 73% year over year and increasing from $221 million in the second quarter. Those numbers suggest customers are not only staying with the platform but also expanding their commitments again after last year's disruption.

Profitability and cash flow also moved in the right direction. Non-generally accepted accounting principles (GAAP) operating income rose from $200.7 million in the year-ago quarter to 264.6 million, while free cash flow came in at $295.9 million.

Management continues to frame this performance as part of a broader AI and consolidation story.

"CrowdStrike is the enabler of secure AI transformation with the right architecture, the right products, and the right execution," CEO George Kurtz said in the company's fiscal third-quarter earnings release.

Looking ahead

CrowdStrike's financial outlook suggests management expects the momentum to persist. The company guided to fiscal fourth-quarter revenue between $1.29 billion and $1.30 billion. For the full fiscal year ending Jan. 31, 2026, it expects total revenue of about $4.80 billion to $4.81 billion, which represents roughly 20% to 22% growth year over year.

Beyond the current year, management raised its expectations for net new ARR, aiming for at least 50% year-over-year growth across the second half of fiscal 2026 and 20% growth in fiscal 2027 from that higher base. That is an ambitious target, especially given the company's large ARR base.

CrowdStrike, therefore, is not only seeing strong growth currently -- but management also expects its extraordinary momentum to continue. But has this all been priced in?

With management guiding for non-GAAP earnings per share for the full year of fiscal 2026 to come in at about $3.71, CrowdStrike trades more than 135 times this adjusted earnings forecast as of this writing. In addition, shares trade at 29 times sales -- an extremely high valuation, even for a software company.

Yes, CrowdStrike remains one of the strongest franchises in cybersecurity. Its ARR and net new ARR are moving higher, and the business is converting a meaningful share of that growth into cash. And the Falcon platform and its AI capabilities seem to be resonating with customers. The problem, however, is the stock's price. At the stock's current valuation, even modest setbacks in growth could disappoint investors and cause a sharp drop in the stock price. That risk sits alongside intense competition. The business is excellent. But the stock appears overvalued.

Daniel Sparks and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends CrowdStrike. The Motley Fool has a disclosure policy.