Yahoo Finance Why CrowdStrike (CRWD) Shares Are Getting Obliterated Today
What Happened:
Shares of cybersecurity company CrowdStrike (NASDAQ:CRWD) fell 12.5% in the afternoon session after CNBC reported that Delta Air Lines hired famous attorney David Boies to seek damages following the recent cybersecurity incident that caused a global tech outage. The incident was caused by a faulty update developed by CrowdStrike that affected millions of PCs running the Windows operating system, disrupting critical business services. According to the sources, no lawsuit has been filed yet; however, the airline is seeking compensation from CrowdStrike and Microsoft, given the damages caused by the incident.
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What is the market telling us:
CrowdStrike's shares are very volatile and over the last year have had 16 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 8 days ago, when the company dropped 13.7% 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 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.
Investors are likely 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.
CrowdStrike is down 6.6% since the beginning of the year, and at $230.79 per share it is trading 41.1% 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 $2,454.
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