Bernstein downgrades CrowdStrike on valuation, sees better upside in Palo Alto

Investing.com -- Bernstein downgraded CrowdStrike (NASDAQ: CRWD) to Market-Perform from Outperform, as its stretched valuation offset cybersecurity firm’s strong fundamentals and continued revenue and bottom-line growth.

The brokerage maintained its price target at $371, saying CrowdStrike remains one of the top-performing companies in the cybersecurity space and is likely to continue outperforming sector benchmarks such as the HACK ETF.

CrowdStrike is a rightly loved stock, analysts at Bernstein say, but added that its current share price leaves little room for upside.

The firm already applies a generous 18x multiple in its model, above what regression trends would suggest, yet the current valuation still exceeds those estimates.

Cybersecurity stocks have broadly become expensive, as investors flocked to the sector in search of macro-safe bets.

While cyber spending is often viewed as “must-have” regardless of IT budget constraints, the note cautioned that in reality, cybersecurity budgets are limited and unlikely to grow much faster than broader IT budgets.

For investors focused on large-cap cybersecurity, Bernstein said Palo Alto Networks (NASDAQ: PANW) could be the more attractive option.

It sees over 15% upside to its price target for Palo Alto, a rare opportunity in a sector where valuations have become elevated.

The firm expects potential rotation between the two names as investors rebalance exposure.

“Even within cybersecurity, CrowdStrike is expensive,” Bernstein said, suggesting the risk-reward now favors waiting on the sidelines.

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