Morgan Stanley says 'take a breather' on CrowdStrike — why Jim Cramer disagrees

CNBC

4 hours ago

Jim Cramer on Monday brushed off Morgan Stanley's downgrade of CrowdStrike , viewing the cybersecurity giant's recent dip as a potential buying opportunity. "Morgan Stanley may downgrade this but I want to get in on the downgrade and get in on the discount," Cramer said Monday during the Investing Club's Morning Meeting. Shares of CrowdStrike dipped nearly 2% in the premarket Monday but stabilized by midday, trading at roughly $477 apiece. Morgan Stanley took CrowdStrike to equal weight from buy-equivalent overweight, while slightly increasing its price target on the stock to $495 from $490. After a 50% stock rise since April, analysts called it "time to take a breather," citing its high valuation that reflects lofty expectations. CrowdStrike's stock trades at 21 times its expected 2026 sales, well above the average of 12 times for large software companies. That suggests investors expect near-perfect performance. While the analysts still see CrowdStrike as a long-term leader in cybersecurity with strong artificial intelligence tailwinds, they said "the near-term opportunity appears fully priced in," referring to the second half reacceleration that CEO George Kurtz has guided over the past couple quarters. Concerns about CrowdStrike's valuation have lately been a concern on Wall Street. Yet investors are willing to pay a premium for the stock for its fast growth and potential. Morgan Stanley's downgrade comes just before the one-year anniversary of CrowdStrike's infamous July 19 IT glitch, when a routine software update led to one of the largest IT outages in history, causing millions of Windows computers to crash around the globe. When we initiated CrowdStrike in October 2024, we viewed it as a turnaround story following the botched software update. The risk proved to be manageable after CEO Kurtz fought to reassure clients and introduced customer package deals to retain impacted clients and rebuild trust. As a result, the company did not lose a lot of business. Jim remains confident that as those packages roll over, the customers will pay full price. That suggests "the second half is going to be much stronger than the first half," Jim said Monday on "Squawk on the Street." Cramer is scheduled to interview George Kurtz on "Mad Money" Monday evening and is expected to get the latest on how business is faring one year later. One area of concern is the budget cut back for cybersecurity by the federal government. Cyber stocks sold off last Thursday on a report that President Donald Trump's 2026 budget cuts cyber spending by over $1 billion from 2024 levels. CrowdStrike dropped 5%. Shares of fellow cybersecurity leader and Club holding Palo Alto Networks fell 6.8%, while Zscaler dropped 6.4%. We don't agree with this decision, given the rise in geopolitical tensions and nation states trying to hack one another. But we're comforted by the fact the CrowdStrike has reiterated time and time again that with bad actors working overtime companies and governments need, and will pay for, CrowdStrike's cyber solutions. (Jim Cramer's Charitable Trust is long CRWD, PANW. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust's portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.