Tuesday, 11 June 2024

Why CrowdStrike Stock Surged on Monday

by BD Banks

Shares of CrowdStrike (NASDAQ: CRWD) were trading higher on Monday. The cloud-based endpoint security specialist jumped as much as 9.9% in early trading and was still up 9.1% as of 11:58 a.m. ET.

The catalyst that sent the cybersecurity stock higher was the announcement it would be joining one of the major trading indexes.

Joining the S&P 500

A statement released after the market close on Friday revealed that CrowdStrike would be joining the S&P 500. The stock will be replacing Robert Half when the market opens on Monday, June 24. In a press release marking the change, S&P Global noted, “The changes ensure each index is more representative of its market capitalization range.”

To be eligible to join the S&P 500, a business must be a U.S.-based company with a market cap of at least $8.2 billion. Furthermore, at least 50% of its shares outstanding must be publicly traded, and the company must have been profitable in its most recent quarter and cumulatively profitable over the past four quarters.

Stocks often rally in response to being added to one of the major indexes, as institutional investors and funds that track these benchmarks must buy the stock in order to match the indexes’ composition. That isn’t to say anything about the underlying company has changed. Rather, this is an acknowledgment that the operational and financial excellence that helped the company meet the eligibility requirements likely will make it a good investment going forward.

Roots in artificial intelligence (AI)

The increased focus on artificial intelligence (AI) over the past year or so has also shined a spotlight on CrowdStrike, as the company has long used machine learning and other forms of AI to counter the growing number of hacks, breaches, and other unauthorized system access.

Just last week, the company continued its relentless trek higher. For its fiscal 2025 first quarter (ended April 30) CrowdStrike generated revenue that grew 33% year over year to $921 million, while its adjusted earnings per share of $0.93 jumped 67%. The company continues to generate strong operational and free cash flow and add customers.

For those reasons and more, CrowdStrike stock is a buy.

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Danny Vena has positions in CrowdStrike. The Motley Fool has positions in and recommends CrowdStrike. The Motley Fool recommends Robert Half. The Motley Fool has a disclosure policy.