The NEXT AI 10x Stock Sector I'm BUYING
Overall Thesis
CrowdStrike represents the next major AI sector opportunity as cybersecurity becomes critical to defend against AI-driven attacks, with the stock currently undervalued relative to its growth potential.
Narratives
Kevin argues that cheaper AI (open-weight models) is fueling more frequent and severe cyberattacks, creating a self-reinforcing cycle that will drive outsized demand for cybersecurity, with CrowdStrike best positioned to capture it. He believes Wall Street's growth estimates for CrowdStrike's annual recurring revenue and EPS are too conservative given the accelerating agentic AI and endpoint risk trifecta.
Key Arguments
- Falling token/API costs from open-weight models (Qwen, Muse Spark, Ox Alpha) are making AI cheaper to deploy for both defenders and attackers, creating an 'arms race dynamic'
- CrowdStrike beat net-new ARR expectations by 16.4%, putting total ARR growth on pace for 34% vs. Wall Street's ~20% EPS growth assumption
- Net revenue retention around 112%, 75% gross margins 'at Nvidia levels', and a strong balance sheet with ~$4B of free cash support the bull case
- Lightweight agent deployment via Microsoft/AWS marketplaces gives CrowdStrike an SMB distribution advantage, while forward-deployed engineers serve larger accounts
- Goldman Sachs projects 51% ARR growth for the AI security theme, which Kevin cites as supporting his own bullish view
Predictions (1)
Kevin says he has been bullish on software broadly via the IGV ETF as part of a thesis that software stocks are bottoming into Q3/Q4, citing the ETF's 7% single-day move alongside CrowdStrike's earnings pop as a sign of a broader sector inflection.
Key Arguments
- IGV, a 102-stock software ETF, was up 7% in a single day, which Kevin calls 'pretty remarkable' and a possible sign of a sector-wide inflection
- CrowdStrike's earnings beat is viewed as a bellwether lifting the broader software/cybersecurity complex
Kevin mentions Palantir favorably as a comparison point to CrowdStrike, noting its high net revenue retention and describing its valuation as more attractive than CrowdStrike's on current Wall Street estimates, though he does not make a specific price prediction.
Key Arguments
- Palantir's net revenue retention is around 150%+ despite only ~3% customer growth, which Kevin calls appealing
- Palantir is dabbling in cybersecurity via its Apollo program, though Kevin says it's unclear how far along that effort is
- Kevin states he believes Palantir has a better valuation right now than CrowdStrike based on Wall Street estimates
Hedges & Caveats
- Wall Street estimates may be conservative but are not guaranteed to be wrong
- AI adoption curves are projections and subject to change
- Cybersecurity threats are speculative and may not materialize as predicted
- The speaker has personal exposure to the stock, creating potential bias
- Token pricing trends may not directly translate to stock performance