Microsoft's “blue screen” incident continues to ferment, and CrowdStrike (CRWD.US) becomes a Wall Street “abandonment”

The Zhitong Finance App learned that cybersecurity company CrowdStrike (CRWD.US) fell more than 5% before the market on Monday, continuing the decline caused by the outage last week. Research firms Guggenheim and BTIG downgraded the stock and told investors to “let the dust settle.”

Guggenheim downgraded the CrowdStrike rating from “buy” to “neutral.” Analyst John Difucci said, “Due to obvious quality assurance issues leading to large-scale disruptions in global IT systems, it is anticipated that new transactions may be boycotted in the short term. Furthermore, we have always believed that the consensus forecast for the fourth fiscal quarter is risky, especially (annual recurring revenue).” “As a result, among the software stocks we cover, CrowdStrike still has the highest multiple based on recurring revenue (18.5 times corporate value/recurring revenue), and we are staying away from this stock for the time being.”

DiFucci said the outage affected Microsoft (MSFT.US) Windows computers worldwide and disrupted the global economy, which could have a negative impact on CrowdStrike's business, even if only temporarily.

“The company's response to this matter has been impressive, yet it has caused significant disruption to businesses (and people) around the world,” DiFucci continued. “It may take more time to restore its reputation, and at least in the short term, it may affect new business signing.”

Despite the downgrade, DiFucci gave investors some hope and said that if they had years of vision, “they can get by.”

“However, we found it difficult to tell investors that they now need to buy CrowdStrike,” added DIFucci.

BTIG also downgraded the CrowdStrike rating from “buy” to “neutral” after the outage. BTIG analyst Gray Powell said, “There was more negative feedback than expected.”

The outage also had a negative impact on Microsoft.

Citigroup said the widespread network outage caused by an erroneous update to CrowdStrike last week had a major global impact and raised questions about the “perceived vulnerability” of Microsoft's Windows operating system.

Citibank analyst Tyler Radke said, “Overall, we believe the financial impact of this incident on Microsoft is limited (especially compared to CrowdStrike), but we also note that Microsoft may still need to deal with negative opinions surrounding the vulnerability of its operating system. Public hearings will be held in the next few days, and the US Federal Trade Commission will conduct further investigations.” Citi rated Microsoft as a “buy” and the target price was $520.

This outage caused a horrible “blue screen crash” for many computers around the world because CrowdStrike has “low-level kernel-level access” to Windows. However, this outage did not affect Mac computers or computers running Linux because each operating system has different kernel-level access policies.

Radke said that while these differences are well known in the IT world, this outage may raise concerns about Windows.

Radke concluded: “We don't think this incident will cause substantial damage to the Windows operating system market share, but it may raise more concerns about the vulnerability.”

As of press release, CrowdStrike fell 5.2% to $289.10, closing down 11.10% on the previous trading day; Microsoft rose 0.75% to $440.40 before the market, and closed down 0.74% on the previous trading day.