Here's a paradox for you: AI is making the world less safe, and that's making CrowdStrike's shareholders very happy.
The cybersecurity company reported what it called the best quarter in its history on Thursday, and the stock jumped nearly 9% in premarket trading. The logic is simple: as AI-powered attacks multiply, companies have no choice but to spend more on defense. And CrowdStrike is one of the biggest defense contractors in the digital world.
Revenue came in at $1.47 billion, beating the $1.44 billion analysts were looking for. Adjusted earnings of 31 cents per share also topped the 29-cent consensus. But the real story is what's ahead.
Raising the Bar
CrowdStrike didn't just beat this quarter; it raised its expectations for the rest of the year. The company now sees fiscal 2027 revenue of $5.99 billion to $6.01 billion, up from its previous range of $5.92 billion to $5.96 billion. Analysts had been expecting $5.93 billion, so this is a meaningful bump.
Adjusted earnings guidance also moved higher, to $1.25 to $1.26 per share from $1.22 to $1.24. Wall Street was at $1.23.
Perhaps most telling is the net new annual recurring revenue (ARR) guidance. CrowdStrike raised that by about $116 million to between $1.35 billion and $1.36 billion. That implies growth of about 34%, compared with its initial projection of 22.5%. When a company nearly doubles its growth forecast, it's usually a sign that something big is happening in the market.
For the third quarter, CrowdStrike expects revenue of $1.52 billion to $1.53 billion, slightly above the $1.52 billion estimate. Adjusted earnings are projected at 31 cents per share, in line with expectations.
The company also maintained its forecast for a full-year free cash flow margin of at least 30%, which is a nice vote of confidence in its ability to keep generating cash.
The AI Arms Race
During the earnings call, CEO George Kurtz framed cybersecurity as an "arms race," and he didn't mince words: "AI is driving more cyber attacks. AI is driving more cyber spending."
That's the thesis in a nutshell. As businesses rush to adopt AI models and agents, they're expanding their attack surface. Every new AI tool is a potential entry point for hackers. And so companies are accelerating their security upgrades and spending more on CrowdStrike's Falcon platform.
It's a virtuous cycle for CrowdStrike: AI creates more threats, which drives more spending, which shows up in the company's numbers. And the numbers are pretty impressive.
The Numbers Behind the Story
Let's dig into the details. Adjusted gross margin hit 79%, while subscription gross margin rose to 81%, helped by cloud optimization efforts. Adjusted operating income jumped 46% to $372 million, and the adjusted operating margin expanded 350 basis points to 25%.
Net new ARR climbed 51% to $333 million, while ending ARR increased more than 25% to $5.84 billion. Free cash flow rose 33% to a record $377 million, and operating cash flow reached $530 million.
Subscription revenue grew 27% to $1.40 billion, and professional services revenue hit a record $71 million. Revenue from global systems integrators grew nearly 50%, led by demand for Next-Gen SIEM and vulnerability management products.
CrowdStrike ended the quarter with $5.01 billion in cash and cash equivalents. That's a lot of dry powder for potential acquisitions or investments.
Falcon Flex Takes Flight
One of the standout metrics was Falcon Flex, CrowdStrike's flexible subscription offering. ARR for Falcon Flex surpassed $2.29 billion, up 101% year over year. The company added more than 935 Falcon Flex accounts during the quarter.
Customers that switched to Flex recorded average ARR growth of more than 40%. More than 630 existing customers renewed or expanded through Flex, six times the year-earlier level. And customers that renewed through Flex at least twice had 53% higher average ARR than their initial Flex level.
New-customer Flex ARR accounted for a record 34% of second-quarter net new ARR. The message is clear: once customers go Flex, they tend to spend more and stick around.
Other products are also doing well. Identity ARR rose 34% to more than $585 million. Falcon Shield ARR climbed more than 185%, and privileged account security ARR increased more than 35-fold. Falcon Cloud Security ARR exceeded $905 million, up more than 29%.
Project QuiltWorks, CrowdStrike's partner ecosystem initiative, now includes more than 25 partners and has generated a combined contract-value pipeline of nearly $400 million.
One notable customer win: Kroll migrated most of its customers to Falcon across 450,000 endpoints and more than tripled its spending through a multiyear Falcon Flex subscription. That's the kind of deal that shows how CrowdStrike is deepening its relationships with existing customers.
Cloud Marketplaces and the Big Three
CrowdStrike is also benefiting from its partnerships with the big cloud providers. Deal value through the cloud marketplaces of Amazon.com Inc. (AMZN), Alphabet Inc. (GOOGL), and Microsoft Corp. (MSFT) exceeded $600 million, up more than 30%.
That's a nice tailwind, as more enterprises buy security software through their cloud providers' marketplaces.
What About the XM Cyber Deal?
CrowdStrike expects its acquisition of XM Cyber's technology assets to close in the second half of fiscal 2027. The company's outlook does not include any fiscal 2027 revenue or ARR contribution from the deal, so there could be upside if the acquisition closes sooner or performs better than expected.
The Bottom Line
CrowdStrike's quarter is a reminder that in the world of cybersecurity, chaos is opportunity. AI is making attacks more frequent and more sophisticated, and companies are responding by spending more on protection. CrowdStrike is one of the primary beneficiaries of that trend.
The stock was up 8.77% at $205.78 in premarket trading on Thursday, according to market data. Investors seem to like what they're hearing.
Of course, there are risks. Competition is fierce, and the valuation is not cheap. But for now, CrowdStrike is firing on all cylinders, and the AI arms race shows no signs of slowing down.
