CrowdStrike Secures Legal Win as Judge Dismisses Shareholder Lawsuit Over 2024 Outage

What happened

A federal judge dismissed a shareholder lawsuit alleging CrowdStrike defrauded investors by concealing inadequate software testing before the July 2024 outage that disrupted over 8 million Windows computers. This legal victory removes one immediate threat, but the company continues to grapple with reputational harm and operational scrutiny from the incident. According to the DeepValue report, CrowdStrike faces multiple other legal and regulatory challenges, including DOJ and SEC inquiries, which could lead to substantial penalties and governance fallout. Despite strong growth with ARR reaching $4.92B and robust free cash flow, the stock trades at a steep premium—around $500 per share versus a DCF-based intrinsic value of ~$60—highlighting significant overvaluation. The dismissal does not materially alter underlying risks such as heavy stock-based compensation, persistent GAAP losses, and intense competition in the cybersecurity market.

Implication

Investors should recognize that while this dismissal reduces one specific legal liability, it does not eliminate broader regulatory risks from DOJ/SEC inquiries or potential customer claims that could impact finances. The DeepValue report underscores the need to monitor customer durability metrics post-outage, as any erosion in retention or growth could worsen valuation concerns. With the stock trading at approximately 7–8x its FCF-based value, there remains little margin of safety even if some legal pressures ease. Ongoing investigations into revenue recognition and the outage itself pose risks of future penalties or operational constraints. Therefore, the investment case continues to hinge on CrowdStrike's ability to sustain growth while navigating these challenges and improving profitability, without significant price correction.

Thesis delta

The dismissal of this shareholder lawsuit slightly reduces the legal overhang cited in the DeepValue report, offering a minor positive development. However, it does not materially shift the key risks, including other ongoing litigations, regulatory scrutiny, and the stark valuation disconnect that underpins the potential sell stance. Thus, the recommendation remains unchanged, as the core thesis of overvaluation and unresolved execution risks persists.