After the Biggest IT Outage in History, Is CrowdStrike a Stock to Avoid...or a Bad-News Buy?

CrowdStrike Holdings (NASDAQ: CRWD) made headlines around the world on Friday -- but not for a reason the company or its shareholders were happy about. A faulty software update by the cybersecurity specialist led to an IT outage that impacted customers around the world, from airlines to banks to hospitals, causing business for many of them to screech to a halt.

Experts are calling this the largest IT outage in history, and though CrowdStrike rushed into action and deployed a fix, problems persisted across systems. The company repaired the software bug, but affected computers require manual reboots -- a process that could take some time.

Investors responded by selling CrowdStrike stock, driving it 11% lower in Friday's trading session. Now, the question is, following this major upset for CrowdStrike customers worldwide, is the stock one to avoid...or is it a bad-news buy? Let's find out.

Image source: Getty Images.

What happened at CrowdStrike?

First, let's take a quick look at CrowdStrike's business and at exactly what happened over the past few days. CrowdStrike stands out in the world of cybersecurity because its platform is entirely cloud-based and driven by artificial intelligence (AI). The Falcon platform collects data from across a company, and this information is used to train CrowdStrike's AI to protect that customer from threats. Customers can select from among 28 security modules or use them all in one Falcon platform.

As of the end of the first quarter, 62 of the Fortune 100 companies were using CrowdStrike as their choice of cybersecurity provider. The company recently said deals involving modules such as Falcon Next-Gen SIEM more than doubled year over year, and it's been signing some of its biggest contracts ever.

Fast-forward to the early morning hours of July 19. CrowdStrike launched a sensor configuration update to Microsoft Windows systems -- something that's done regularly across the Falcon platform. This time, though, the update sparked a logic error. The result was a system crash, leading to the blue screens seen by customers around the world.

CrowdStrike quickly fixed the software error, but as mentioned above, the need for manual reboots means it will take time for all systems to return to normal operations. The impact has been broad-based -- from canceled flights and surgeries to TV channels being unable to broadcast.

Potential impact on CrowdStrike

Now, let's consider the potential impact on CrowdStrike. First, here's a very important point: The troubles weren't linked to a cyberattack. They were simply the result of a faulty software update. This is key because it doesn't call into question CrowdStrike's ability to do its job of protecting companies from such attacks. And though this software bug created chaos, unfortunately these sorts of events do happen from time to time -- and have happened to other companies.

Of course, the outage is still likely to have some financial impact on CrowdStrike, but it's too early to determine exactly how much. A look at the company's terms and conditions shows it limits its liability to "fees paid" by the customer -- which could greatly reduce potential damages. But this is just a small part of the picture. CrowdStrike may have negotiated other terms with certain clients, and the company still could face the threat of lawsuits or the loss of contracts.

Your investment strategy

So, what does all of this mean for you as an investor right now? Is CrowdStrike a stock to avoid or a bad-news buy? This depends on your investment strategy . If you're a cautious investor, before picking up shares, you may want to at least wait until CrowdStrike's next earnings report to learn more about potential financial impact on the company.

If you can tolerate some risk, though, now is a great time to scoop up shares of this cybersecurity giant. As mentioned above, technical glitches do happen -- and this one doesn't have anything to do with CrowdStrike's ability to protect its customers from cyberattacks.

The fact that this software bug did shut down so much business shows just how big CrowdStrike has become, extending across companies and industries around the world. Could CrowdStrike lose some customers after this event? It's certainly possible, though customers do realize that software bugs are risks -- regardless of your security provider.

Finally, it's important to take a look both at CrowdStrike's solid earnings growth, and at two key metrics -- free cash flow and return on invested capital:

CRWD Net Income (Annual) data by YCharts .

All of these figures are extremely positive; they show that CrowdStrike is making wise investments and benefiting from them.

Even if CrowdStrike faces some financial headwinds in the aftermath of the big outage, the company has what it takes to handle the challenges, and should prevail over the long term. All of this means that, yes, CrowdStrike could be in for a rough patch in the weeks and months to come, but the recent problem shouldn't dismantle the strengths the company has built over time.

And this means that, for investors able to handle some risk, CrowdStrike today is a bad-news buy -- not a stock to avoid.

Adria Cimino has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends CrowdStrike and Microsoft. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy .