2 of our software stocks face major tests of whether their rallies are for real
Both sides of the enterprise software trade will be tested on Wednesday evening when Club holdings CrowdStrike and Salesforce report earnings. Crushed by AI disruption concerns last year and into 2026, the comeback in cybersecurity came first, with traditional software-as-a-service stocks finally showing signs of life this summer. The market has clearly come around to the idea that the artificial intelligence boom will supercharge cybersecurity, not displace it. CrowdStrike hit a 52-week low of around $86 each on Feb. 23. Jim Cramer never thought cyber should trade with software-as-a-service (SaaS). He was proven correct. Since its recent lows, CrowdStrike shares have more than doubled to all-time highs earlier this month before coming off the boil. Year to date, CrowdStrike is up more than 55%. Jim saw a stronger argument to be worried about AI’s impact on SaaS, with client companies able to do more with fewer employees, hurting the industry’s seat-based licensing model; not to mention possibly using AI to build the very software tools they pay for. While Salesforce has become one of our smallest positions, Jim has kept it on the books to give CEO Marc Benioff the benefit of the doubt based on past success. After hitting a 52-week low of $146 on June 22, Salesforce gained 40% over the past nine weeks. A remarkable rally in a vacuum, but shares are still down 22% year to date and more than 30% off all-time highs seen back in late December, highlighting just how bad software outside of cyber has been. The questions we are looking to answer Wednesday evening, or at least start to answer: Has cyber run too far too fast? And, can Salesforce finally put to bed the so-called SaaSpocalypse narrative once and for all? CRWD YTD mountain CrowdStrike YTD While we have no concerns regarding cyber demand, we did book some profits earlier this month in both CrowdStrike and Palo Alto Networks , our other cybersecurity name. Last earnings season, CrowdStrike CEO George Kurtz said AI is driving demand for security solutions because clients need to secure the AI before they can even deploy it. He added that clients keep telling him: “We want to go faster in our business” with AI. On the evening of June 3, the company reported better-than-expected quarterly results and better-than-expected forward guidance. Hot money at the time sold the stock the next day, looking for more growth. Since then, shares were able to surge to new highs. But recently, the stock is testing its post-earnings declines. As we consider CrowdStrike’s Wednesday numbers, we wanted to point out what Palo Alto Networks CEO Nikesh Arora said about the industry’s business cycle last earnings season. “I wouldn’t get ahead of my skis and start throwing the kitchen sink at numbers for cybersecurity companies because there is still a process, a mechanism, a cycle that people buy in and there’s execution and deployment. So, to the extent that do I see good demand? Yes. To the extent do I believe that this demand will continue for longer? Yes. To the extent do I expect a windfall next quarter, the following quarter? No. I expect robust growth.” That’s important to understand because it means that we can’t immediately equate a demand explosion to an earnings one, as far as cybersecurity is concerned. Palo Alto, which has been the better performer since its June 2 earnings report, reports its latest quarter next week. CRM YTD mountain Salesforce YTD As for Salesforce, the stock is still down a great deal from record highs, but the recent rally has increased the stakes for Wednesday evening. Looking at the chart since its last earnings report on May 27, the stock rallied to around $209, before quickly reversing course and heading to the aforementioned June low. That makes $209 a point of resistance from the perspective of technical analysis. It is also the same level shares topped out at this week. Resistance confirmed. While the move this time pushed the stock back up above its 50-day moving average of $200 — which is positive because we can now look to the 50-day for support — technical analysts want to see a retest. Earnings could act in place of that, should they prove strong. If the results and/or forward commentary disappoint, it will be important to see if buyers do indeed step in at the 50-day, perhaps in hopes of better news to come next month, at the company’s annual Dreamforce expo from Sept. 15 to 17. Jim will be there. Bottom line For now, we’re staying the course on both CrowdStrike and Salesforce, as indicated by our hold-equivalent 2 ratings on each. We believe that the market is too bearish on best-in-class enterprise software names like Salesforce, and that despite the recent rally elevating expectations into the print, the stock’s less than 15 times forward earnings multiple is far from demanding. If Benioff can tell a good story on Wednesday’s post-earnings call, we wouldn’t be surprised to see shares run into Dreamforce. As for CrowdStrike, it too has a backstop of its annual Fal.Con showcase from Aug. 31 to Sept. 3 in Las Vegas. Last year’s event proved to be a catalyst for the stock. So, we also may need to reserve judgment on what CrowdStrike has to say on earnings night. (Jim Cramer’s Charitable Trust is long CRM, CRWD, PAWN. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
