While many Americans were sleeping last night, information-technology (IT) systems were going down all around the world, including the IT systems for major airlines and banks. Experts are reportedly calling it the “largest IT outage in history.” And stock market darling CrowdStrike Holdings (NASDAQ: CRWD) is right at the center of the crisis.
CrowdStrike operates a cloud-based cybersecurity software platform. Being cloud-based, an update can come out at any time. The latest update had a “defect”. And this defect caused Microsoft Windows operating systems to get stuck on a “blue screen of death,” unable to function properly.
Co-founder and CEO George Kurtz says that CrowdStrike already identified the problem and deployed a fix. The recovery is consequently underway. For example, United Airlines says that it’s already resuming flights.
CrowdStrike is one of the most popular stocks on the market. Earlier this month, shares were up more than 50% in 2024. But as of 10:20 a.m. on Friday morning, shares were down 9%. Investors rightly want to know what to expect next. And there’s truly a lot to unpack here.
Is this an overreaction?
Investors often overreact to news in the short term, losing long-term perspective. However, with CrowdStrike and its peers, a short-lived problem can have long-term consequences. Companies selling physical products usually aren’t materially changed overnight. But things can quickly break down for a cloud-based software business such as this.
In the risk section of its financial filings, CrowdStrike says, “Because our cloud native security platform is complex, it may contain defects or errors that are not detected until after deployment.” This is exactly what happened last night.
CrowdStrike’s management says that if a defect goes out it, “Could harm our reputation and adversely affect our business, financial position and results of operations.” That’s a hugely consequential statement.
The good news for CrowdStrike’s investors is that this wasn’t a cybersecurity-related problem. Kurtz quickly pointed this out by saying, “This is not a security…
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