Market commentary by eToro analyst for Romania, Bogdan Maioreanu
Dell, HP and Crowdstrike reported some good results Wednesday, but despite these, investors were not very happy. The stock price of Dell lost 12%, HP fell over 11% and Crowdstrike dropped almost 5%. S&P 500 Information Technology Sector as a whole lost only 1.19% on the same day. All three companies missed something in their reporting, either the revenue target at Dell, or the profit per share target at HP that came in as expected or forecasts for the next quarter such as Crowdstrike.
If we look at the big picture, this quarter the S&P 500 companies had an average revenue growth of 5.3% with the technology sector at 13.3% and on earnings the growth was 8.9% with the technology sector at over 19%. So, with high valuations come high expectations -any perceived signs of slowing growth, even if the numbers appear good, can spark investor displeasure with company performance and generate selling.
Companies have had solid, sustained growth so far. Dell stock price is up 85% this year, HP up 30%, and Crowdstrike up 43%. Overall the information technology sector is up 33% year-to-date.
The sector has long been an investor favorite. We asked investors in the latest eToro Retail Investor Beat survey which sector they plan to increase their investments in the quarter. The top-ranked sector both globally and for investors in Romania was Technology. So, at least for these investors, the corrections bode well for allowing them to execute their investment strategy at better prices.
One interesting surprise was Crowdstrike, notorious for one of the largest IT outages in history that happened last summer. The outage has generated an estimated $5 billion in losses for companies using their cyber solution. It stranded a lot of tourists in airports and created all sorts of other problems globally. Despite facing headwinds from that event, Crowdstrike delivered solid results in its Q3 earnings. Impressive is that despite the fallout, the company managed to have a 97% gross retention rate. The firm saw revenue rise 29% year-over-year, while its annual recurring revenue also beat estimates. Most notably, earnings per share came in well above estimates, showing the impact from July's mishap isn't having the effect some investors expected. However, it is still unclear what the financial repercussions will be after the outage as the company is already facing a lawsuit from Delta Airlines company for an allegedly $500 million loss.
It's clear how reliant these businesses are on CrowdStrike's platform as switching cyber protection providers is not easy. Also, Crowdstrike continues to be the second-largest IT security company in the world by market capitalization after Palo Alto. The market may be slightly disappointed in its guidance for the next quarter, with its earnings forecasts coming in slowly below estimates. However, the bigger picture is that its forecasts for the full year 2025 all came in above Wall Street expectations, which may spell good news for long-term investors.
