Shares in CrowdStrike Holdings (CRWD) plunged Friday in the wake of a widespread IT outage caused by the cybersecurity firm’s software update while rivals SentinelOne (S) and Palo Alto Networks (PANW) gained. CrowdStrike stock fell over 12% in afternoon trading.

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CrowdStrike Chief Executive George Kurtz on Friday in a statement said: “This is not a security incident or cyberattack. The issue has been identified, isolated and a fix has been deployed.” He said “a defect in a single content update for Windows hosts caused the problem.”

Financial Consequences For CrowdStrike Stock?

However, CrowdStrike customers could seek compensation, analysts say.

“There is a risk of large potential liability claims from customers that were affected by the outages,” said Raj Joshi, a senior VP at Moody’s Ratings, said in a release. “While this incident calls into question CrowdStrike’s software engineering practices, it also underscores growing vulnerabilities in global cloud infrastructure from increasing points of failure.”

CrowdStrike competes with Palo Alto Networks, SentinelOne, Microsoft (MSFT) and others in the “endpoint” market. Endpoint security tools detect malware on laptops, mobile phones and other devices that access corporate networks. Meanwhile, CrowdStrike’s second quarter ends July 31.

“We believe there will be financial consequences from this issue,” said BMO Capital Markets analyst Keith Bachman in a report. “As one example, we think customers will be seeking relief and compensation from damages, which we think could include discounts or credits for both new contracts and renewals. Hence, we think there could be an impact on growth rates and cash.”

Meanwhile, Tesla (TSLA), SpaceX and X Chief Executive Elon Musk on Friday said “We just deleted CrowdStrike from all our systems,” in a social media post. Musk did not elaborate if it was for one or all of his companies.

At Jefferies, analyst Joseph Gallo had a dire view.

“This could be an expense burden for CrowdStrike given it has to invest to clean up the issue and potentially dispense credits which could impact margin,” Gallo said. “While we don’t know how CrowdStrike will appease its customers who dealt with outages and potential lost revenue … we assume it will require credits, discounting or additional free products.”

SentinelOne, Palo Alto Gain

Gallo added: “Furthermore, this will lead to CrowdStrike reputational damage, particularly for mission critical infrastructure and government customers that could elongate deal cycles. The biggest impact is that this transpired in the last two weeks of the quarter, which are the most important and will likely significantly constrain potential upside as new customers await assurances that the situation has been handled.”

On the stock market today, CrowdStrike stock fell 12.9% to near 299. SentinelOne stock popped 7.2% to near 21.59. Palo Alto stock rose 1.3% to 328.23.

As of Thursday’s market close, CrowdStrike stock had gained 34% in 2024, SentinelOnestock had retreated 26% and Palo Alto Networks was up nearly 10%.

Cybersecurity stocks rank No. 131 out of 197 industry groups tracked by IBD.

Also, CrowdStrike is building a broad, threat-detection cybersecurity platform called XDR, or extended detection and response. Further, it monitors endpoints as well as web/email gateways, web application firewalls and cloud business workloads.

Black Eye For CrowdStrike Stock

“While management confirmed this issue was not the result of a cyber breach, we believe the company will certainly need to deal with the blowback from triggering such a widespread outage of a global nature,” said William Blair analyst Jonathan Ho in a report. “Ordinarily, CrowdStrike’s global reach is a significant positive, but time will tell if this issue impacts any future business opportunities, as organizations are still resolving the issue. In our view, this type of issue has occurred for other core system vendors, but it does create a proverbial black eye for the company”.

At TD Cowen, analyst Shaul Eyal said companies will likely increase spending on computer backup systems as a result of the global outage.

“Enterprises are likely to examine their incident response capabilities and the need to carry backup plans. We envision an emergency driven spending cycle,” Eyal said.

At Wedbush, analyst Daniel Ives said in a report: “CrowdStrike has a strong brand and global marketing presence which will need to go into next gear over the coming weeks and months to curtail some damage from this.”

Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on artificial intelligence, cybersecurity and cloud computing.

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