📈 Broadcom: AI at the Center

Is there room for one more in the Mag 7?

Jun 06, 2025

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🦅 Crowdstrike: Post-Outage Rebuild

The cybersecurity leader is still climbing back after last year’s global outage. Q1 showed strong customer retention and solid execution, but guidance was again disappointing.

Key metrics:

Annual Recurring Revenue (ARR): ARR grew 22% year-over-year to $4.44 billion, adding $194 million in net new ARR. This is a sequential decline from Q4's $224 million, but still exceeded internal expectations, indicating resilience amid the ongoing customer-commitment package (CCP)—a temporary discount program launched following the July 2024 outage we covered here.

Gross Retention Rate: Remained strong at 97%, reflecting continued customer loyalty despite the prior year's outage.

Income statement:

Revenue grew 20% Y/Y to $1.10 billion ($10 million miss).
- ☁️ Subscription grew +20% Y/Y to $1,051 million.
- 💼 Professional services grew +8% Y/Y to $53 million.
Operating loss margin was -11% (-12pp Y/Y).
Non-GAAP operating margin was 18% (-5pp Y/Y).
Non-GAAP EPS $0.73 ($0.07 beat).

Cash flow:

Operating cash flow was $384 million (35% margin).
Free cash flow was $279 million (25% margin).

Balance sheet:

Cash and cash equivalents: $4.6 billion.
Long-term debt: $0.7 billion.

Guidance:

Q2 FY26: Revenue +22% Y/Y to ~$1.15 billion (slightly short of the $1.16 billion consensus).
FY26: Revenue +21% Y/Y to $4.78 billion (unchanged). Non-GAAP EPS ~$3.50 ($0.05 beat).

So, what to make of all this?

Customer credits and discounts continue to impact growth. Launched to retain customers following the July 2023 outage, the CCP program is tapering off but still impacted revenue by $11 million in Q1. The drag is expected to be $10–15 million per quarter until Q4 FY26.
Sales and marketing spend remains high. 40% of CrowdStrike’s operating expenses go to this category. Stock-based comp made up 25% of total OpEx this quarter, leading to concerns about dilution.
Profitability dipped, but cash generation is intact. GAAP losses widened due to elevated R&D and legal costs related to the outage (Delta and others are suing). The company remained capital efficient with a 25% free cash flow margin, a slight improvement from 23% in Q4.
No customer exodus. Despite last year’s disaster, dubbed “the largest IT outage ever,” customers stayed. That’s rare and a strong signal of product stickiness.
Investors want more. Despite solid execution, the slight Q2 guidance miss triggered a decline in the stock price. The Street wanted a guidance raise, and didn’t get one.

This is still CrowdStrike’s comeback year.

While the business is executing well, CCP-related drag, conservative guidance, and unresolved legal issues are weighing on sentiment. That now includes inquiries from the DOJ and SEC nto CrowdStrike’s ARR reporting and the July outage—amplifying the legal overhang tied to last year’s fallout.

That said, ARR is growing steadily, cash is piling up, and customers haven’t walked away—a testament to the platform’s durability. CrowdStrike still targets $10 billion in ARR by FY31, suggesting recent turbulence may be more noise than signal. And with AI-powered endpoint protection becoming critical infrastructure, they may get there.

The stock price already reflects the optimism, with a valuation of 25x forward revenue. That puts CrowdStrike in rarified air, only behind Palantir and Cloudflare in the cloud software category.

📈 Broadcom: AI at the Center

Broadcom just posted another record quarter, riding strong demand for custom AI chips and VMware-fueled software growth. But after a 70% stock rally, even a beat wasn’t enough to impress.

Segment Breakdown

⚙️ Semiconductor solutions grew +17% Y/Y to $8.4 billion, powered by AI networking and custom chip demand.
💽 Infrastructure software grew +23% Y/Y to $6.6 billion, benefiting from Broadcom’s transition to subscription-based pricing and stronger synergies post-acquisition.
AI revenue: $4.4 billion (+46% Y/Y), including ASICs and switch chips sold to Google, Meta, and other hyperscalers.