As our lives become increasingly online and digital workloads migrate to cloud-based environments, cybersecurity has not been more critical to safeguarding both enterprise and consumer data. The rise of artificial intelligence (AI) and generative artificial intelligence models, which rely on swaths of public and even proprietary data, underscores the importance of a unified cybersecurity apparatus. Interestingly, enterprises have rushed to secure their networks, data centers and cloud environments, so they have probably left themselves open to a concentration risk. Many enterprises only use products from a few cybersecurity companies to address pain points in their digital environments.
CrowdStrike (NASDAQ:CRWD), which provides end-point security protection for cloud environments, is one of the most prominent firms in its respective space and has garnered 24% of the endpoint security market to prove it. However, an IT outage in mid-July caused by faulty code led to many disruptions worldwide, including airports, banks and even government offices.
These three stocks stand to lose from the CrowdStrike outage.
CrowdStrike (CRWD)
CrowdStrike belongs on this list because the company has the most to lose from this out of any other company. The fact is that the endpoint security firm completely dropped the ball on this one. According to Bloomberg reporting, a tiny file led to worldwide disruption. CrowdStrike had the file, dubbed “C-00000291*.sys,” hidden inside an update for CrowdStrike’s Falcon sensor product. The corrupted file caused an error in Microsoft‘s (NASDAQ:MSFT) Windows operating system (OS), ultimately leaving computers with the “blue screen of death.”
This cybersecurity disaster highlights the risks of industry consolidation and overreliance on a few products to safeguard data. CrowdStrike, once a darling of Wall Street, has continued to crush earnings and siphoned customers away from smaller players, such as SentinelOne (NYSE:S), and is now seeing its share in dire straits. Once a high-flying stock, soaring as much as 52% on a year-to-date basis, CRWD stock is currently down more than 5% for the year.
Moreover, this IT outage will likely prompt customers to continue shopping for similar cybersecurity solutions from CrowdStrike’s competitors.
Microsoft (MSFT)
Microsoft is no doubt another loser in this situation. The CrowdStrike outage precisely led to the inoperability of Windows OS, emphasizing how Microsoft allowed CrowdStrike’s cybersecurity software to become embedded within its vast array of software products. Microsoft has been on the receiving end of criticism and questions as to why a third-party product like CrowdStrike’s Falcon brought down Windows OS worldwide. However, the Windows system is not even the extent to which Microsoft had exposure to CrowdStrike’s products.
Microsoft’s cloud platform Azure also employs Falcon for cloud end-point security. However, let’s be clear: large cloud service providers tend to leverage more than one cybersecurity product to deploy defenses against potential cyber threats. Still, the whole debacle likely takes aback Azure customers who rely on CrowdStrike’s Falcon for endpoint security. Because Azure is such a crucial growth engine to Microsoft’s overall business these days, these cybersecurity outages, whether they were the direct fault of Microsoft or not, cast a shadow over the platform.
Amazon (AMZN)
The final stock on this list to lose out to the CrowdStrike global IT outage would be Amazon (NASDAQ:AMZN). The reason Amazon’s stock may lose out is quite similar to the reason Microsoft’s stock could be impacted. In particular, Amazon saw various ramifications across its businesses. For example, many Amazon employees saw their work emails go down on the outage day. Furthermore, some employees using Windows laptops had the misfortune of seeing the “blue screen of death.” Amazon warehouses saw several disruptions as well.
Lastly, but probably most importantly, Amazon AWS, the e-commerce giant’s cloud services platform, experienced disruptions. AWS is one of the world’s largest cloud platforms, usually trading spots with Microsoft Azure for #1 or #2 in terms of global market share. A large platform like AWS, which is also attempting to increase its growth amidst the AI “craze,” having this kind of global outage can tarnish Amazon’s reputation in the eyes of its current customers or prompt customers who were thinking to migrate from an on-prem environment to a cloud one to have second thoughts.
On the date of publication, Tyrik Torres did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
