2 Unstoppable Stocks Down 50% and 80% You'll Regret Not Buying on the Dip

The cybersecurity industry is highly favored on Wall Street. That's because companies increasingly run their operations online using cloud computing. The costs associated with a data breach are huge (and growing), so there is plenty of demand for advanced protection.

Last year, Morgan Stanley surveyed chief information officers at several large companies and discovered cybersecurity software was the last expense they'd be willing to cut, even in a recession. Similarly, global consulting firm PwC surveyed 4,410 executives earlier this year and learned that 25% of them felt their businesses would be either "highly" or "extremely" exposed to cyber risks over the next five years.

Given this perceived need, McKinsey & Company did some research and calculated that the corporate sector should be spending about $2 trillion per year on cybersecurity. A check of actual spending in this area puts the total at just $168 billion.

That gap presents an enormous opportunity for some of the industry's leading cybersecurity providers. For investors looking to get in on the potential growth that's coming, there are two companies in particular that are worth considering. Part of the reason is that each of the stocks is trading at a steep discount to their all-time highs at the moment. Here's why you might just regret not buying these two unstoppable stocks on the dip.

1. SentinelOne

SentinelOne (S 1.70%) is one of the smaller publicly listed cybersecurity companies. It has a market valuation of just $4.5 billion, though a steep 80% decline in its stock price from 2021 all-time highs is largely to blame for that.

The company saw some real headwinds recently that worried investors. In one instance, management discovered an accounting anomaly in the recent fiscal 2024 first quarter (ended April 30) report. Elsewhere, its revenue growth has moderated. Finally, SentinelOne stock got caught up in the tech stock sell-off in 2022. But long-term investors should know that all of those issues can be overcome.

What SentinelOne has going for it is the fact that it's a leading innovator when it comes to cybersecurity tools powered by artificial intelligence (AI). Its flagship Singularity platform covers cloud security, identity security, and vulnerability management (to name a few), and it's designed to automate threat hunting and incident response because SentinelOne believes machines can react to threats much faster than humans. 

The company just released a new platform called Purple AI, which is a cybersecurity chatbot businesses can use to combat malicious actors on a much deeper level. Cybersecurity managers can prompt Purple AI to hunt for specific risks within a network, or they can simply ask it to identify instances when an unauthorized entity attempted to access restricted files.

The user can start an entire conversation with Purple AI -- much like they would with OpenAI's ChatGPT -- to narrow down potential threats. Plus, the platform is capable of neatly summarizing risk events to help alleviate alert fatigue for managers; in other words, it saves the staff from spending hours digging into each attack to learn what happened. 

SentinelOne reported $133 million in revenue during Q1, representing 70% year-over-year growth. It was a great result, though investors are used to this company growing by triple-digit percentages each quarter. The accounting anomaly mentioned earlier forced the company to reduce its reported annual recurring revenue by $5 million. While it's not a huge number, it raises questions about SentinelOne's management practices, and the management team will need to earn back investors' trust over time. 

On a more positive note, businesses are still flocking to SentinelOne. It had 10,680 customers at the end of Q1, up 43% year over year, and 917 of those customers were spending at least $100,000 per year on its cybersecurity products. That total was up 63%, and it highlights the growing demand among larger, more complex organizations. As long as customers continue to trust SentinelOne's products, its stock is likely to recover over time, which means the steep 79% discount could be a great opportunity to buy in. 

2. CrowdStrike

CrowdStrike (CRWD 2.03%) stock is trading down about 50% from its all-time high. The company is significantly larger than SentinelOne, with a valuation of $33.6 billion. CrowdStrike serves over 23,000 customers across its broad portfolio of products, but it's a true specialist at protecting the endpoint -- or the devices employees use to complete their jobs within an organization. 

The company says 90% of successful cyberattacks originate from an endpoint because employees tend to be the most vulnerable part of a network. Why? Because they have the most interactions with outside sources, whether it's through email, instant messaging, or phone calls. Plus, if one employee has their credentials (username and password) compromised, that could be enough to trigger a companywide breach. 

Like SentinelOne, CrowdStrike uses AI to offer the most advanced protection possible. Every time a customer experiences a cyberattack, that data is used to improve CrowdStrike's models -- think of these models as like living neural networks that absorb new information to constantly learn. Right now, CrowdStrike ingests more than 2 trillion events every single day, and the more businesses that sign up to use its products, the more data that gets created, and the better the AI models become over time. 

CrowdStrike has had a powerful run of growth over the last few years, but it's beginning to slow as the company matures and takes a leadership position in the market. It generated $692 million in revenue during the fiscal 2024 first quarter (ended April 30), which was a 42% increase year over year. While that's still a robust growth rate, it was slower than the 61% it delivered in the year-ago period, which is one reason investors have sent CrowdStrike stock down by 54% from its all-time high. 

But that might be an opportunity for new investors who don't yet own it. As mentioned, demand for cybersecurity software will only continue to grow as more businesses realize the financial and reputational cost of not being protected is magnitudes greater. As CrowdStrike's customer base grows larger, it will spin its innovation flywheel faster to ensure it remains ahead of its competitors when it comes to AI-powered protection. As a result, this company could be one of the best long-term bets in the industry.