The cybersecurity industry is growing at a nice clip, with Fortune Business Insights estimating that this market could clock annual growth of almost 14% through the end of the decade, generating an estimated $425 billion in annual revenue by 2030. Artificial intelligence (AI) is expected to be one of the key growth drivers of the cybersecurity market. It's increasingly deployed in the industry because of its many advantages. According to a third-party estimate, the adoption of AI in cybersecurity could grow at an annual pace of 24% through 2030, generating annual revenue of $94 billion by then.
Given all this projected growth, now would be a good time to take a closer look at companies like SentinelOne (S +6.95%) and Palo Alto Networks (PANW +4.35%), two cybersecurity specialists that are on track to make the most of the growing adoption of AI in this industry, to find out which one of them is the better AI play right now.
The case for SentinelOne
SentinelOne's solutions enable customers to deploy AI-powered threat detection, prevention, and response across their endpoints and cloud workloads. This explains why the demand for the company's offerings is increasing, leading to impressive growth in its top line.
The company's revenue of $149 million jumped 46% year over year in the second quarter of fiscal 2024 (ended July 31, 2023). More importantly, SentinelOne's annualized recurring revenue (ARR), which measures the annualized revenue run rate of the company's subscription contracts at the end of a quarter, grew at a slightly faster pace of 47% year over year to $612 million. The robust growth in this metric suggests that SentinelOne has a healthy revenue pipeline that should allow it to maintain its impressive growth.
NYSE: S
Key Data Points
What's more, SentinelOne built a solid customer base. The company finished the previous quarter with 11,000 customers, a jump of 30% over the prior-year period. The number of customers with an ARR of more than $100,000 increased by 37% compared to the year-ago period, suggesting that SentinelOne's customers are already spending more money on its offerings by adopting new solutions or increasing the usage of existing products.
It wouldn't be surprising to see SentinelOne win a bigger share of customers' wallets with its new generative AI-powered solutions. The company released Purple AI, a generative AI cybersecurity solution that aims to help security analysts quickly hunt, analyze, and respond to threats, in April of this year. Purple AI uses an AI engine to help organizations increase the efficiency of their cyber defenses by analyzing both open-source and proprietary data.
Security analysts can simply ask Purple AI to look for both known and unknown threats using simple text prompts instead of manually writing long queries, speeding up the process of threat detection. The generative AI cybersecurity assistant also provides useful insights such as the devices infected and the future course of action.
So SentinelOne can upsell this generative AI product to its existing customers, and also bring new customers into its fold. Not surprisingly, the company's top line is projected to grow quickly.
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Analysts also anticipate 40% annual growth in the company's earnings for the next five years, indicating that SentinelOne could turn out to be a top AI stock in the long run.
The case for Palo Alto Networks
Palo Alto Networks is another fast-growing cybersecurity company that investors may want to consider for their portfolios to capitalize on the adoption of AI in this space. The company's fiscal 2023 revenue (for the year ended July 31, 2023) increased 25% to $6.9 billion, while non-GAAP earnings shot up 76% to $4.44 per share.
It is worth noting that Palo Alto's remaining performance obligation (RPO), which refers to the total value of its future contractual obligations, increased 30% last quarter to $10.6 billion. This metric tells us that Palo Alto has a robust future revenue pipeline that should help it sustain its impressive growth once it fulfills its contractual obligations.
NASDAQ: PANW
Key Data Points
The company anticipates fiscal 2024 revenue to increase in the range of 18% to 19% to $8.15 billion to $8.20 billion, but it could deliver stronger growth thanks to its sizable RPO. Another factor that could play a key role in accelerating Palo Alto's growth is its growing focus on integrating AI into its cybersecurity solutions, though it is worth noting that the company has been relying on this technology to make its offerings better for the past seven years.
However, Palo Alto doesn't have a dedicated generative AI cybersecurity solution yet. CEO Nikesh Arora pointed out in May that Palo Alto will eventually launch a proprietary large language model (LLM) in the "coming year." He added on the company's August earnings conference call that Palo Alto's product teams are already working on generative AI solutions.
So Palo Alto's growth could get a nice shot in the arm once the company releases its generative AI cybersecurity offerings. However, the company will have to be quick on this front, as rivals such as SentinelOne and CrowdStrike have already launched generative AI cybersecurity products.
The verdict
It is clear that SentinelOne is growing at a much faster pace right now. Additionally, we have seen that analysts anticipate 40% annual earnings growth for SentinelOne over the next five years, which is faster than the 26% growth projected for Palo Alto.
All this indicates that SentinelOne is the better cybersecurity stock to buy, as it is trading at 9.9 times sales, lower than Palo Alto's sales multiple of 13. More importantly, SentinelOne has a dedicated generative AI offering in the form of Purple AI, which Palo Alto currently lacks, and this could give the former a leg up in the fast-growing AI-powered cybersecurity space.
