Investing does not offer any guarantees, but some sectors have a high likelihood of driving investor returns. Such is the case with companies specializing in online security. Cybersecurity has become especially critical as systems switch to cloud networks. These networks can be anywhere, as can the users utilizing devices in any location.

Moreover, since networks cannot function without security, enterprises will probably not cut back on this need, regardless of overall economic conditions. Fortunately, this challenge offers an opportunity for investors, and three cybersecurity stocks appear especially well-positioned to deliver outsized returns over time.

CrowdStrike

CrowdStrike (CRWD 2.03%) stands out as a leader in endpoint security. Endpoints are the devices accessing various networks, such as smartphones, laptops, and servers. CrowdStrike also became known for crowdsourcing data to identify attackers, which is how it derived its name.

The company earns revenue by selling security modules, and 63% of its customers subscribe to five or more of these modules. They may subscribe to more. In recent months, enterprises such as database giant MongoDB and the court system in Australia's Victoria state experienced breaches that exposed customer data.Such attacks highlight the need for the AI-driven vigilance that CrowdStrike provides. Its AI analyzes data for patterns, addressing anomalies immediately or notifying security personnel when such a breach arises.

Customers have turned to its products in higher numbers. Revenue in the first nine months of its fiscal 2023 (ended Oct. 31) was just over $2.2 billion, rising 38% compared with the same period in 2022. Additionally, it has recently turned profitable, earning a net income of $36 million in the first three quarters of 2023. CrowdStrike lost $133 million during the same timeframe in 2022.

That success, along with its AI, helped the stock rise more than 130% over the last year. As long as CrowdStrike can maintain its edge, it can stay on its upward trajectory.

Zscaler

Zscaler (ZS 1.28%) stood out by leading the way in zero-trust security. This approach assumes every entity seeking access to a system is an attacker.

Zero trust uses characteristics such as devices and company positions to determine access controls. It also uses one's position in an organization to determine access levels, limiting the damage of a potential breach.

Moreover, Zscaler has long used AI and machine learning (ML) to identify attackers. This improves its proprietary large language model (LLM) that leverages insights from a data lake built on more than 300 billion daily transactions.

To this end, the company reported $497 million in revenue in the first quarter of its fiscal 2024 (ended Oct. 31, 2023), rising 40% over the last 12 months. That comes after a 48% revenue increase in fiscal 2023. And although it still reported a $33 million net loss during fiscal Q1, its $225 million in quarterly free cash flow rose 135% from year-ago levels.

Zscaler's stock surged 90% higher over the last year. Given the continued emphasis on AI-driven cybersecurity, investors will likely continue turning to this zero-trust leader in 2024.

Palo Alto Networks

Unlike CrowdStrike or Zscaler, Palo Alto Networks (PANW 0.91%) bills itself as a more generalized cybersecurity company. In a way, this may not help the company stand out since none of the major cybersecurity companies limit themselves to one approach.

Like its peers, it uses AI to automate cybersecurity tasks and address the threats and opportunities posed by the rise of generative AI. It also offers endpoint security, zero-trust products, Internet of Things protection, and advanced firewalls to protect its customers' networks.

However, Palo Alto leverages its intellectual property base to sell security bundles, making it easier to manage all cybersecurity services under one umbrella.

During the first quarter of its fiscal 2024 (ended Oct. 31, 2023), revenue rose 20% to $1.9 billion. That's just below the 25% revenue growth rate in fiscal 2023. Palo Alto's earnings turned positive in fiscal 2022, and its profitability continues to grow. The company reported a net income of $194 million in its Q1, up from $20 million in the year-ago quarter.

Furthermore, Palo Alto's stock is on the rise, vaulting about 110% over the last 12 months. Although its revenue growth could slow modestly, rapid earnings growth should keep the stock on an upward trajectory for the foreseeable future.