Wall Street seems excited about cybersecurity and artificial intelligence (AI) in 2024. Wedbush Securities analyst Dan Ives said he believes cybersecurity will be the best-performing sub-category in the technology sector this year. Similarly, Morgan Stanley analysts Hamza Fodderwala and Keith Weiss predict 2024 will be a "banner year for cybersecurity" due to elevated threats, regulatory tailwinds, and AI innovation.

Ives recently ranked CrowdStrike (CRWD 2.03%) and Palo Alto Networks (PANW 0.91%) among his top picks for the year. Similarly, Fodderwala ranked both companies among the software vendors best positioned to benefit from generative AI. Those bullish sentiments warrant a closer look.

Here's what investors should know about these two AI-related growth stocks.

1. CrowdStrike

In 2022, CrowdStrike became the second-fastest software company to achieve a $2 billion annual revenue run rate. In 2023, it became the only pure-play cybersecurity software company to reach a $3 billion annual revenue run rate. The company also turned the corner on generally accepted accounting principles (GAAP) profitability last year. In the third quarter, revenue increased 35% year over year to $786 million and GAAP net income improved to $27 million, up from a loss of $55 million in the prior year.

CrowdStrike is firing on all cylinders, and there are reasons to believe that will continue. Most enterprises rely on about 50 different security products, but the CrowdStrike Falcon platform includes more than two dozen modules that span multiple security end markets. That broad functionality gives enterprises the chance to consolidate spending through fewer vendors as a means of improving operational efficiency.

Additionally, CrowdStrike is a recognized leader in several end markets, including modern endpoint security and threat intelligence. Those verticals are particularly relevant because endpoint security is the second-fastest-growing cybersecurity category, and leadership in threat intelligence points to superior artificial intelligence (AI) and protection capabilities.

Indeed, Frost & Sullivan analyst Sarah Pavlak recently wrote, "CrowdStrike leads the industry with regards to the application of artificial intelligence/machine learning to endpoint security, as well as providing unparalleled prevention of malware and malware-free attacks on and off the network." CrowdStrike is leaning into that advantage with Charlotte AI, a generative AI assistant that can automate workflows for security teams.

Looking ahead, cybersecurity spending is forecasted to increase at 12% annually through 2030, but CrowdStrike should outpace the industry as it continues to gain share. Indeed, Fodderwala at Morgan Stanley believes the company can grow revenue faster than 20% annually over the long term. In that context, its current valuation of 23.9 times sales is still far from cheap, though it is a discount to the three-year average of 29.3 times sales.

Patient investors comfortable with volatility should consider buying a small position in this growth stock today. CrowdStrike may or may not be a profitable investment in 2024, but the company is positioned to create value for shareholders over the next five to 10 years.

2. Palo Alto Networks

Palo Alto Networks was one of the 10 best-performing S&P 500 stocks last year, and it recently became the first pure-play cybersecurity company to achieve a market capitalization of $100 billion. A strong report in the first quarter of fiscal 2024 (ended Oct. 31) drove that upward momentum. Revenue increased 20% to $1.9 billion and non-GAAP net income soared 75% to $266 million. Investors can expect similar momentum in the future.

Like CrowdStrike, Palo Alto provides a broad range of cybersecurity products, giving enterprises the chance to consolidate spending through fewer vendors. Its portfolio addresses cloud security, network security, and security operations, and it applies AI across its products to great effect. Palo Alto has earned a strong presence in all three market verticals, and the company has garnered much praise from industry analysts.

Specifically, Forrester Research views Palo Alto as a leader in cloud workload security and the broader zero-trust platform market. Similarly, the International Data Corp. sees the company as a leader in zero-trust network access. And Gartner recently recognized Palo Alto's leadership among secure access service edge (SASE) platforms, a category that represents a convergence of networking and security functions. Notably, Gartner expects 80% of enterprises to adopt SASE products by 2025, up from 20% in 2021.

Looking ahead, Palo Alto sees its addressable market growing at 15% annually to reach $210 billion in 2028, comprising $80 billion in zero-trust networking, $40 billion in cloud security, and $90 billion in security operations. Palo Alto is well positioned to outpace the industry given its strong presence in all three verticals, especially as it leans into AI innovation.

To quote Fodderwala of Morgan Stanley, "With large unique data sets and market leadership across multiple major security categories, we think [Palo Alto Networks] is best positioned among pure-play security vendors to deliver AI-driven security automation."

Management is targeting annual sales growth of 18% over the next three years. In that context, Palo Alto's current valuation of 15.9 times sales seems reasonable, despite being a substantial premium to its three-year average of 10.3 times sales. Patient investors should consider buying a small position in Palo Alto stock today.