Cybersecurity will be a vital part of the digital economy moving forward. Companies are financially incentivized to use the best security tools to protect their data and systems. Did you know the average breach can cost a company nearly $4.5 million? That's according to an annual study by IBM.
However, legacy products like antivirus software often don't do the job anymore. That's where next-generation solutions come into the picture. Investors have a variety of cybersecurity stocks to choose from, but after some due diligence, three emerged as potential long-term winners.
Here are the three cybersecurity stocks you can buy and hold for the next decade.
1. Palo Alto Networks
The firewall has been critical to security for years, and that's where Palo Alto Networks (PANW +2.13%) specializes. A firewall is like the security detail at a party checking the guest list to ensure only the invited people get in. Firewalls monitor incoming and outgoing network traffic, looking for anything that doesn't belong. Palo Alto Networks' firewall security is top-notch; third-party firms like Gartner's prestigious Magic Quadrant rankings have named it a leader in its category.
NASDAQ: PANW
Key Data Points
Today, Palo Alto Networks has over 70,000 active customers and is growing by expanding its product offerings to include additional security categories on two other platforms. That gives the company three platforms: Network Security, Cloud Security, and Security Operations. Currently, just half of the company's customers use two of three platforms, and just 13% use all three, so there are opportunities to cross-sell.
PANW Revenue (TTM) data by YCharts
Palo Alto is one of the largest security companies, with over $7.5 billion in annual revenue. Earnings have exploded in recent years, and analysts believe profits will continue to grow, averaging 22% annualized for the next three to five years. The company's large customer base and size give it a strong hand as it competes for customers' security budget dollars over the next decade.
2. CrowdStrike Holdings
Endpoint security is one of the focal points of next-generation solutions, and CrowdStrike Holdings (CRWD +3.15%) is quickly proving to be a winner in this arena. Endpoint security protects devices on a network (endpoints), such as computers or mobile devices. CrowdStrike uses artificial intelligence (AI) and a cloud-based platform to provide instantaneous and effective protection against potential threats. The platform learns from threat encounters, meaning the product improves as it grows and encounters more threats.
NASDAQ: CRWD
Key Data Points
CrowdStrike makes it remarkably easy to cross-sell its product because it sells different products and services as modules. Customers can pick and choose what they want for their needs. CrowdStrike has launched modules over time as it expands into new categories. Today, 27% of CrowdStrike's customers use at least seven modules, and the number of those using at least eight has more than doubled since the end of 2023.
CRWD Revenue (TTM) data by YCharts
A combination of customer growth and cross-selling has fueled tremendous growth; revenue has multiplied from $400 million to $3 billion in just four years. The business has also reached the size where earnings start rocketing higher, which gives the stock a bright outlook for long-term investors. Analysts believe CrowdStrike's earnings will grow by an annual average of 22% over the next three to five years.
3. Microsoft
Tech giant Microsoft (MSFT +0.97%) isn't the first name you think of when discussing cybersecurity growth stocks. It's also not growing as quickly as the others on this list. But what Microsoft does offer is a much higher floor because it's a highly diversified company with leading businesses in several industries. Microsoft Defender's security product is embedded within Windows and Office software.
NASDAQ: MSFT
Key Data Points
Looking to sleep well at night with your investments? Look no further. Palo Alto Networks and CrowdStrike are drops in the bucket compared to what Microsoft generates each year. The company has an ironclad balance sheet with a AAA rating, one of only two publicly traded companies with such status. It's also the only company on this list that pays dividends, which Microsoft has raised for over 20 consecutive years.
MSFT Revenue (TTM) data by YCharts
Microsoft Defender will never be the focal point for shareholders, but that's OK. The stock can give investors cybersecurity exposure with the bonus of enterprise software, cloud, gaming, and more. Despite its enormous size, Microsoft is still growing. Analysts believe the company will grow earnings by 16% annually for the next three to five years, making Microsoft a jack-of-all-trades investors can confidently hold for the long term.
