CrowdStrike (CRWD +0.60%) and SentinelOne (S +0.35%) went in opposite directions over the past month. CrowdStrike lost over a third of its value after its flawed cybersecurity software update crashed millions of Microsoft Windows systems.
That disaster caused shares of SentinelOne, which competes against CrowdStrike in the endpoint detection and response (EDR) market, to rise about 11%. Can SentinelOne maintain that momentum and stay ahead of CrowdStrike?
Image source: Getty Images.
The key differences between CrowdStrike and SentinelOne
CrowdStrike's Falcon and SentinelOne's Singularity both provide endpoint security services. However, Falcon is a cloud-native platform, which doesn't require the installation of any on-site appliances.
That approach is cheaper, easier to scale, and doesn't require any on-site maintenance or updates. It also locks its customers into stickier cloud-based subscriptions and makes it easier to cross-sell more services.
NASDAQ: CRWD
Key Data Points
Singularity runs on a mix of on-site appliances and cloud-native services, and some of its services can continue running without an active internet connection. But the main thing that differentiates Singularity from Falcon is that Singularity aims to completely replace human analysts with its artificial intelligence (AI) algorithms. It claims this AI-first approach makes it faster, more efficient, and more accurate than Falcon -- which still handles its threats with a mix of human analysts and AI-powered algorithms.
Both of these companies aim to disrupt older cybersecurity companies, which install their services through on-site appliances and rely heavily on human analysts. But CrowdStrike's disastrous software update -- which was seemingly caused by human error -- might drive more companies toward SentinelOne's AI-automated services.
NYSE: S
Key Data Points
Which company is growing faster?
CrowdStrike generated nearly five times as much revenue as SentinelOne in fiscal 2024 (which ended in January 2024 at both companies). SentinelOne had more than doubled revenue in fiscal 2022 and fiscal 2023, but growth cooled in fiscal 2024.
|
Metric |
FY 2022 |
FY 2023 |
FY 2024 |
FY 2025 (Estimated) |
|---|---|---|---|---|
|
CrowdStrike revenue growth |
66% |
54% |
36% |
28%-30% |
|
SentinelOne revenue growth |
120% |
106% |
47% |
29%-31% |
Data source: Company earnings reports.
CrowdStrike and SentinelOne are still both growing faster than many of their industry peers, but the macro headwinds made it harder for both companies to sign new customers to longer contracts over the past year. However, SentinelOne has been experiencing a more jarring deceleration than CrowdStrike -- and it's generally a red flag when the smaller underdog only expects to grow its revenue at a comparable rate as the market leader.
CrowdStrike also turned profitable on a generally accepted accounting principles (GAAP) basis in fiscal 2024 as it scaled up its business, streamlined spending, and reduced stock-based compensation expenses. SentinelOne has been gradually narrowing its GAAP losses, but won't break even anytime soon.
|
Metric |
FY 2022 |
FY 2023 |
FY 2024 |
FY 2025 (Estimated) |
|---|---|---|---|---|
|
CrowdStrike net margin |
(16.2%) |
(8.2%) |
2.9% |
5.5% |
|
SentinelOne net margin |
(132.4%) |
(89.7%) |
(54.5%) |
(33.1%) |
Data source: Company earnings reports, Marketscreener.
Will CrowdStrike's pain generate gains for SentinelOne?
Those numbers all suggest CrowdStrike is a better long-term investment than SentinelOne. But even after its latest decline, CrowdStrike's stock still looks expensive at this writing at 16 times this year's sales. That price-to-sales ratio could rise even further if analysts slash their forward estimates to account for the impact of the global IT outage.
SentinelOne's stock trades at just 9 times this year's sales, even though it expects to grow at nearly the same rate as CrowdStrike. It's also trading at two-thirds of its IPO price, while CrowdStrike remains more than 650% above its debut price.
But for SentinelOne to command a higher valuation, it needs to capitalize on CrowdStrike's catastrophe and lure disenchanted clients. That could be challenging for three reasons: switching costs are high, CrowdStrike will likely try to smooth things over with credits and discounts, and big cybersecurity leaders like Palo Alto Networks -- which provides its own EDR platform and AI services -- could win over more of those defecting customers.
So just as it's difficult to gauge the long-term damage the outage caused to CrowdStrike's brand and business, it's impossible to measure the actual benefits for SentinelOne until a few more quarters of post-outage results.
So which stock is the better buy right now?
I had already been trimming my stake in CrowdStrike over the past year, and I liquidated my remaining shares after its IT outage. Its stock was already priced for perfection, and it could take a long time for its business to recover from this setback.
SentinelOne is a much more speculative play, but its AI-driven approach could attract more customers in the aftermath of CrowdStrike's crash. Its low enterprise value of $6.5 billion could also make it a tempting takeover target for a larger company. So for now, I believe SentinelOne can stay ahead of CrowdStrike throughout the rest of this year.
