Investors have high expectations for the cloud and AI industries. They both promise to transform the technology landscape, and should bring significant returns to investors along the way.
However, the success of both will be next to impossible without adequate cybersecurity. Investors have not ignored this fact, which is why many of the top stocks in this industry trade at a significant premium.
Still, those premiums are not so high that investors cannot buy shares of some of them now and profit handsomely over the next decade. In particular, I'd suggest considering opening positions in these cybersecurity stocks.
CrowdStrike
Some investors may understandably look at CrowdStrike (CRWD +2.19%) with a wary eye. A global IT outage set off by an update to its security software for machines running Microsoft's Windows operating system sent its stock reeling. The fact that even after that event, its price-to-sales (P/S) ratio has rebounded to 24 speaks to how expensive this stock has become.
To its credit, CrowdStrike quickly took responsibility for the issue and issued a fix rapidly. This seems to have helped maintain confidence in the company, and clients have not fled its platform in significant numbers.
Although investors know it best for its endpoint security offerings, CrowdStrike's Falcon platform offers an array of types of security products. As a result, the company's average customer subscribes to seven of its modules. Moreover, many companies prefer to simplify their tech relationships by having a single company handle all their cybersecurity needs. That trend appears to be helping CrowdStrike.
NASDAQ: CRWD
Key Data Points
The IT outage occurred in July, near the end of the company's fiscal 2025 second quarter. Hence, it didn't register meaningfully on the $964 million in revenue that it booked for that quarter (which ended July 31). The top line still rose 32% year over year. Also, slower expense growth helped it book $47 million in net income for fiscal Q2, far surpassing its $8.5 million profit in the year-ago quarter.
Shareholders will get more of an idea about how the outage is impacting CrowdStrike's financials when it releases its fiscal Q3 numbers on Nov. 26. However, investors seemed to have largely moved on, suggesting that they feel it probably won't derail CrowdStrike's long-term growth story.
SentinelOne
Like CrowdStrike, SentinelOne (S +5.19%) specializes in endpoint security. However, it stands out in other ways, namely by employing an AI-first approach. Unlike many other platforms, it does not rely on the discovery of malware signatures. Rather, it monitors behavior to identify threats, which can give it a competitive advantage.
Additionally, its platform is scalable across multiple third-party products and services, making it easily adaptable to customers' networks. SentinelOne has also designed its software to be user-friendly, making it simple for users to deploy, monitor threats, and conduct investigations.
NYSE: S
Key Data Points
Its software has become increasingly popular. In its fiscal 2025 second quarter (which ended July 31), its revenue rose 33% year over year to $199 million. While it has not achieved profitability yet, it's been holding the line on costs, so operating expenses rose by only 11%. That left it with a net loss of $69 million compared to $90 million in the prior-year period.
Admittedly, the stock has struggled this year. In its fiscal 2024, its revenue growth was 47%, so its current growth rate reflects a significant slowdown. Nonetheless, its P/S ratio of 11 might be attractive to investors looking for lower-cost alternatives in the cybersecurity space, which could put SentinelOne stock on track for significant growth.
Zscaler
Zscaler (ZS +7.01%) is another security company well-positioned to capitalize on organizations' growing need for cybersecurity. Like CrowdStrike, it offers numerous security products. However, while the company touts a cloud-native infrastructure, its specialty is zero-trust security.
A zero-trust system starts from the assumption that anyone attempting to enter a network is an attacker. Hence, every user must prove their credentials through criteria such as specific devices or locations. One's role in the organization usually determines precisely what areas of the network the person has access to, and to what degree. This can limit the damage an attacker can do with a single set of compromised credentials.
NASDAQ: ZS
Key Data Points
This approach helped Zscaler boost its revenue by 30% to $593 million in the fourth quarter of its fiscal 2024, which ended July 31. Its revenue growth tracked slightly ahead of its expense growth, allowing it to cut its net loss to $15 million from $31 million in the prior-year quarter.
As with its peers, a slowing growth rate from past years soured investors on Zscaler stock. Nonetheless, the cybersecurity industry is on track for continued expansion, so even if growth rates slow down, Zscaler will likely benefit from robust revenue increases for years to come. Considering its expected growth, its 14 P/S ratio probably shouldn't douse investors' interest in Zscaler stock.
