Key Takeaways
- Cybersecurity is becoming increasingly important with the rise of advanced AI, which increases the risk of cyberattacks
- CrowdStrike and SentinelOne are two promising stocks in the cybersecurity sector, with strong growth potential
- The market for cybersecurity spending is expected to double over the next few years, with a total addressable market of $300 billion by 2030
- Both CrowdStrike and SentinelOne use AI-powered cybersecurity solutions, but have different investment styles and valuations
- CrowdStrike is the leader in the field, with a strong track record of revenue growth, while SentinelOne is a more affordable option with great long-term potential
Introduction to Cybersecurity
Cybersecurity is more important than ever, and its importance will only continue to grow with the rise of advanced AI. Despite this, cybersecurity has taken a back seat to artificial intelligence investing, which is a huge mistake. The reality is that with the rise of advanced AI comes increased risk of cyberattacks, as it becomes easier to find system exploits. This means it could be a strong few years for cybersecurity providers, and investors that don’t have exposure to this important field should consider adding some. Two stocks that are expected to excel over the next decade in the cybersecurity sector are CrowdStrike and SentinelOne.
The Evolution of Cybersecurity
Both CrowdStrike and SentinelOne deploy the same type of cybersecurity solutions, using AI agents to determine what constitutes normal operation and what constitutes a threat. Then, when an agent detects a threat, it shuts down access to limit any damage done. This has proven to be an incredibly successful business model and has led to strong growth for both companies. The use of AI-powered cybersecurity is the next evolution in the field, and both CrowdStrike and SentinelOne are at the forefront of this trend. With the market for cybersecurity spending still expanding and expected to double over the next few years, both companies are well-positioned for long-term growth.
Growth Potential
The market for cybersecurity spending is still expanding, with CrowdStrike believing that its 2026 total addressable market is $140 billion, but expected to increase to $300 billion by 2030. This showcases clear growth in the cybersecurity industry, and anyone involved in the space with a strong offering will see strong growth as a result. Both CrowdStrike and SentinelOne have fairly similar growth rate patterns, which reflects the overall state of cybersecurity spending. While growth has slowed down a bit as resources are deployed elsewhere to bring generative AI technologies into businesses, greater than 20% growth is nothing for investors to be upset about.
Investment Styles
CrowdStrike and SentinelOne are competitors, but each stock represents a different investment style. CrowdStrike is the leader in the field, with nearly $4.6 billion in revenue over the past 12 months, versus SentinelOne’s $956 million. With the two posting similar growth rates, it’s unlikely SentinelOne will ever catch up to CrowdStrike. However, SentinelOne needs to continue growing to reach a strong profitability threshold, something that CrowdStrike has nearly done. CrowdStrike constantly hovers around having a positive or negative operating margin, while SentinelOne is still making its way toward full profitability.
Valuation
The market is a bit skeptical that SentinelOne can reach full profitability, which is why it trades at such a massive discount to its peer. Although it used to trade at a much higher valuation level, SentinelOne now trades below five times sales. That’s a pretty cheap price considering the long-term growth trends in cybersecurity, SentinelOne’s own growth rate, and its steady track to becoming profitable. On the other hand, CrowdStrike is far from cheap, trading at 24 times sales, which is above the normal 10 to 20 times sales expected for such a software company. However, it’s recognized as the best-in-class investment opportunity in the cybersecurity sector, so it gets a premium valuation.
Conclusion
Both CrowdStrike and SentinelOne make sense to own for the long term, as cybersecurity is only going to get more important with the rise of AI-assisted attackers. While they are competitors, each stock represents a different investment style, with CrowdStrike being the leader in the field and SentinelOne being a more affordable option with great long-term potential. With the market for cybersecurity spending expected to double over the next few years, both companies are well-positioned for long-term growth, and investors should consider adding them to their portfolios.