Sarah Travers
Cybersecurity spending is poised for strong growth next year as organizations increase their budgets to counter evolving threats. While artificial intelligence (AI) continues to capture much of the attention in the tech world, cybersecurity remains a priority due to the rise in cyberattacks, many of which are expected to be driven by AI technologies. Both Gartner and IDC project double-digit increases in cybersecurity budgets for the upcoming year, signaling significant opportunities for companies in the sector.
Three companies stand out as key players in this growing market: CrowdStrike, SentinelOne, and Zscaler. Each operates within different segments of the cybersecurity industry, positioning them to benefit from the expected surge in demand.
CrowdStrike: Leading Despite Challenges
CrowdStrike, known for its Falcon platform, has long been a leader in endpoint security, providing protection for devices like computers and smartphones against cyberattacks. Despite a global outage earlier this year, which resulted from a software update bug and caused millions of Windows-based devices to crash, the company remains a top contender in the industry.
Although the outage led to delayed deals and a longer sales cycle, CrowdStrike has shown resilience. It reported impressive growth across several of its newer modules, including its LogScale SIEM, cloud security, and Identity Security services. Annual revenue for these products increased by 140%, 80%, and 70%, respectively.
While CrowdStrike’s stock carries a forward price-to-sales (P/S) multiple of 15.5x—reflecting a premium valuation—it is currently trading below historical levels. This suggests that the company’s future prospects, underpinned by demand for its solutions, may outweigh the impact of its recent operational hiccups.
SentinelOne: A Rising Competitor with Strategic Partnerships
SentinelOne, a smaller and more affordable player in the endpoint security market, offers an intriguing alternative to larger firms. With a forward P/S multiple of just 8x, its stock trades at nearly half the valuation of CrowdStrike’s, making it a potentially attractive option for investors.
The company recently signed a multi-year agreement with Lenovo, the largest PC vendor in the world. Under this partnership, SentinelOne will provide endpoint security for all new Lenovo PCs and offer current users the opportunity to upgrade to its Singularity Platform. Given Lenovo’s 24% share of the global PC market and its sale of 59 million units in 2023, this partnership could drive meaningful growth for SentinelOne.
Additionally, while CrowdStrike’s reputation may not have suffered long-term from the recent outage, SentinelOne could still gain some customers seeking alternatives. Its smaller size means that capturing even a small share of these new opportunities could result in significant growth.
Zscaler: Capitalizing on Zero Trust Security
Zscaler operates in the rapidly expanding zero trust security segment, which focuses on continuously verifying users and devices to prevent unauthorized access. This approach, projected to grow at a compound annual rate of over 15% in the coming years, places Zscaler in a strong position within the cybersecurity market.
Despite issuing conservative guidance last quarter, Zscaler exceeded expectations by reporting $592.9 million in revenue—30% higher than the previous year and above the company’s own forecast. The stock, which previously traded at a P/S multiple of more than 15x, has pulled back to 10.7x, making it more appealing to investors seeking value in the high-growth cybersecurity space.
A key driver of Zscaler’s success is its “land and expand” model, which focuses on growing its presence within existing accounts. Its net dollar retention rate of 115% reflects that current customers are spending more on its services than they did in the previous year, highlighting the company’s ability to deepen relationships over time.
A Bright Future for Cybersecurity Stocks
With cybersecurity budgets set to increase, all three companies—CrowdStrike, SentinelOne, and Zscaler—are well-positioned to benefit from heightened demand. SentinelOne stands out for its attractive valuation and strategic partnership with Lenovo, offering a significant growth opportunity. Zscaler’s recent pullback makes it an appealing option for investors looking to capitalize on the expanding zero trust market. Meanwhile, despite a challenging year, CrowdStrike’s robust platform and market leadership suggest it will continue to thrive over the long term.
As cybersecurity threats evolve and organizations prioritize protection, these companies are poised to play crucial roles in shaping the industry’s future.
