Palo Alto, CrowdStrike, and Zscaler are all promising long-term investments.
The cybersecurity market is well-insulated from financial downturns as a result of firms typically will not flip off their digital defenses to save lots of a number of {dollars}. It also needs to proceed increasing for not less than the subsequent decade as cyberattacks develop into more and more frequent and complicated.
Fortune Enterprise Insights expects the worldwide cybersecurity market to broaden at a compound annual progress charge (CAGR) of 14.3% from 2024 to 2032, so it is sensible to spend money on these three sector leaders to capitalize on that secular pattern: Palo Alto Networks (PANW 3.02%), CrowdStrike (CRWD 5.48%), and Zscaler (ZS 2.96%).
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A diversified market chief: Palo Alto Networks
Palo Alto Networks is without doubt one of the world’s largest cybersecurity firms. It operates three major ecosystems: Strata, which homes its on-site community safety instruments; Prisma, which handles its cloud-based companies, and Cortex, which powers its AI instruments.
From fiscal 2019 to fiscal 2024 (which led to July 2024), Palo Alto’s income grew at a CAGR of 23%. It additionally turned worthwhile in fiscal 2023 and grew its web earnings by 75% in fiscal 2024. That progress was primarily pushed by Prisma and Cortex, which it collectively refers to as its next-gen safety (NGS) companies.
Palo Alto’s diversification and scale make it a well-balanced approach to revenue from the long-term progress of the cybersecurity market. From fiscal 2024 to fiscal 2027, analysts count on its income to develop at a CAGR of 15%. Its web earnings is predicted to drop 52% in fiscal 2025 because it laps a one-time tax profit in fiscal 2024, however analysts count on that determine to develop at a wholesome CAGR of 25% over the next two years.
Palo Alto faces some near-term challenges because the macro headwinds make it more durable to safe greater contracts, however it’s weathered loads of financial downturns earlier than. Its inventory is not low cost at 62 instances its ahead adjusted EPS, however its sticky enterprise mannequin, broad moat, and long-term progress potential ought to justify that increased valuation.
A cloud-native chief: CrowdStrike
Most conventional cybersecurity firms, together with Palo Alto, nonetheless set up their on-site networking safety companies by means of on-site home equipment. These home equipment are costly, devour lots of energy, require fixed upkeep, and may be troublesome to scale as a company expands. CrowdStrike addresses these points with Falcon, a cloud-native endpoint safety platform that does not require any on-site home equipment.
CrowdStrike’s cloud-first strategy to cybersecurity impressed lots of firms, and its income grew at a CAGR of 65% from fiscal 2019 to fiscal 2024 (which led to January 2024). It additionally turned worthwhile for the primary time in fiscal 2024.
CrowdStrike’s progress was pushed by the growth of its buyer base and the rising adoption of Falcon’s cloud-based modules per buyer. The proportion of its subscription prospects utilizing not less than 5 of its modules doubled from 33% on the finish of fiscal 2020 to 66% within the third quarter of fiscal 2025.
From fiscal 2024 to fiscal 2027, analysts count on its income to develop at a CAGR of 24% as its EPS will increase at a CAGR of 68%. It faces some near-term macro headwinds, its fame was bruised by a flawed Home windows replace that induced a world IT outage this July, and its enterprise is regularly maturing — however it may nonetheless have loads of upside potential despite the fact that it already trades at 85 instances its ahead adjusted earnings.
A scalable zero-trust chief: Zscaler
Zscaler is a cloud-native cybersecurity firm like CrowdStrike, however it primarily offers “zero belief” companies that deal with everybody as a possible risk. These cloud-based instruments are stickier and simpler to scale than their on-site counterparts, and Zscaler’s income grew at a CAGR of 48% from fiscal 2019 to fiscal 2024 (which led to July 2024).
Zscaler’s inventory slumped over the previous yr as traders fretted over its slowing progress. From fiscal 2024 to fiscal 2027, analysts count on its income to solely develop at a CAGR of 21% and eke out its first annual web revenue by the ultimate yr. It blames that slowdown on the macro headwinds for enterprise spending, however it additionally faces some competitors from bundled zero-trust companies in different bigger endpoint safety platforms.
That slowdown is disappointing, and Zscaler’s inventory does not seem to be a screaming cut price at 10 instances subsequent yr’s gross sales. Nonetheless, it may additionally leverage its early mover’s benefit within the cloud-based zero belief area to construct a bigger and extra diversified cloud-native platform to problem CrowdStrike and its different friends. That evolution may rework it from a distinct segment participant right into a market chief over the subsequent decade — so it is likely to be sensible to purchase its inventory earlier than that really occurs.
Leo Solar has no place in any of the shares talked about. The Motley Idiot has positions in and recommends CrowdStrike and Zscaler. The Motley Idiot recommends Palo Alto Networks. The Motley Idiot has a disclosure coverage.
