3 Growth Stocks to Buy as AI Makes Cybersecurity More Important Than Ever
Key Points
CrowdStrike is entrenching itself as a best-in-class AI cybersecurity platform.
Palo Alto Networks is beginning to see benefits from its platformization pivot.
Zscaler's zero-trust technology will be in high demand as agentic AI grows.
Recently, reports surfaced that Lockheed Martin, a leading defense contractor, had been targeted in a hacking breach that may have exposed sensitive data, including information on its F-35 fighter jet. It's obvious why protecting classified weapons data is important, but the stakes in cybersecurity are high for almost every enterprise for one reason or another.
So cybersecurity will likely remain a crucial budget item for companies worldwide, especially as artificial intelligence (AI) makes threats more cunning and sophisticated than ever.
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The top cybersecurity companies will likely take value in this market from their less innovative competitors, and these three look like screaming buys after their recent pullbacks.
Image source: The Motley Fool.
1. The AI-forward Falcon platform makes this company an industry leader
CrowdStrike Holdings (NASDAQ: CRWD) has been at the forefront of the industry for some time now. Its Falcon platform has expanded from its roots in endpoint security into a diversified solution for tens of thousands of enterprises. Falcon uses AI to analyze activity on a computer or device to detect suspicious patterns. It routinely receives praise from market researchers such as Gartner.
The company's module-based pricing model lets customers customize their services to their needs and creates natural upsell opportunities. By adding to its library of modules, CrowdStrike has steadily expanded its total addressable market to an estimated $149 billion, and management estimates that could rise to $325 billion by 2030. With $4.8 billion in total revenue over the past four quarters, it has plenty of room to grow.
CrowdStrike's strong reputation has earned its stock a lofty premium. It has traded at an average of more than 26 times sales over the past five years. However, recent market turbulence has helped drive it down to just 19 times sales. Investors may want to buy this dip to score an industry leader with a bright future.
2. This firewall leader is driving growth through platformization
Palo Alto Networks (NASDAQ: PANW) became a global cybersecurity leader due to its specialization in firewalls. It now boasts over 70,000 customers worldwide. That is a massive customer base that the company is now tapping into for growth. Its platformization strategy is pivoting the company to an integrated security platform designed for the AI era.
The company has been preparing for the AI era for a while now. Management has made a laundry list of acquisitions, culminating in its recent $25 billion purchase of CyberArk to expand into identity security. Securing user identities will be absolutely crucial in an AI era where virtual agents flood enterprise networks and internal operations.
The platformization pivot took some time, but revenue growth should reaccelerate, with management guiding for 22% to 23% growth this year. The stock currently trades at under 11 times its trailing-12-month sales, a far less expensive valuation than CrowdStrike's, though the two have similar growth expectations.
3. A focused security play on agentic AI
Unlike CrowdStrike and Palo Alto Networks, Zscaler (NASDAQ: ZS) isn't a diversified cybersecurity provider. Instead, it specializes in cloud-native zero-trust security, a security strategy (not a product) that constantly verifies all connections on a private network. Zscaler generates $3 billion in annual sales from over 9,400 clients worldwide.
Grand View Research projects that the market for zero trust security will grow at an annualized rate of 16.5% through 2030 to $84 billion. Agentic AI will be a major driver of that growth. AI agents are still so new that there are serious security weaknesses. The recent OpenClaw craze has been fun, but some users have seen how easily a malicious download or email can corrupt an OpenClaw agent.
Zscaler stock has been swept up in the "SaaSpocalypse," tumbling along with numerous other software incumbents due to investor fears that AI will weaken SaaS companies' competitive moats. However, cybersecurity is an entirely different beast from typical software apps. Zscaler will likely thrive in the AI era, making it a table-pounding bargain at just 7 times sales.
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Justin Pope has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends CrowdStrike and Zscaler. The Motley Fool recommends Gartner, Lockheed Martin, and Palo Alto Networks. The Motley Fool has a disclosure policy.
