Cybersecurity threats are always lurking, and companies of all sizes must constantly stay vigilant to protect their data and their customers' privacy. Staving off new threats is getting more difficult because criminals and rogue nations are now using artificial intelligence (AI) to make threats more sophisticated.
The good news is that some competent companies are working hard to counter these threats. The even better news for investors is that a handful of cybersecurity stocks could make great investments over the next decade. Here are two of them.
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1. Palo Alto Networks
Palo Alto Networks (PANW 1.39%) has been a major player in cybersecurity for years. The company may be best known for its firewalls, but it has expanded its portfolio to include an array of offerings, from cloud protections with its Prisma product to an artificial intelligence-based system with Cortex.
Palo Alto benefits from a massive customer base that exceeds 80,000 enterprise customers. Results from its fiscal 2025 first quarter, which ended Oct. 31, 2024, were solid, with revenue increasing 14% to $2.1 billion and non-GAAP diluted earnings per share rising 13% to $1.56. Management expects growth to keep chugging along, with revenue guidance of more than $9.1 billion for fiscal 2025, up 14% from its fiscal 2024.
If there's one negative for investors here, it's that the company's stock is expensive. Palo Alto trades at a forward price-to-earnings ratio of 56.8, significantly higher than the S&P 500's forward P/E ratio of 21.9. Still, Palo Alto holds a more than 22% share of the security appliance vendor market, leading Fortinet and Cisco, and its recent growth indicates that it could have more room to run.
2. CrowdStrike
CrowdStrike (CRWD 3.36%) has been on the leading edge of cybersecurity for years, allowing customers to implement cloud-based solutions on the company's Falcon platform.
Recently, CrowdStrike improved Falcon by launching Charlotte AI, an artificial intelligence system that helps security analysts triage threats. On the earnings call for its fiscal third quarter, which ended Oct. 31, management said that the use of Charlotte AI grew at a triple-digit percentage rate, propelled by demand for the time savings and workflow automation it could provide.
CrowdStrike's revenue grew by an impressive 29% in fiscal Q3 to $1 billion, and non-GAAP diluted earnings per share rose by 13% to $0.93.
Its shares are trading at a premium right now, with a forward P/E ratio of 78.4. But with its share price down about 8% over the past six months (as of this writing), investors have an opportunity to buy shares for slightly less than they were changing hands for in mid-2024.
If you're hesitant to buy these cybersecurity stocks because of their premium valuations, starting by opening small positions and steadily adding to them over time might be a good strategy. The AI-based cybersecurity market is growing rapidly and, according to a 2022 study by Acumen Research and Consulting, could reach a value of $133.8 billion by 2030 (from $14.9 billion in 2021). That gives these two stocks a lot of opportunity to continue growing in the coming years.
