AI-Powered Cybersecurity: Palo Alto Networks and CrowdStrike Lead the Charge

2 Cybersecurity Stocks You Can Buy and Hold for the Next Decade | The Motley Fool

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. 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. 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.

Better Artificial Intelligence Stock: Palo Alto Networks vs. CrowdStrike | The Motley Fool

Breakthroughs in artificial intelligence (AI) have been a major stock market investing theme in recent years, amid growing optimism that the technology's potential to transform various industries is just getting started. One application where AI is proving critically important is cybersecurity. Market leaders like Palo Alto Networks (PANW 1.39%) and CrowdStrike (CRWD 3.36%) are using machine learning algorithms and AI-powered intelligence tools to stay ahead of increasingly sophisticated cyber threats. Both industry pioneers appear well-positioned to capture significant long-term growth opportunities in the expanding cybersecurity market. But which stock would be the better buy for your portfolio right now? Here's what you need to know to make a more informed decision in 2025. As titans in the cybersecurity landscape, Palo Alto Networks and CrowdStrike share several commonalities within competitive segments, yet each has established unique focus areas. Palo Alto has built its reputation on next-generation firewall technology, combining specialized hardware and software that functions as the first line of defense barrier for organizational networks. Throughout the past decade, the company has evolved into a more comprehensive security platform, integrating artificial intelligence and machine learning (AI/ML) capabilities across an expanding portfolio of cloud-based products. The company's Precision AI framework is intended to revolutionize cybersecurity through autonomous threat detection and response. The effort has propelled Palo Alto to become the industry's largest pure-play cybersecurity company by revenue, rewarding shareholders handsomely with the stock delivering a fantastic 356% return in the last five years. By all indications, Palo Alto's operating and financial trends are set to continue into 2025. The latest fiscal first quarter results (for the period ended Oct. 31, 2024) showed revenue climbing by a solid 14% year over year, alongside a 13% increase in adjusted earnings per share (EPS). Even more impressive momentum in next-generation services (NGS), including its AI-powered subscription offerings as annualized recurring revenue (ARR) for NGS, grew by 40% from last year. This growth runway has translated into a premium valuation for Palo Alto, with shares trading at 57 times the consensus 2025 EPS as a forward price-to-earnings (P/E) ratio. Nevertheless, the stock still stands as a relative bargain next to CrowdStrike's forward P/E of 92, an important consideration when comparing the two stocks. Investors confident in Palo Alto's ability to maintain its cybersecurity leadership and benefit from new AI use cases over the long run have a compelling reason to buy shares today. In contrast to Palo Alto's positioning in network security, CrowdStrike dominates in endpoint protection, securing end-user devices as they access network data across an increasingly diverse Internet of Things (IoT) ecosystem. The company has been successful in expanding its offerings, incorporating services like identity protection, threat intelligence, and exposure management into its unified Falcon platform. AI/ML capabilities are deeply integrated within the architecture, powering advanced threat detection, workflow automation, and predictive analytics. This software-first strategy has helped drive stronger overall growth than Palo Alto, propelling CrowdStrike's shares to climb 34% over the past year. In the third quarter (ended Oct. 31, 2024), CrowdStrike's revenue increased 29%, while adjusted EPS rose 13% from last year. Customer adoption of additional service modules within the Falcon subscription ecosystem has been a key growth driver. Management projected confidence in the outlook by hiking its full-year guidance. It targeted 2025 adjusted EPS between $3.74 and $3.76, representing a 22% increase at the midpoint over 2024. Notably, this growth rate surpasses Palo Alto's company guidance for 2025 adjusted EPS growth of approximately 13%. Ultimately, CrowdStrike's ability to capture market share, particularly in emerging cybersecurity categories, helps make the case for it being the better stock to buy now. Choosing between these two exceptional stocks presents a challenge, as both companies show strong potential for price appreciation in the coming year. If forced to pick just one stock more likely to deliver superior returns in 2025, I believe CrowdStrike has the edge given its stronger earnings momentum, which the market typically rewards. While you should recognize the potential for volatility around quarterly results, CrowdStrike is a great option to gain exposure to AI themes within a diversified portfolio.