While artificial intelligence (AI) is receiving most of the attention in the tech world, cyber security With no slowdown in cybersecurity attacks, spending continues to be a priority among organizations. In fact, the threat from artificial intelligence is expected to help cybersecurity spending.

both Gartner’s and IDC predicts cybersecurity budgets will increase by double digits next year. Let’s look at three stocks that should benefit from rising cybersecurity spending.

CrowdStrike

Although the company’s outage earlier this year damaged its reputation a bit, CrowdStrike‘s (CRWD -1.26%) The Falcon platform is still considered the gold standard for endpoint security. For those who don’t know, endpoint security is the protection of a network and its endpoints, such as smartphones and computers, against cybersecurity attacks.

As a reminder, CrowdStrike experienced a major global outage earlier this year due to a bug in a software update. Considering that it caused millions of Windows-based computers and tablets to crash, it’s no surprise that this had an impact on the company. The most important of these was the delay in deals and the long sales cycle. This ultimately led the company to lower its guidance last quarter.

But CrowdStrike is certainly not the only cybersecurity company experiencing disruption, and it has a bright future ahead. The company continues to unite organizations on its platform, as can be seen in the strong adoption of new modules. For example, CrowdStrike includes LogScale Next Generation SIEM (up 140% to $220 million), cloud security (up 80% to $515 million), and Identity Security (up 140% to $515 million) and Identity Security (up 140% to $515 million). It has seen huge growth in its annual recurring revenue for USD). 70% to $350 million) modules.

Trading futures selling price (P/S) At around 15.5 times next year’s analyst estimates, the stock isn’t cheap. However, this is below where it has traded in the past and with the break in the guide the bar has reset lower.

SentinelOne

SentinelOne (P 1.12%) is a much smaller and cheaper cybersecurity company that operates in the endpoint security space. With a forward P/S multiple of around 8x next year’s analyst estimates, its valuation is nearly half that of CrowdStrike. However, both companies had revenue in the low 30% range last quarter.

Aside from its attractive valuation, SentinelOne also has some nice growth opportunities ahead. He signed a multi-year deal last month. Lenovo Provide endpoint security for all new personal computers (PCs) the enterprise computer vendor sells. Existing Lenovo owners will also have the option to upgrade their security to SentinelOne’s Singularity Platform. Lenovo is the world’s largest PC vendor, with approximately 24% market share, with sales of approximately 59 million computers in 2023. So this is a big opportunity for SentinelOne.

While CrowdStrike isn’t likely to lose much business due to the outage, SentinelOne could benefit from any impact if some potential customers decide to go in a different direction. Given its much smaller size, capturing only a small percentage of additional opportunities will help drive growth and stock price.

Zscaler

Conservative guidance sunk Zscaler‘s (Z.S. 0.56%) Last quarter, the stock reached a valuation of 10.7 times current fiscal year earnings estimates; This was well below the 15 P/S multiple the company was trading at earlier this year.

However, the company has a history of issuing conservative guidance and then delivering results that easily top out. For example, last quarter its revenue rose 30% to $592.9 million; That was well ahead of its previous estimate of revenue of $565 million to $567 million.

While CrowdStrike and SentinelOne are endpoint security companies, Zscaler focuses primarily on zero trust. This is the field of cybersecurity based on the idea that no individual user or device should be trusted and that all users should be authenticated, authorized, and constantly verified. Zero trust is expected to be one of the fastest growing areas of cybersecurity; many research organizations predict a compound annual growth rate of 15% or more over the next few years.

Zscaler uses a “land and expand” model, and growth within its existing customer base has long been a strong factor. This can be seen in the strong net dollar retention figures, which reached 115% last quarter. This metric is based on the last 12 months, and a percentage above 100% indicates existing customers are spending more than they were a year ago.

Image source: Getty Images.

Cybersecurity winners

SentinelOne is my favorite cybersecurity stock given its valuation and the recent deal with Lenovo. Meanwhile, Zscaler’s shares are attractive after its recent pullback, given the strong growth market it’s in. While I’d like CrowdStrike’s valuation to be lower, I still think the stock will be a long-term winner given its best-in-class endpoint solution.