Cybersecurity Spending Surge: 2 Stocks to Ride the Wave
As the world becomes increasingly digital, the threat of cyberattacks looms large. To combat this, companies are investing heavily in cybersecurity measures, with market research firm Gartner predicting a 60% increase in spending from $183.7 billion in 2024 to $293.9 billion in 2028.
Leader in Endpoint Security: CrowdStrike
CrowdStrike, a pioneer in endpoint security, is well-positioned to capitalize on this trend. Its Falcon platform is widely used by organizations to protect their networks and endpoints from cyber threats. Gartner has ranked CrowdStrike as the leader in endpoint security for five consecutive years, recognizing its comprehensive vision and ability to execute.
Consolidation Trend Benefits CrowdStrike
The trend towards consolidating cybersecurity vendors is also working in CrowdStrike’s favor. As organizations seek greater efficiency and effectiveness, they are turning to CrowdStrike’s suite of software modules. Today, two-thirds of its customers use five or more modules, while 20% use eight or more. Its Cloud Security, Identity Security, and LogScale Next-Gen SIEM modules are particularly popular.
Growth Despite Challenges
Despite experiencing extended sales cycles and deal scrutiny following a major IT outage, CrowdStrike continues to grow its customer base and sales. Its 115% net dollar retention rate is a testament to its strong customer relationships. The company’s revenue climbed 29% year over year, with subscription revenue up 31%.
Zero Trust Security: Zscaler’s Sweet Spot
Zscaler, on the other hand, is a leader in zero trust security, a concept that assumes no user or device should be trusted by default. This approach has been gaining traction, with Gartner forecasting a 30% compound annual growth rate in zero trust network access spending between 2021 and 2027.
Strong Revenue Growth and Upselling Opportunities
Zscaler has reported strong year-over-year revenue growth, including 26% last quarter. Like CrowdStrike, it excels at upselling additional modules to its existing customers, with a net dollar retention rate of 114%. Its Zscaler Private Access solution, which provides seamless zero-trust connectivity, is particularly popular, replacing traditional virtual private networks (VPNs).
Government Adoption and Data Security Opportunities
Zscaler is also making inroads with federal government clients, with 14 of the 15 cabinet-level agencies using its solutions. The company sees significant upselling opportunities in this sector, as well as in the data security market, where it recently won a seven-figure deal to protect a customer’s Microsoft Copilot data.
Reasonable Valuations for Both Stocks
Both CrowdStrike and Zscaler trade at reasonable valuations, considering their growth prospects and leadership in the cybersecurity space. CrowdStrike’s forward price-to-sales multiple is nearly 18.7 times analyst estimates, while Zscaler’s is 9.2 times.
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