Although cybersecurity isn’t as big an investment trend as artificial intelligence (AI) or quantum computing, it’s still an important theme that investors should pay attention to. Cybercriminals continue to expand their efforts to hack organizations’ systems, which has fueled spending on top-notch cybersecurity platforms.
Two of the top providers of this type of software are CrowdStrike (NASDAQ: CRWD) and Palo Alto Networks (NASDAQ: PANW). While both offer a wide range of products, they compete head-to-head in the most important area: endpoint protection, which defends network access points like laptops from external threats. If a security provider can win a customer over with its endpoint protection solution, it’ll have lots of chances to sell that customer on add-on services.
Both CrowdStrike and Palo Alto offer top-notch solutions in this area, but which is the better stock to buy right now?
Because both companies offer equivalent offerings, investors likely want to know if one solution is better than the other. While I’m not a cybersecurity expert, Gartner (NYSE: IT) has plenty of employees who are. The research firm provides impartial insights into companies across an array of industries, and its Magic Quadrant rankings give investors an idea of how each company rates in terms of its “completeness of vision” and “ability to execute.”
The further out a product is along these axes, the better the product is. And based on Gartner’s rating, CrowdStrike not only has a lead on Palo Alto but every player in the endpoint protection space.
This gives it an edge from the product standpoint, but there’s more to the business.
CrowdStrike is a cloud-native platform that leverages AI when it’s applicable. While its endpoint software may get clients in the door, it has nearly 30 other cybersecurity “modules” that add to the capability of its platform, with tools ranging from cloud security to identity protection. Its one-stop shop has become quite popular: 66% of CrowdStrike’s clients utilize at least five modules, while 20% use at least eight.
Palo Alto Networks’ offerings aren’t quite as comprehensive as CrowdStrike’s. It got its start in firewalls, but is quickly pivoting into the same cloud-based AI software model that CrowdStrike utilizes. Palo Alto has been pushing its concept of “platformization” for a while now, which is essentially the same thing as what CrowdStirke deploys by having multiple modules available for use.
From a business model standpoint, I don’t think there’s any real winner here, as both companies are actively following the same formula.
Winner: Tie.
During its last reported quarter, CrowdStrike delivered total revenue of $1 billion, up 29% year over year. However, revenue can be inconsistent for both of these companies, so each also reports its annual recurring revenue (ARR), which is a far more useful metric. CrowdStrike’s ARR was $4.02 billion in its fiscal 2025 Q3 (which ended Oct. 31), up 27% year over year.
The story at Palo Alto is a tale of two businesses. Its next-gen platform, which most directly compares to CrowdStrike’s offering, is booming. In its fiscal 2025 Q1 (which ended Oct. 31) next-gen ARR rose 40% year over year to $4.5 billion, edging out CrowdStrike in total ARR and growth rate. However, Palo Alto’s total gains are being dragged down by its legacy business. For the quarter, companywide revenue only grew by 14% year over year to $2.1 billion.
It is difficult to pick a winner in this category because Palo Alto is growing more slowly overall, but more quickly in the area where it matters the most.
Winner: Tie.
In terms of profitability, Palo Alto has a clear edge, as it is the older and more mature business. This is one area where its legacy business helps, as it produces a profit. CrowdStrike is not currently profitable.
CrowdStrike has a lot of room to improve on the profitability front, but Palo Alto is the winner right now.
Winner: Palo Alto Networks.
Even the best company can still be a bad investment if purchased at the wrong price. Comparing these two on valuation isn’t easy, as CrowdStrike isn’t profitable. However, it is free cash flow positive, so we can use that as a comparison point.
From that perspective, Palo Alto Networks trades at essentially half the valuation of CrowdStrike.
This means Palo Alto is by far the cheaper stock. One thing that helps Palo Alto out here is that its free cash flow margins are better than CrowdStrike’s. It has a 37% free cash flow margin over the past 12 months versus CrowdStrike’s 29%. But even if CrowdStrike’s margin improved to the same levels as Palo Alto’s, it would still be valued at 72 times free cash flow.
As a result, it’s easy to declare a winner here.
Winner: Palo Alto Networks.
With a score of two wins and two ties, Palo Alto edges out CrowdStrike. However, I think there’s more to the story than that, as CrowdStrike having a best-in-class offering should be a strong consideration. Palo Alto’s slower overall growth rate could also be seen as a drawback.
This could easily lead investors to come to a different conclusion, but I still think both cybersecurity stocks are great, and owning both makes sense.
Ever feel like you missed the boat in buying the most successful stocks? Then you’ll want to hear this.
On rare occasions, our expert team of analysts issues a “Double Down” stock recommendation for companies that they think are about to pop. If you’re worried you’ve already missed your chance to invest, now is the best time to buy before it’s too late. And the numbers speak for themselves:
-
Nvidia: if you invested $1,000 when we doubled down in 2009, you’d have $333,669!*
-
Apple: if you invested $1,000 when we doubled down in 2008, you’d have $44,168!*
-
Netflix: if you invested $1,000 when we doubled down in 2004, you’d have $547,748!*
Right now, we’re issuing “Double Down” alerts for three incredible companies, and there may not be another chance like this anytime soon.
*Stock Advisor returns as of February 3, 2025
Keithen Drury has positions in CrowdStrike. The Motley Fool has positions in and recommends CrowdStrike. The Motley Fool recommends Gartner and Palo Alto Networks. The Motley Fool has a disclosure policy.
Better Cybersecurity Stock: Palo Alto Networks or CrowdStrike? was originally published by The Motley Fool
Source: finance.yahoo.com