Cybersecurity stocks sold off when a July software update from CrowdStrike Holdings (CRWD) caused one of the biggest internet blackouts ever. But analysts say the sector is primed for long-term growth.
Along with the rest of the tech sector, the cybersecurity industry is enjoying a tremendous run. Over the trailing 12 months, including that summer swoon, shares of the Global X Cybersecurity ETF (BUG), which tracks a basket of cybersecurity stocks, has rallied nearly 38%.
And there is still plenty of opportunity for investors, especially for those with a long-term perspective, as growth prospects for cybersecurity stocks remain generally strong.
An October survey of chief information officers conducted by Gartner found that cybersecurity remains their highest priority, with approximately 80% planning to increase spending in 2025.
That reflects a digital threat environment that's getting worse, including the proliferation of phishing attacks and ransomware. The emergence of artificial intelligence (AI) systems like ChatGPT have made such attacks even tougher to fend off. Hackers are using these technologies to craft more convincing phishing emails – and even to create malware.
"Attacks continue to rise in frequency and are getting sophisticated," said Tejas Dessai, AVP and research analyst at Global X.
"All these tailwinds are helping cybersecurity spending expand – even as we're entering a broad slowdown in terms of spending on IT. Government intervention and action are also presenting strong tailwinds to cyber spending.
"Not only is the government spending out of its own pocket," Dessai explained, "but it is also pushing vendors and large infrastructure providers to step in and ensure online safety for small businesses and consumers."
So which cybersecurity stocks stand to benefit? And which look attractive right now?
We've compiled a list of six of the best cybersecurity stocks to buy as growth in the industry ramps up.
To come up with our list of the best stocks to buy in this industry, we focused on companies that are expected to average double-digit earnings-per-share growth each year for the next three to five years, according to S&P Global Market Intelligence.
This makes them ideal long-term investment stocks.
- Market value: $60.7 billion
- Analysts' consensus long-term EPS growth estimate: 14.2%
At the core of Fortinet (FTNT) is a comprehensive system to secure networks. The solutions include firewalls, intrusion prevention systems, data leak prevention, virtual private networks (VPNs) and secure web gateways. These and other measures provide strong security as well as improved network performance.
Besides its core technologies, Fortinet also has offerings like encryption applications, universal zero trust network access and security for LANs (Local Area Networks) and WLANs (wide-area networks).
"What Fortinet does well is that it offers multiple security functions on one platform at an attractive price as a bundle," said Hendi Susanto, portfolio manager at Gabelli Funds.
In 2023, revenue rose 20% year over year to $5.3 billion, and service revenue jumped 28% to $3.4 billion. Cash flows from operations were $1.9 billion.
The company has more than 730,000 customers, including a majority of the companies in the Fortune 500 and the Global 2000.
Over the years, Fortinet has invested heavily in its AI solutions, including using sophisticated algorithms to process more than 100 billion cyber events every day. This has allowed for better real-time prevention of breaches, as well as improved remediation.
For investors seeking out the best cybersecurity stocks, FTNT is worth a closer look.
- Market value: $12.5 billion
- Analysts' consensus long-term EPS growth estimate: 22.4%
CyberArk Software (CYBR) develops identity security systems. Its solutions include single sign-on, multi-factor authentication, directory services and lifecycle management. These are available on-premises, through the cloud and via the hybrid cloud. The company also offers a rich set of solutions for analytics.
CyberArk has more than 8,500 customers across 110 countries. Its customer base includes more than half the Fortune 500 and about 35% of the Global 2000.
A strong identity system is certainly a must-have for security, and CyberArk's solution incorporates the functions enterprises need.
"We are the only company with an Identity Security platform that can offer our customers the flexibility to provide standing access, just in time access or zero standing privileges, depending on the type of identity and the nature of the target they need to access," said CEO Matt Cohen in CyberArk's third-quarter earnings call.
"What differentiates our platform even further," Cohen added, "is that we can do this across hybrid and cloud native environments."
This is why CyberArk is one of the best cybersecurity stocks around.
- Market value: $119.0 billion
- Analysts' consensus long-term EPS growth estimate: 20.1%
Palo Alto Networks (PANW) is one of the world's largest providers of cybersecurity solutions. Its software and hardware support sophisticated network security, secure access service edge (SASE) and cloud security. The company also provides threat intelligence consulting services.
With Palo Alto Networks' massive scale, it's able to invest about $1 billion in research and development (R&D) each year. This is two to five times what its pure-play rivals spend. Ongoing R&D investment sustains a large number of updates, upgrades and new systems.
And it's paying off for one of Wall Street's best cybersecurity stocks. In August, management reported a 12% increase in fiscal fourth quarter revenue to $2.2 billion, as full-year revenue grew 16% to $8.0 billion.
Remaining performance obligations, management's preferred metric for contracted but not yet recognized revenue, were up 20% year over year to $12.7 billion.
Analyst Hamza Fodderwala reiterated Morgan Stanley's Overweight rating on the stock in October, noting that "PANW remains one of our most preferred names given traction with larger platform deals, ramping product cycles (Cortex, AI Security) and AI-enabled efficiencies driving upside to margins over time."
Fodderwala, who previously identified a healthy spending environment and PANW's strong competitive positioning as key tailwinds, sees multiple drivers for the company's future growth.
- Market value: $12.5 billion
- Analysts' consensus long-term EPS growth estimate: 26.7%
Okta (OKTA) is a leading developer of identity technologies, which facilitate secure access, authentication and automation for a variety of systems such as cloud and mobile apps, on-premises servers and APIs (Application Programming Interfaces).
Big competitors occupy the identity market, including blue chip stock Microsoft (MSFT). But Okta has the advantage of being neutral: It does not sell any other software that might compete with customers.
Okta has also built a strong ecosystem. The company currently boasts more than 7,000 pre-built integrations.
Secular trends are driving Okta's business, including the still-developing move toward a hybrid workforce and the corresponding demand for securing external systems and applications.
Another important trend is Zero Trust security. This assumes that an organization will be compromised and that cybersecurity systems need to be more comprehensive, such as with response and recovery to breaches.
Another reason OKTA is on this list of the best cybersecurity stocks is that the company has nearly 19,000 customers. One of the most notable is OpenAI, which is the creator of the hugely successful ChatGPT app.
Okta's platform has the benefit of extension into new market categories, such as with SIEM (Security Information and Event Management).
In other words, OKTA should enjoy good momentum for years to come.
- Market value: $28.9 billion
- Analysts' consensus long-term EPS growth estimate: 23.7%
Founded in 2007, Zscaler (ZS) is one of the early players in the cloud-based cybersecurity market.
The company's core platform is the Zscaler Zero Trust Exchange. It's an alternative to the traditional approach to cybersecurity, which has focused on on-premise corporate networks.
The Zscaler Zero Trust Exchange has multiple benefits. It allows users to have secure and reliable access to cloud applications, and the technology secures workloads for the public cloud and private cloud. There's also a system for protecting Internet-of-Things devices.
The underlying foundation of the Zscaler Zero Trust Exchange is massive. Every day, it processes more than half a trillion transactions and prevents more than 9 billion security violations. This data is invaluable for leveraging AI and machine learning.
It's also why, in addition to being one of Wall Street's best cybersecurity stocks, ZS also tends to pop up on lists of the best AI stocks.
Innovation is a critical factor that's made ZS one of the best growth stocks. The latest major release of its cloud software included more than 150 new features.
This focus on innovation creates strong customer loyalty. Consider that Zscaler's Net Promoter Score (NPS) – which shows whether a customer will recommend a product – is above 80.
That's more than two times the average for software-as-a-service companies. And it's the foundation for further upside for this cybersecurity stock.
- Market value: $76.2 billion
- Analysts' consensus long-term EPS growth estimate: 33.0%
CrowdStrike Holdings' (CRWD) cybersecurity platform, Falcon, is a cloud-native system that processes huge amounts of data to detect attacks and remediate breaches in real time.
As much as any company, CrowdStrike is leveraging AI. The more data its system ingests, the smarter it gets. Falcon also has 22 cloud modules that offer workload security, identity protection, log management, data protection and vulnerability management.
CrowdStrike's "land and expand strategy" has been working quite well. The adoption rate for five or more modules is 65%, and it's 29% for seven or more modules.
There's also plenty of room for long-term growth for this top cybersecurity stock. CRWD pegs the current addressable market opportunity at roughly $100 billion. It expects that figure to grow to $225 billion by 2028.
And analysts anticipate average annual earnings per share growth of 40% over the next three to five years.
