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The rising adoption of cloud computing and connected devices has ushered in a wave of threats from cyber criminals worldwide. Amid the escalating pace of cyberattacks and growing sophistication of cyber threats, the cybersecurity industry has been expanding at a healthy pace over the years.
That growth is expected to continue, as Gartner projects global cybersecurity spending to increase 14.3% to $215 billion this year. Moreover, the global cybersecurity market is expected to keep expanding at a 13.8% CAGR to reach $424.97 billion in revenue by 2030.
Against this backdrop, top-notch cybersecurity stocks like CrowdStrike Holdings, Inc. (CRWD) and Palo Alto Networks, Inc. (PANW) have attracted the attention of investors looking to capitalize on the industry tailwinds.
Up approximately 28% year-to-date, CRWD impressed investors by surpassing Wall Street estimates with its Q4 results and offering robust guidance. On the other hand, Palo Alto Networks disappointed investors and analysts after lowering its guidance for fiscal 2025. While shares of PANW surged briefly after U.S. Representative Nancy Pelosi disclosed the purchase of $1.25 million in PANW call options on Feb. 26, the stock has given back some of those gains, and is now down 2.5% year-to-date.
But which of these cybersecurity stocks is more likely to make a higher run this year? Let's take a closer look.
The Case for CrowdStrike Holdings Stock
Headquartered in Austin, Texas, CrowdStrike Holdings, Inc. (CRWD) is a leading global cybersecurity firm that revolutionizes security with its advanced cloud-native platform. The CrowdStrike Falcon platform, powered by artificial intelligence (AI) and the CrowdStrike Security Cloud, ensures real-time attack detection, automated protection, and rapid deployment, reducing complexity and delivering immediate value. Its market cap currently stands at $79.76 billion.
Shares of CRWD have soared by 156.7% over the past 52 weeks, substantially outperforming the S&P 500 Index's ($SPX) 32.3% rally.
The stock is currently trading at 288.33 times forward earnings and 25.88 times sales, which is a substantial premium to its peers PANW and Workday (WDAY). PANW trades at 102.23x forward earnings and 13.35x sales, while Workday’s valuation multiples are 145.75x and 9.83x, respectively.
CrowdStrike Beats Wall Street Estimates
CrowdStrike’s positive earnings reaction has been a key driver behind its positive YTD price performance. The company’s Q4 revenue increased 33% year-over-year to $845.3 million, beating the consensus estimate of $840 million. Its Annual Recurring Revenue increased to $281.9 million.
The company’s non-GAAP income from operations surged to $213.1 million, and its non-GAAP net income more than doubled to $236.21 million, or $0.95 per share, compared to the Wall Street estimate of $0.82 per share.
For fiscal 2025, CrowdStrike expects strong demand, and management projects revenue to range between $3.92 billion and $3.98 billion, indicating about 29.9% revenue growth for the next year. While non-GAAP income from operations is estimated to be between $863.6 million and $913 million, its non-GAAP EPS is projected to range between $3.77 and $3.97.
CRWD has a consensus “Strong Buy” rating overall. Out of the 40 analysts covering CRWD, 35 recommend “Strong Buy,” three suggest “Moderate Buy,” and two say “Hold.”
The shares received price-target hikes from multiple analysts after the well-received earnings report, and the average analyst price target for CrowdStrike is now $389.87, indicating a potential upside of 18.6%. The Street-high target price of $435 implies a 32.3% upside potential.
The Case for Palo Alto Networks Stock
Another cybersecurity veteran, Santa Clara-based Palo Alto Networks, Inc. (PANW), is known for its comprehensive security offerings, including firewalls, cloud security, URL filtering, and advanced threat prevention. With a diverse product portfolio contributing to its revenue streams, it boasts a market cap of $93.74 billion.
Shares of PANW have returned 55.9% over the past 52 weeks.
Valued at 102.23 times forward earnings and 13.35 times sales, Palo Alto Networks is priced at a discount to CRWD. However, PANW’s growth forecast for the year ahead is also much less upbeat than its cybersecurity rival.
Palo Alto Networks Slides on Slashed Revenue Guidance
Palo Alto’s fiscal Q2 revenues of $1.98 billion beat the consensus estimate of $1.97 billion, while its earnings grew about 1.5 times to $504.7 billion, or $1.46 per share, surpassing the Wall Street estimate of $1.30 per share. The company also raised its full-year non-GAAP EPS forecast for fiscal 2024 to a range between $5.45 and $5.55, up from the earlier guidance of $5.40-$5.53.
Despite this, shares of Palo Alto Networks plunged after the company lowered its full-year guidance for revenue and billings, sparking concerns over customers’ IT spending. It projects revenue to range between $7.95 billion and $8 billion, down from the earlier guidance range of $8.15 billion and $8.20 billion. Billings were lowered to a range between $10.1 billion and $10.2 billion.
CEO Nikesh Arora attributed the reduced guidance to a strategic shift aimed at accelerating growth, migrating and consolidating the platform, and activating AI leadership, saying the company is anticipating “a difficult customer” due to the change. According to Wells Fargo analysts, the updated billing forecast is primarily tied to the Defense Information Systems Agency's $1.86 billion Thunderdome project.
The stock clawed back some post-earnings losses on news that Nancy Pelosi disclosed a PANW call option purchase, but the shares are still down more than 21% from their pre-earnings close.
At least 12 analysts cut their price targets on Palo Alto stock after earnings, and PANW now has a consensus “Moderate Buy” rating on Wall Street - down from “Strong Buy” a month ago. Out of the 40 analysts covering PANW, 27 recommend “Strong Buy,” two suggest “Moderate Buy,” and 11 say “Hold.”
The average analyst price target for Palo Alto is $333.55, indicating a potential upside of 15.9% from current levels. The Street-high target price of $420 implies a 44.8% upside potential over the next 12 months.
CRWD vs. PANW: Which Stock Is a Better Buy Right Now?
While both stocks are priced at a premium right now, CRWD seems like a better buy than PANW, based on its strong earnings performance and solid guidance for the year ahead. Conversely, PANW’s full-year forecast offers much less clarity and visibility for investors, despite Pelosi’s apparent vote of confidence.
Plus, with analysts rushing to raise their price targets, CrowdStrike stock seems to have better upside potential than PANW at current levels.
On the date of publication, Sristi Suman Jayaswal did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
