According to a study by McKinsey and Co., if companies were keeping up with the necessary spending needed to fend off the growing threats from hackers and malicious actors, the market for cybersecurity services in the corporate sector would be between $1.5 trillion and $2 trillion per year. As it stands, companies are on track to allocate just $213 billion toward cybersecurity protection in 2024. That suggests there are a lot of companies with inadequate protection. It also suggests a massive opportunity for cybersecurity firms.
For those companies with inadequate protection, Cybersecurity Ventures estimates cybercrime will cost the global economy $10.5 trillion in 2025. A lack of cybersecurity could lead to a company paying dearly if it gets struck by a successful attack. More and more companies are paying attention and spending is on the rise.
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SentinelOne(NYSE: S) is a fast-growing provider of cybersecurity software with artificial intelligence (AI) at its core. It stands to benefit significantly as the spending gap highlighted by McKinsey closes in the coming years. Here’s why investors with a spare $30 might want to use it to buy one share of SentinelOne (or perhaps spend a bit more and get multiple shares).
Image source: Getty Images.
Earlier this year, cybersecurity giant Palo Alto Networks(NASDAQ: PANW) said it had seen a whopping 10-fold increase in the frequency of phishing attacks since 2023. Zscaler has observed a more than doubling in spyware attacks over the last 12 months. Human cybersecurity managers simply can’t keep up with the sheer volume of threats, which is why SentinelOne leans heavily on AI.
The company’s flagship Singularity platform is a holistic solution for protecting cloud networks, employee identities, and endpoints, and it offers a portfolio of unique features powered by AI. Storyline, for example, autonomously tracks security events and generates a timeline for managers, so they can quickly trace incidents back to their sources and take swift action. That can save them countless hours that they would otherwise have to spend manually investigating attacks.
In the event of a successful breach, managers can also use Singularity’s one-click remediation tool to instantly roll networks back to their previous state, allowing organizations to recover faster.
Earlier this year, SentinelOne also launched Purple AI, an AI-powered virtual assistant embedded into the Singularity platform. It can be prompted to hunt for specific threats, dig deeper into security events, and even provide detailed incident summaries. Since it understands natural language, it can aid employees looking to resolve issues who may not be cybersecurity experts.
SentinelOne says the average enterprise receives over 1,000 security alerts every day, and Purple AI is designed to help manage that workload. In SentinelOne’s fiscal 2025 third-quarter shareholder letter, it said Purple AI had become its fastest-growing product — and that momentum is likely to continue because new features are still rolling out.
SentinelOne generated a record $211 million in revenue during its fiscal third quarter, which ended Oct. 31. That was a 28% increase from the year-ago period, and also above the company’s forecast of $209.5 million.
That strong result was driven by strong growth in the number of high-spending customers. As of the end of Q3, SentinelOne had 1,310 customers with annual contract values of at least $100,000. That was a year-over-year increase of 250 — the biggest jump in the company’s history. SentinelOne said it also had a record number of customers spending $1 million or more with it annually.
The company’s solid growth prompted management to increase its revenue guidance for fiscal 2025 by $3 million, to $818 million.
SentinelOne could be growing its revenue even more quickly, but it’s carefully managing its costs in order to improve its bottom line. That means it’s increasing growth-oriented expenses like sales and marketing at a slower pace.
Although the company’s net loss ticked up slightly (year over year) during Q3, its net loss for the first three quarters of fiscal 2025 came in at $217.6 million, which was an 18% reduction from the same period last year.
Plus, on a non-GAAP basis, which strips out one-off and non-cash expenses like stock-based compensation, SentinelOne actually delivered a small profit of $75,000. Simply put, the company’s bottom line is trending in the right direction, which will help to create a more sustainable business for the long run.
SentinelOne stock currently trades 66% below its all-time high which it set during the tech stock boom of 2021. Back then, its price-to-sales (P/S) ratio was over 100, making it one of the most expensive stocks not only in the cybersecurity industry but also in the entire tech sector.
The combination of its falling stock price and strong revenue growth since then has pushed its P/S ratio down to 10.4. That’s much cheaper than two of its biggest competitors in the AI cybersecurity space: CrowdStrike(NASDAQ: CRWD) and Palo Alto Networks:
SentinelOne’s Q3 revenue growth of 28% was marginally slower than CrowdStrike’s revenue growth of 29% during its most recently reported quarter, but much faster than Palo Alto’s revenue growth of 14%. Growth rates play a key role in the P/S ratio investors are willing to pay for a stock, so it doesn’t make much sense for SentinelOne to be trading at such a steep discount to its peers.
With that said, SentinelOne is a much smaller company. It had $770 million in trailing 12-month revenue, compared to $3.7 billion for CrowdStrike, and $8.3 billion for Palo Alto. In other words, it can deliver faster growth more easily because those gains are being measured against a smaller base number.
But if the $1.3 trillion to $1.8 trillion cybersecurity spending gap does gradually close in the coming years, there will be plenty of business to go around. That means SentinelOne stock could be a great buy here considering its current valuation, even for investors who already own CrowdStrike and Palo Alto.
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Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends CrowdStrike and Zscaler. The Motley Fool recommends Palo Alto Networks. The Motley Fool has a disclosure policy.
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