Nvidia(NASDAQ: NVDA) has been one of the hottest stocks on the market in 2024, with stunning gains of 145% as of this writing, but the semiconductor giant's performance has been patchy over the past three months despite its impressive quarterly results.
More specifically, Nvidia stock has lost 2% of its value in this time frame. That may be attributed to various reasons, such as the ability of artificial intelligence (AI) technology to keep driving elevated levels of growth for the company, the viability of AI to justify the huge amounts of money that corporations and governments are pouring into this technology, and the rich valuation that Nvidia commands.
Now, a closer look at Nvidia's prospects suggests that those concerns may not hold much water in the long run. The company's focus on diversifying its business, as well as the sustained spending on AI infrastructure and software, are likely to help it keep growing at a healthy pace. However, investors who are looking for a cheaper AI alternative may want to look at options beyond Nvidia to invest their money.
This is where Check Point Software Technologies(NASDAQ: CHKP) comes in. The Israeli cybersecurity specialist has jumped 17% in the past three months, outshining Nvidia's returns by a big margin. Let's see why that has been the case and check if this company has the potential to sustain its impressive rally.
Check Point Software's steady growth has been driving its recent rally
Check Point Software may not be as well known as other cybersecurity providers such as Palo Alto Networks or CrowdStrike because of its slow pace of growth, but a closer look at the company's recent financial performance tells us that it is moving in the right direction.
The company released its second-quarter results back in July, reporting a 7% year-over-year increase in revenue to $627 million. Its adjusted earnings increased by 8% from the same period last year to $2.17 per share. The numbers exceeded the midpoint of the company's revenue forecast of $622 million and earnings per share estimate of $2.15 per share.
Check Point attributed its stronger-than-expected performance to the healthy growth of its security subscription business, which is being driven by the growing adoption of its AI-powered Infinity security platform that recorded double-digit revenue growth in the previous quarter. Check Point management pointed out on the company's July earnings conference call that the increased bookings from the Infinity platform are driving an improvement in its billings.
The company says that it struck "nice eight-figure deals in Infinity," a momentum that's likely to continue thanks to the growing usage of AI within the cybersecurity space. The company is offering multiple AI-focused tools such as a generative AI assistant known as Infinity AI Copilot that is aimed at helping reduce the time taken to perform administrative tasks and improve the effectiveness of cybersecurity analysts.
It also offers another product known as Infinity ThreatCloud AI, using which organizations can completely automate their firewalls using real-time data. More importantly, Check Point says that it plans to come up with a new AI-focused offering every quarter. That's a smart thing to do as the market for generative AI-based cybersecurity products is expected to generate $40 billion in revenue by 2030 as compared to an estimated $7 billion this year.
So Check Point's focus on generative AI-based cybersecurity could eventually help improve its growth rate in the future. It is worth noting that the company's security subscriptions business recorded 14% year-over-year revenue growth in the previous quarter to $272 million, accounting for 43% of its top line. That was an improvement over the prior-year period, when subscriptions accounted for 40% of its top line.
The faster growth of the subscription business and the potential room for growth here suggest that Check Point could be poised for stronger growth going forward. Not surprisingly, the company is expected to deliver double-digit earnings growth over the next couple of years, following this year's estimated jump of 8% (it delivered $8.42 per share in earnings in 2023).
CHKP EPS Estimates for Current Fiscal Year data by YCharts
The valuation makes the stock an attractive bet right now
Check Point is trading at 27 times trailing earnings. Its forward earnings multiple of 19 points toward a significant improvement in the company's bottom line. The stock is currently cheaper than the Nasdaq-100 index's earnings multiple of 31 (using the index as a proxy for tech stocks), which means that investors are getting a good deal on the stock right now.
What's more, the company has a solid balance sheet with just $36 million in debt and a cash position of $1.66 billion. Assuming Check Point's bottom line does increase to $11.12 per share in 2026, as per the chart, and it trades at 31 times earnings at that time (in line with the Nasdaq-100's earnings multiple), its stock price could jump to $345. That would be a 78% increase from current levels.
So investors looking for an attractively valued tech stock that could capitalize on the growing adoption of AI and deliver healthy gains in the long run can consider buying Check Point as it looks all set to jump higher.
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Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Check Point Software Technologies, CrowdStrike, Nvidia, and Palo Alto Networks. The Motley Fool has a disclosure policy.
