According to Cybersecurity Ventures, cybercrime is expected to cost the world $10.5 trillion in 2025. Companies are investing a growing amount of money in protection, but there is still an enormous gap between how much they are currently spending and how much they should be spending.
A report by McKinsey & Company suggests the corporate sector allocated $150 billion to cybersecurity software in 2021, with that figure growing by 12.4% annually. That could take spending to a record $239 billion in 2025, but the research firm says that figure should be closer to $2 trillion in order to protect against an increasingly ominous threat landscape.
Since the cost of cybercrime continues to rise, that spending gap is likely to close over time, which is why cybersecurity stocks could be a great investment heading into 2025 (and beyond). Here's why SentinelOne (NYSE: S) and Tenable (NASDAQ: TENB) might be two of the best picks.
1. SentinelOne: Artificial intelligence-based cybersecurity
SentinelOne believes machines can respond much faster than humans when it comes to security breaches. That's why artificial intelligence (AI) is at the core of its flagship Singularity platform, powering as much automation as possible when it comes to threat hunting and incident response.
Singularity protects the cloud, employee identities, and the endpoint, and it comes with several unique AI features. Storyline autonomously tracks security events and generates summaries for managers, which saves them significant time that would otherwise be spent conducting manual investigations. Then there is Hologram, which deploys decoy assets to lure malicious actors out from the shadows so SentinelOne can neutralize them.
SentinelOne also launched a new AI virtual assistant called Purple AI last year which integrates with Singularity. It can turn almost any employee into a cybersecurity expert because it understands natural language and can be prompted to instantly hunt for threats, or provide incident remediation advice. SentinelOne says early adopters of Purple AI are hunting for threats and investigating incidents 80% more quickly as a result.
SentinelOne generated $199 million in revenue during the second quarter of 2024 (ended June 30), which was a 33% increase from the year-ago period. That means it grew its revenue faster than its top competitors in the AI cybersecurity space, including CrowdStrike (32%) and Palo Alto Networks (12%), which implies it's taking market share.
Despite that, SentinelOne stock trades at a price to sales (P/S) ratio of just 10.3, which is a 51% discount to the P/S ratio of CrowdStrike stock and a 31% discount to Palo Alto stock. Granted, SentinelOne is a much smaller company, so its revenue is growing from a smaller base (in other words, it's easier to increase its revenue more quickly), but I would argue such a wide valuation gap is unwarranted.
SentinelOne stock is still trading 68% below its all-time high set during the tech frenzy in 2021. It was unquestionably overvalued back then with its P/S ratio topping 100, but in light of the forecasted growth in cybersecurity spending, this looks like a far more reasonable place to buy it heading into 2025.
2. Tenable: A leader in vulnerability management
Tenable is a specialist provider of vulnerability management tools. Its Nessus platform proactively hunts for weak spots in an organization's networks, devices, and operating systems so they can be patched before they are exploited. Nessus is the most deployed tool of its kind with over 2 million downloads worldwide, and it's also the most accurate because it reports the fewest false positive readings.
But Nessus has become an onramp to a much broader portfolio of Tenable products. The company has expanded into areas like identity protection and cloud protection to capture more of its customers' cybersecurity spending. Tenable also launched a brand new AI-powered product last year called ExposureAI, which is a preventative tool designed to help organizations better understand their level of risk.
ExposureAI features a search tool with natural language processing, so employees can turn simple prompts into useful insights that clearly explain potential attack paths a malicious actor could exploit, complete with remediation guidance. Tenable says the product is trained on 1 trillion counts of unique threats and vulnerabilities, which means it's likely to catch most risks circulating in cyberspace.
But earlier this month, Tenable launched what could be its most revolutionary product so far: AI Aware. It's designed to help organizations manage the surge in AI usage among their employees. It identifies approved and unapproved AI applications, and mitigates the risk of data leakage and exploitation stemming from the third-party providers that created them.
Tenable has already identified vulnerabilities in some of the most popular AI applications, including Microsoft Copilot.
Tenable generated $221.2 million in revenue during the second quarter of 2024, which was above management's forecast of $218 million, and it represented year-over-year growth of 13%. The company isn't growing as quickly as SentinelOne or CrowdStrike, likely because its product portfolio isn't as broad, but that's reflected in its P/S ratio which is just 5.5. However, it's worth pointing out that Palo Alto's P/S ratio is almost three times higher despite Tenable growing its revenue more quickly in the recent quarter.
Tenable's push to release new AI-focused products like ExposureAI and AI Aware could trigger a new growth phase for the company, so buying its stock might be a no-brainer especially considering its current P/S valuation relative to its peers'.
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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, Microsoft, and Palo Alto Networks. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
