Cybersecurity was a big news topic in 2024, and largely for the wrong reasons. While there continues to be a number of high-profile security breaches, the biggest incident of 2024 was a CrowdStrike (CRWD 0.53%) outage that was felt around the globe.
Despite that, CrowdStrike’s stock was able to recover and turned in a strong year, up about 38% as of this writing. Meanwhile, smaller rival SentinelOne (S 1.27%), which is looking to benefit from CrowdStrike’s misstep, has seen its stock decline by about 18% this year.
While there has been a stark difference in the performance of the stocks this year, let’s look to see which one is better set up to perform in 2025.
Growth opportunities
CrowdStrike established itself as a leader in endpoint security through its Falcon platform. However, perhaps the company’s biggest opportunity moving forward is the trend toward consolidating various aspects of cybersecurity on a singular platform with one vendor. Given its strength in the endpoint security space, the company is one of the best-positioned cybersecurity companies to benefit from this trend.
Among its emerging categories, CrowdStrike is seeing good momentum with Identity, Cloud, and Next-Gen SIEM (Security Information and Event Management). The latter, which involves using AI, automation, and behavioral analytics to help detect and respond to security threats, has been a particular area of strength for the company, with annual recurring revenue (ARR) growth of more than 150%.
Currently, two-thirds of CrowdStrike’s customers subscribe to five or more of its modules, while 20% subscribe to eight or more. The company continues to look to grow its modules with the help of its Falcon Flex solution, which allows customers to deploy what modules they need, only when they need them. These customers use nine CrowdStrike modules, on average.
Overall in Q3, CrowdStrike saw its revenue rise 29% and subscription revenue jump 31%. Its ARR rose 27% and was negatively impacted by the so-called “customer commitment packages” the company issued customers to help compensate them for the outage. These packages can include giving customers new modules, adding subscription time, and/or flexible payment terms (Flex dollars). For Q4, the company forecasts revenue to grow around 23%.
SentinelOne is trying to take advantage of CrowdStrike’s misstep in the endpoint security space. Its Singularity Platform uses AI to predict, monitor, and eliminate threats and can be deployed in public, private, or hybrid cloud environments. One of its biggest selling points following the CrowdStrike outage is that it is able to automatically roll back any changes to a point before an attack occurs.
A number of companies impacted by the CrowdStrike outage had to resort to time-consuming manual fixes, which impacted them for days. One CrowdStrike customer that was greatly impacted was airline operator Delta, which has decided to sue the cybersecurity company.
SentinelOne is trying to take advantage of the misstep and lure customers away from CrowdStrike after the outage. Last quarter, it said it is starting to see success in these efforts, seeing the most large enterprise displacements ever. This included a Fortune 50 customer switching to its platform last quarter, as well as a number of federal and local government entities.
Similar to CrowdStrike, SentinelOne is also looking to upsell customers as well. On this front, the company has been seeing strong traction with its Purple AI solution, which lets any level of analyst conduct complex threat hunts using only natural language queries. It said Purple AI was the fastest-growing solution in its history and that its attach rate last quarter was double what it was the prior quarter.
Overall, this helped SentinelOne grow its revenue by 28% last quarter and its ARR by 29%. It forecast 27% revenue growth for its fiscal Q4.
Meanwhile, the company has a pretty large opportunity next year following a deal with Lenovo, as the personal computers (PC) vendor will pre-install SentinelOne’s Singularity Platform on all the new PCs it sells while giving existing users the option to upgrade their security to the platform. Lenovo will also develop a new Managed Detection and Response (MDR) service using AI and EDR (endpoint detection and response) capabilities on the Singularity Platform. Lenovo carries an approximately 25% market share in the PC space, selling approximately 59 million PCs last year, so this is a large opportunity. It will begin shipping PCs with the Singularity Platform starting in the second half of 2025.
Image source: Getty Images.
Valuation and verdict
From a valuation perspective, SentinelOne is the much cheaper stock, trading at less than half the forward price-to-sales (P/S) multiple of CrowdStrike based on next year’s estimates (7.5x vs 19.4x). The valuation gap is quite striking, given that the two companies have been growing revenue at a similar pace and that SentinelOne forecasts higher revenue growth than CrowdStrike (27% vs 23%) next quarter.
S PS Ratio (Forward 1y) data by YCharts
Given SentinelOne’s much cheaper valuation, strong growth, and the big opportunities it has with Lenovo next year, I think the stock should outperform in 2025. As such, SentinelOne is one of my favorite ideas for next year in the cybersecurity space.
