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Invest in these Two Cybersecurity Shares for a Decade-Long Position

Visual depiction of digital protection barrier.
Visual depiction of digital protection barrier.

Invest in these Two Cybersecurity Shares for a Decade-Long Position

In the tech sector's investment landscape, while AI garnered the limelight with a substantial increase in spending, the importance of cybersecurity shouldn't be overlooked. Gartner anticipates a substantial surge in cybersecurity spending, from $183.7 billion in 2024 to a whopping $293.9 billion by 2028 – a noteworthy 60% upswing[1].

Investors considering the cybersecurity sector for the long-term might be intrigued by these two stocks, as they're likely to scoop up a significant portion of this augmented spending. Let's delve into why.

1. CrowdStrike (CRWD)

After the unlikely IT outage incident in 2021, CrowdStrike's dominance in endpoint security remains unquestioned. With its Falcon platform protecting networks and endpoints such as smartphones and computers, the company continues to stay ahead of the game[1]. Gartner ranked CrowdStrike as the leader in endpoint security for the fifth consecutive year, scoring high on both vision and execution[1].

The recent trend of consolidating cybersecurity vendors within organizations, pursuing enhanced efficiency, effectiveness, and lower costs, benefits CrowdStrike[1]. The company's customer base is diversifying, with two-thirds of customers using five or more software modules, and 20% using eight or more[1]. Its popular Cloud Security, Identity Security, and LogScale Next-Gen SIEM modules have also garnered substantial attention[1].

Although the IT outage had some impact on CrowdStrike, it is still gaining new customers and growing sales among its established base, as shown by its 115% net dollar retention rate in the last quarter[1]. It offered impacted customers a compensation package, which could potentially attract them to opt for and maintain these additional modules in the future.

Despite the short-term effects, CrowdStrike's top line still experienced robust growth, with overall revenue climbing 29% year-over-year, and subscription revenue up 31%[1].

Trading at a forward price-to-sales (P/S) multiple of nearly 18.7 times analyst estimates for its next fiscal year, CrowdStrike's stock is not considered cheap – but its leadership position in the cybersecurity space warranties such a premium[1].

2. Zscaler (ZS)

Zscaler primarily focuses on zero-trust security; no user or device is assumed to be trustworthy by default, necessitating regular verification, authorization, and revalidation of access to various platforms[1].

Zero-trust has skyrocketed as one of the fastest-growing areas of cybersecurity in recent years, and Gartner once predicted that zero-trust network access spending would reach $4 billion by 2027, with a compound annual growth rate (CAGR) of more than 30% between 2021 and 2027[1]. Afterward, it revised its forecast, predicting that the entire identity access management space, which includes zero-trust, would increase from $17.7 billion in 2024 to $25.4 billion in 2028[1].

Zscaler emphasizes strong quarter-over-quarter revenue growth, as well as remarkable customer stickiness, demonstrated by its 114% net dollar retention rate in the last quarter[1]. Its Zscaler Private Access solution, successfully replacing virtual private networks (VPNs), is seeing substantial traction, while additional solutions like Zscaler Digital Experience, Zero Trust for Branch and Cloud, and AI analytics are also performing well[1].

Moreover, Zscaler is experiencing notable success with federal government clients, currently being employed by 14 out of the 15 cabinet-level agencies[1]. The government's gradual shift towards zero-trust systems, aiming to enhance security while reducing costs by eliminating firewalls and VPNs, also promises significant upselling opportunities[1].

Zscaler trades at a reasonable forward P/S ratio of 9.2 based on estimates for its fiscal 2026, given its rapid growth and promising prospects.

[1]: Enrichment Data

Given the current bullish outlook on cybersecurity spending, smart investors might consider diversifying their portfolios by evaluating both CrowdStrike (CRWD) and Zscale (ZS) as potentially lucrative options.

CrowdStrike's strong leadership in endpoint security and its robust growth driven by a diversified customer base, popular software modules, and increased sales are factors that make it an attractive investment within the cybersecurity sector.

Investors eyeing Zscaler might be drawn towards the company's focus on zero-trust security, a rapidly growing area of cybersecurity, and its consistent revenue growth, strong customer retention, and lucrative federal government contracts, which promise significant upselling opportunities.

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