The cybersecurity market is well-insulated from economic downturns because companies generally won’t turn off their digital defenses to save a few dollars. It should also continue expanding for at least the next decade as cyberattacks become increasingly frequent and sophisticated.
Fortune Business Insights expects the global cybersecurity market to expand at a compound annual growth rate (CAGR) of 14.3% from 2024 to 2032, so it’s smart to invest in these three sector leaders to capitalize on that secular trend: Palo Alto Networks (NASDAQ: PANW), CrowdStrike(NASDAQ: CRWD), and Zscaler(NASDAQ: ZS).
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Palo Alto Networks is one of the world’s largest cybersecurity companies. It operates three main ecosystems: Strata, which houses its on-site network security tools; Prisma, which handles its cloud-based services, and Cortex, which powers its AI tools.
From fiscal 2019 to fiscal 2024 (which ended in July 2024), Palo Alto’s revenue grew at a CAGR of 23%. It also turned profitable in fiscal 2023 and grew its net income by 75% in fiscal 2024. That growth was mainly driven by Prisma and Cortex, which it collectively refers to as its next-gen security (NGS) services.
Palo Alto’s diversification and scale make it a well-balanced way to profit from the long-term growth of the cybersecurity market. From fiscal 2024 to fiscal 2027, analysts expect its revenue to grow at a CAGR of 15%. Its net income is expected to drop 52% in fiscal 2025 as it laps a one-time tax benefit in fiscal 2024, but analysts expect that figure to grow at a healthy CAGR of 25% over the following two years.
Palo Alto faces some near-term challenges as the macro headwinds make it harder to secure bigger contracts, but it’s weathered plenty of economic downturns before. Its stock isn’t cheap at 62 times its forward adjusted EPS, but its sticky business model, wide moat, and long-term growth potential should justify that higher valuation.
Most traditional cybersecurity companies, including Palo Alto, still install their on-site networking security services through on-site appliances. These appliances are expensive, consume a lot of power, require constant maintenance, and can be difficult to scale as an organization expands. CrowdStrike addresses those issues with Falcon, a cloud-native endpoint security platform that doesn’t require any on-site appliances.
CrowdStrike’s cloud-first approach to cybersecurity impressed a lot of companies, and its revenue grew at a CAGR of 65% from fiscal 2019 to fiscal 2024 (which ended in January 2024). It also turned profitable for the first time in fiscal 2024.
CrowdStrike’s growth was driven by the expansion of its customer base and the increasing adoption of Falcon’s cloud-based modules per customer. The percentage of its subscription customers using at least five of its modules doubled from 33% at the end of fiscal 2020 to 66% in the third quarter of fiscal 2025.
From fiscal 2024 to fiscal 2027, analysts expect its revenue to grow at a CAGR of 24% as its EPS increases at a CAGR of 68%. It faces some near-term macro headwinds, its reputation was bruised by a flawed Windows update that caused a global IT outage this July, and its business is gradually maturing — but it could still have plenty of upside potential even though it already trades at 85 times its forward adjusted earnings.
Zscaler is a cloud-native cybersecurity company like CrowdStrike, but it mainly provides “zero trust” services that treat everyone as a potential threat. These cloud-based tools are stickier and easier to scale than their on-site counterparts, and Zscaler’s revenue grew at a CAGR of 48% from fiscal 2019 to fiscal 2024 (which ended in July 2024).
Zscaler’s stock slumped over the past year as investors fretted over its slowing growth. From fiscal 2024 to fiscal 2027, analysts expect its revenue to only grow at a CAGR of 21% and eke out its first annual net profit by the final year. It blames that slowdown on the macro headwinds for enterprise spending, but it also faces some competition from bundled zero-trust services in other larger endpoint security platforms.
That slowdown is disappointing, and Zscaler’s stock doesn’t seem like a screaming bargain at 10 times next year’s sales. However, it could also leverage its early mover’s advantage in the cloud-based zero trust space to build a larger and more diversified cloud-native platform to challenge CrowdStrike and its other peers. That evolution could transform it from a niche player into a market leader over the next decade — so it might be smart to buy its stock before that actually happens.
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Leo Sun 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.
3 Cybersecurity Stocks You Can Buy and Hold for the Next Decade was originally published by The Motley Fool
As a journalist, Lauri Blackwell has always been interested in writing about the business world. She aims to keep her readers up-to-date on current events and trends in the business world, without sacrificing the journalistic integrity that made her want to be a writer in the first place.
