The cybersecurity sector is a lucrative but busy industry. Fortune Business Insights predicts that this sector will grow at a compound annual growth rate (CAGR) of 14% through 2032. This could mean that rapid growth will push all sector stocks higher over time.
Unfortunately for investors, it is also a crowded and highly competitive field. With numerous emerging companies and established tech giants offering cybersecurity solutions, this could put significant pressure on cybersecurity stocks over time.
However, SentinelOne (NYSE:S) appears to have an advantage in artificial intelligence (AI)-powered cybersecurity products, which could present an opportunity that many investors appear to have overlooked.
SentinelOne stands out for its AI-driven cybersecurity applications. Indeed, the Singularity platform offers what it describes as “best-in-class security.” It combines functions such as data ingestion, threat intelligence support, and execution of its automation capabilities. Additionally, the ability to detect security threats makes attacks easier to investigate.
Nevertheless, Purple AI is the part of Singularity that has attracted a lot of attention. Purple AI works within Singularity to automate security alert triage, threat detection, and investigations, effectively simplifying the platform’s security operations.
Furthermore, the ability to understand natural language makes it easier to use. Such features have made it one of the fastest growing solutions in the company’s history.
The approach has also earned SentinelOne awards across the industry. Gartner recognizes the cybersecurity company as a Leader in its “Magic Quadrant” for Endpoint Protection CRN named Singularity the cloud security product of the year.
Although the company no longer publishes total customer numbers, the number of customers spending at least $100,000 annually on the platform has increased 24% to 1,310, and the number spending $1 million or more is at an all-time high. With organizations preferring to avoid the disruption that comes with switching to another cybersecurity provider, such growth bodes well for SentinelOne and its investors.
SentinelOne’s financials appear to reflect customer growth. Revenue for the first nine months of fiscal 2025 (ended October 31) was $596 million, a year-over-year gain of 33%. Furthermore, it limited operating cost growth to 13% over the same period.
Unfortunately, that was not enough to cover operating costs. As a result, the company lost $218 million in the first three quarters of fiscal 2025. While that was up from $267 million in the same period last year, it shows that SentinelOne is unlikely to be profitable in the near future become.
The company forecasts revenue growth of 32% for fiscal 2025. However, analysts believe this could slow to 26% in 2026. While that growth rate easily exceeds the industry’s forecast CAGR, investors often sell shares when revenue growth slows. That could be a bad sign for investors looking to take advantage of this opportunity.
For now, SentinelOne has had a mixed stock performance. Since hitting its all-time low at the end of 2022, interest rates have risen more than 60%. Yet interest rates have gained little traction this year and their direction for the coming year is uncertain.
However, its valuation could attract investors to the stock. Because SentinelOne is a money-losing company, the price-to-earnings ratio does not apply. Still, its price-to-sales ratio (P/S) of 9.6 is lower than that of all major cybersecurity stocks, with the exception of Okay And Check Point software. This differential and relatively low sales figures could make it an attractive choice as more customers adopt its AI-driven tools.
The near-term path for SentinelOne stock remains uncertain, but the growing appeal of its AI-driven security software could bode well for the company. The emphasis on AI has led to significant customer growth, especially among the largest customers, which has significantly improved the financial position.
Granted, SentinelOne has numerous competitors, and the slowdown in revenue growth and continued losses could become a bigger concern. Nevertheless, earnings should continue to grow significantly, and given the relatively low valuation, there’s a good chance the stock will outperform the market in the long term.
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Will Healy has positions in CrowdStrike and Zscaler. The Motley Fool holds positions in and recommends Check Point Software Technologies, CrowdStrike, Fortinet, Okta, and Zscaler. The Motley Fool recommends Gartner and Palo Alto Networks. The Motley Fool has a disclosure policy.
Will SentinelOne Stock Break Out in 2025? was originally published by The Motley Fool
