Anthropic has single-handedly sent shockwaves through the software industry over the last few months. The artificial intelligence lab’s Claude Cowork, built on its Claude Code agent, has shown the potential for generative AI applications to displace many enterprise SaaS companies over time. That’s led many analysts to reevaluate how much those stocks’ current earnings are worth.
In late February, Anthropic unveiled Claude Cybersecurity, which can scan codebases for vulnerabilities and suggest AI-generated code to fix them. Many analysts see that as a threat to cybersecurity stocks, and investors have sent shares lower as a result.
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But Claude Cybersecurity may prove just the opposite. In a world where AI agents can crawl codebases, search for vulnerabilities, and then exploit them, cybersecurity is more important than ever. These three companies could be excellent investments amid the current environment.
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Palo Alto Networks(NASDAQ: PANW) is constantly expanding its portfolio of services in an effort to become a one-stop shop for an enterprise’s cybersecurity needs. It most recently completed the acquisition of CyberArk, adding a leading identity security service to its offerings.
As enterprises migrate more software and data to the cloud and workforces work remotely, the number of attack surfaces is constantly increasing. That requires a bevy of services to protect all possible angles. Many enterprises are trying to consolidate the number of vendors they use for all of those services, and Palo Alto is positioning itself as the vendor of choice.
The company’s main strategy is what it calls “platformization,” where it sells multiple services to an enterprise to cover all its bases. It offers three main platforms: Strata for network security, Prisma for cloud security, and Cortex for security operations and endpoint security. As of the end of its second quarter, the company counted 1,550 platformizations. Those customers produced 119% net recurring revenue, indicating that Palo Alto is selling more services to customers every year.
Overall, Palo Alto grew revenue by 15% last quarter, but that growth has been dragged down by its legacy hardware business. Its revenue from next-generation software-based services climbed 33% year over year. With the stock trading for 46 times earnings and 12 times sales estimates, it may seem expensive. But considering Palo Alto’s positioning in cybersecurity, its shift toward higher-margin software sales, and the overall trend toward consolidation, I think that’s a fair price to pay for the cybersecurity stock.
ZScaler(NASDAQ: ZS) provides network security software that ensures only authorized users and devices can connect to enterprise resources. Instead of routing traffic through a central node, traffic is routed through ZScaler’s platform, reducing bottlenecks and making it easier to set up and authenticate users and devices.
The company recently launched its AI Protect service, designed to help enterprises build, deploy, and govern AI across their networks. The service could prove important as enterprises look to give AI agents access to certain data or software while maintaining security.
The company is also shifting from user-based pricing to usage-based pricing. In the age of AI agents, which can generate significant network traffic from a single “user,” the shift is essential for ZScaler to keep growing. Non-seat revenue climbed more than 100% year over year last quarter, contributing over 25% to average contract value.
With more enterprise software shifting to the cloud, ZScaler stands to benefit from the secular trend of growing network traffic from actual humans as well. Management has achieved strong results in upselling existing customers, driving year-over-year revenue growth. It most recently posted overall revenue growth of 26% with annual recurring revenue climbing 25%, indicating a long runway for growth. Investors should expect a similar level of growth for the foreseeable future, driven by increased usage-based billing.
With a forward P/E of 38 and a price-to-sales ratio of 7.4, the stock looks like a good value right now, given the trends that are pushing its financial results higher over the next few years.
SentinelOne(NYSE: S) specializes in endpoint security, protecting devices connecting to networks from attacks. It’s built from the ground up with artificial intelligence. Its primary advantage over the competition is that it puts more AI capabilities on devices instead of relying on cloud-based servers to identify and mitigate attacks. That speeds up its ability to fend off malicious activity, which can move quickly when AI agents are doing the work.
That said, SentinelOne faces stiff competition from much larger companies with deeper pockets. It’s spent heavily on sales and research in order to grow its business. It’s expanding its offerings to include a broader range of services, as more enterprises look to consolidate cybersecurity vendors. Management says its new offerings, which include cloud, data, and identity security products, expand its total addressable market from $17 billion (for just endpoint security) to over $100 billion.
Despite its efforts, though, investors have been disappointed by SentinelOne’s results over the past year. Revenue growth is slowing, rising just 20% in the fourth quarter, down from 29% the year before. Management’s fiscal 2027 outlook for just 20% revenue growth suggests a reacceleration in revenue may be a while off.
To be sure, SentinelOne is a risky investment, given that it faces competition across its portfolio from much larger, more diverse companies. But investors have bid the stock price down to a point where shares look attractive. The stock trades for less than 4 times management’s revenue outlook for the year. At that price, it may be worth starting a small position in your portfolio.
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Adam Levy has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends SentinelOne and Zscaler. The Motley Fool recommends Palo Alto Networks. The Motley Fool has a disclosure policy.
