Today’s cyber threats are sophisticated and harder to detect than ever. Traditional antivirus software no longer keeps your computer as safe as it used to be. This mismatch has paved the way for emerging companies such as CrowdStrike Holdings (NASDAQ: CRWD) And SentinelOne (NYSE:S) to thrive because they bring new technology to the table.
These companies protect some of the largest companies in the world, growing rapidly and capturing market share from aging competitors.
The secret? Both use AI technology to respond and evolve in real time in the face of new threats. Both companies have the qualities of promising long-term tech stocks, but one has the edge as the better AI stocks on sale today.
Here’s what you need to know.
AI powers two exceptional security platforms
CrowdStrike and SentinelOne specialize in endpoint security, meaning they secure any virtual or physical device connected to a network, such as a laptop, tablet, mobile phone, etc. However, each company has steadily evolved beyond endpoint security to grow and expand to focus on new niches within cybersecurity such as cloud and identity security.
Traditional antivirus programs register known threats and then monitor a device for them. Naturally, they are blind to threats they are not familiar with. CrowdStrike and SentinelOne monitor everything that happens inside a device, using AI to analyze patterns and behavior to find things that don’t belong there. This leads to faster responses to threats and even proactive protection against threats they haven’t seen before.
Both companies score extremely well in third-party security assessments. Prestigious IT company Gartner has rated CrowdStrike as a leader in endpoint security for five years in a row, and SentinelOne has been running its own series for four years. CrowdStrike and SentinelOne have achieved nearly identical ratings on Gartner’s Peer Insights program, with respective average ratings of 4.8 and 4.7 out of 5, each based on more than 1,500 reviews.
Is one better prepared than the other for the future? But maybe it would probably be splitting hairs to say that. But looking back, it seems like you had a big advantage.
There are three reasons why CrowdStrike has been the better stock so far
Despite their similarities, each company’s stock has performed vastly differently:
CRWD data by YCharts
SentinelOne has dramatically lagged behind CrowdStrike for a number of reasons.
First of all, CrowdStrike is much bigger. The company has generated $3.5 billion in revenue over the past four quarters, compared to SentinelOne’s $723 million. There’s little doubt that CrowdStrike has much more market share these days, which makes a smaller competitor like SentinelOne somewhat of an underdog.
Second, CrowdStrike has been much more profitable than SentinelOne. CrowdStrike converts nearly 30% of its revenue into free cash flow and is GAAP profitable. SentinelOne only recently turned free cash flow positive and is still losing money on a GAAP basis.
Finally, SentinelOne went public in the summer of 2021, near the height of the “Everything Bubble” caused by zero percent interest rates. At its peak, SentinelOne traded at a blistering enterprise value-to-sales ratio of over 120. This unsustainable valuation has been steadily eroded over the past three years due to revenue growth and share price declines.
In summary, SentinelOne had inferior fundamentals and was far too expensive. The stock’s poor performance makes perfect sense.
But that could change. This is why SentinelOne is the better buy today
The stock that once traded at an enterprise value-to-sales ratio of over 120 is today trading at a fraction of its value. SentinelOne’s valuation is now half that of CrowdStrike:
S EV to revenue data by YCharts
That seems reasonable based on events so far, but SentinelOne has enough going for it to close that gap.
The company is marching toward profitability as sales grow. It is well funded, with $708 million and no debt, which it can use to invest in marketing, product development and acquisitions. SentinelOne recently landed a blockbuster deal Lenovo to provide security software on its PCs, which should help the company maintain its robust growth.
I give CrowdStrike credit; The company’s revenue grew almost as fast as SentinelOne did last quarter, despite operating with a much larger base count. However, CrowdStrike caused a historic IT outage this summer. One wonders if SentinelOne and others can steal some business from CrowdStrike as customer contracts expire. Only time will tell. But between this, the Lenovo deal, and SentinelOne’s smaller size, I like the underdog’s chances of growing faster for longer.
As SentinelOne grows and its financials improve, look for the stock to gain a higher valuation and take a turn as the better performing stock. SentinelOne is my AI stock pick going forward.
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Justin Pope has positions in SentinelOne. The Motley Fool holds and recommends positions in CrowdStrike. The Motley Fool recommends Gartner. The Motley Fool has a disclosure policy.
