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CRWD vs PANW: Who Is the Better AI Cybersecurity Stock?
With the advent of artificial intelligence, cybersecurity is becoming more and more important.
In cybersecurity, Palo Alto Networks (PANW) has been a steady industry behemoth (ranked by market capitalization), and the industry's oldest is cybersecurity newcomer CrowdStrike (CRWD).
However, Palo Alto's share price fell 28.44% after the announcement on February 20, 2024. In comparison, CrowdStrike's share price jumped 10.76% after its announcement on March 5.
On this occasion, the market value of the two companies was further pushed up. As of March 15, 2024, Palo Alto had a market value of $929.1 million, while CrowdStrike had a market value of $794.7 billion.
As CrowdStrike pursues Palo Alto's momentum grows, this makes the previously unsuspenseful discussion interesting.
This article will help you better understand these two companies from the perspective of product, market position, future growth potential, and valuation.
What is the difference between CRWD and PANW?
While CrowdStrike and Palo Alto are both cybersecurity companies, the track in which they work is still different.
Palo Alto is a representative of the firewall type, which from its inception focused on firewalls and offers a more diverse portfolio of products, including hardware and software, primarily for security defense for enterprise IT servers. You can think of traditional firewalls as security, working at corporate network entry points and passively defending against external attacks.
With the development of the era, Palo Alto has been expanding its products and has been the first to introduce the concept of the next generation of firewalls. THE BIGGEST DIFFERENCE FROM TRADITIONAL FIREWALLS IS THAT NEXT-GENERATION FIREWALLS ADD FEATURES LIKE MALWARE DETECTION AND ANALYSIS SERVICES, WHICH ALLOW FIREWALLS TO BEGIN ACTIVE DEFENSE.
In addition, in addition to firewall-based technologies, Palo Alto has begun to deploy cloud security and endpoint defense areas, while increasing investment in cloud computing and artificial intelligence to achieve automated cybersecurity. At present, the Enterprise Security Platform (Strata), Cloud Security Platform (Prisma) and Secure Operations Platform (Cortex) have formed three key modules, providing a comprehensive enterprise defense system.
Crowdstrike is a representative of terminal defense, and its business is pure, without a firewall business, and does not sell hardware, it is a saas software company that provides terminal defense.
So-called endpoint defense is actually based on the new cybersecurity needs of the cloud-computing era. As more and more devices can access the Internet, they can all be attacked by hackers. As a result, cybersecurity companies protect from traditional enterprise servers to PCs, phones, IoT devices, and more, this is the basic concept of endpoint defense. In other words, you can understand terminal defense as the duplication of antivirus software.
Crowdstrike's most famous product is Falcon, its security threat intelligence platform. Compared to traditional antivirus software, the platform has features such as lightness and active defense.
Lightweight mainly embodies rapid deployment. Because Crowdstrike is cloud-based, it can be quickly scaled to 10,000 endpoints. In contrast, traditional antivirus software is typically deployed locally, with high maintenance costs and slow software updates.
Active defense embodies threat anticipation. Because Crowdstrike is an active defense platform based on big data and AI, it identifies potential threats early by analyzing the data.
These features have made CrowdStrike products popular in the market. pursuantThe Motley Fool, CrowdStrike product subscribers doubled in just a few years. The total increased from 5,431 people in FY 2020 (as of January 2020) to 23,019 in FY 2023.
Which company's product is better?
Analyzing which company's product is better can be analyzed using Gartner's Magic Quadrangle Model.
This model is divided into two dimensions to analyze a company's industry position and competitiveness:
X-axis/horizontal axis: Forward-looking Completeness of vision, easy understanding of technical capabilities.
Y-axis/axis: Ability to execute, which can be easily understood as sales ability.
According to these two dimensions, it can be divided into four quadrants, which represent the location of the company, respectively:
Leaders Leaders: Technologically at the forefront, good sales situation, and the right industry leader.
Challengers Challengers: The technology is not cutting edge, but sales are good, illustrating the market's demand for its products
Visionaries Visionaries: Technology is forward-looking, but products do not sell out and lack market support.
Niche Players Speculators: Neither technology nor market is competitive, it may be a small company focused on certain segments of a small market, or a product line that is still taking off from a large company.
Both Crowdstrike and Palo Alto are industry leaders in the terminal defense circuit, while Crowdstrike scores well ahead of Palo Alto and other competitors, both in terms of technical foresight and product sales.
It is worth noting that Microsoft is also a strong competitor in the terminal defense of this track, with its industry position second only to Crowdstrike.
On the Enterprise Firewall circuit, Palo Alto is also the industry leader, but the score is not noticeably higher than the other two leaders Fortinet and Check Point, indicating that the three companies are competing more fiercely in the enterprise firewall.
Which company is growing faster?
Crowdstrike's current annual revenue TTM is US$30 billion (revenue for the year ended January 31, 2024), with a compound year-over-year growth rate of 64.95% over the past 5 years.
Palo Alto's current annual revenue TTM is $75 billion (revenue for the year ended January 31, 2024), up from 23.74% for the past 5 years compounded
Palo Alto is a larger company in terms of revenue and more than twice as large as Crowdstrike; but in terms of growth, CrowdStrike is undoubtedly growing faster, with a staggering 60% compound growth over the past 5 years.
If this growth rate is maintained, CrowdStrike in the future is likely to catch up with Palo Alto's revenue and even surpass that of Palo Alto.
The valuation of the two companies is cheaper?
There are many common valuation methods, such as P/E, net market P/B, and market sales P/S.
Since Palo Alto and CrowdStrike are both growth companies, it is possible to measure the value of their stocks using market sales rate P/S.
At the March 18, 2024 share price, Palo Alto had a P/S sales rate of 12.24 times, 10 times higher than the industry average.
In comparison, CrowdStrike's valuation is slightly more expensive, with a P/S valuation of 25.41 times, 10 times higher than the industry average.
This shows that while P/S valuations for both companies are higher than the industry average, CrowdStrike's 25.41p/S valuation is 12.24 times higher than Palo Alto.
The reason investors are willing to give CrowdStrike a better premium may be because CrowdStrike grows faster and has a stronger potential for future growth.
summed
Palo Alto and CrowdStrike are both cybersecurity companies, but they focus on firewall and terminal defense, respectively. Palo Alto's offerings are more diverse, including software and hardware, cloud security, and terminal defense; while CrowdStrike is a more pure business, primarily providing software services for terminal defense.
On the terminal defense track, Crowdstrike and Palo Alto are industry leaders, according to the Gartner Magic Quadrangle model, but Crowdstrike scores slightly higher; on the enterprise firewall circuit, Palo Alto is the industry leader, but there is no discernible gap with the other two leaders.
Crowdstrike is growing faster, and according to the current pace of growth, it is likely to catch up with or even surpass Palo Alto in the future in revenue.
By P/S's valuation method, Crowdstrike is valued higher because it has a higher growth potential.
It is worth noting that Palo Alto and CrowdStrike are both growth stocks, and these types of stocks can fluctuate more when the market underperforms. For example, Palo Alto and CrowdStrike experienced a pullback during the US bear market in 2022. Therefore, investors should conduct comprehensive analysis and judgment when making investment decisions.
Risk Disclosure: This content does not constitute research reports and is for reference only and does not serve as a basis for any investment decisions. The information referred to in this article is not a comprehensive description of the securities, markets or developments described. Although the source of information is considered reliable, the accuracy or completeness of the above is not guaranteed. In addition, the accuracy of any statements, opinions or predictions made in this article is not guaranteed.
