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As digital transformation accelerates and cyber threats become more advanced, the demand for cybersecurity solutions has grown substantially. According to industry estimates, the global cybersecurity market could be worth $298.5 billion by 2028. Here are two growth stocks poised to benefit from this expansion, leveraging artificial intelligence (AI) in cybersecurity.
Cybersecurity Stock #1: Palo Alto Networks
Valued at $120 billion, Palo Alto Networks (PANW) stands as a prominent cybersecurity leader, recognized for its cutting-edge solutions in network security, cloud security, and endpoint protection. On Dec. 16, the company revealed a 2-for-1 forward stock split, aimed at making its shares more affordable for retail investors. Last year, Palo Alto’s stock climbed 26%, outpacing the S&P 500 Index’s ($SPX) 24% gain.
Palo Alto’s next-generation firewall has redefined standards for network security. Over time, it has expanded its offerings to include advanced cloud security solutions like Prisma Cloud and SASE, along with threat detection tools such as Cortex XSOAR and Cortex XDR. These innovations are widely utilized by enterprises, governments, and organizations globally.
In the first quarter of its fiscal 2025, the company reported a 14% year-over-year increase in total revenue, reaching $2.1 billion, driven by advancements in its platform. Product revenue grew by 3.7%, while subscription and support revenue saw a 16.3% rise during the quarter. Adjusted net income climbed to $1.56 per share, up from $1.38 in the same quarter last year. The company beat consensus estimates for both revenue and earnings. Additionally, remaining performance obligations (or RPO), which represent the contractual revenue to be realized in the future, grew 20% year-over-year to $12.6 billion. The company maintains a conservative debt-to-equity ratio of 0.11x and reduced its debt balance by over $300 million in the quarter to ensure financial stability.
Looking ahead, management forecasts approximately 14% revenue growth in fiscal 2025, with earnings projected between $6.26 and $6.39 per share. The company also expects free cash flow to account for 37% to 38% of total revenue. Similarly, analysts estimate revenue and earnings growth of 14% and 11.7%, respectively, for fiscal 2025, with further increases of 15.6% and 13.6% anticipated in fiscal 2026.
Currently, Palo Alto Networks’ stock trades at a premium valuation of 55 times forward 2025 earnings, reflecting strong growth expectations. The growing frequency of cyberattacks and ransomware incidents has heightened the demand for robust cybersecurity solutions, prompting organizations to increase their investments in this area. Despite challenges such as its high valuation and competitive market pressures, Palo Alto’s growth prospects remain highly attractive.
Overall, Wall Street analysts hold a moderately bullish outlook on Palo Alto Networks stock. Among the 47 analysts covering it, 32 recommend it as a “Strong Buy,” two as a “Moderate Buy,” 12 rate it a “Hold,” and one considers it a “Strong Sell.” The average target price of $204.90 indicates 11.6% potential upside from current levels, while the highest target price of $240 suggests the stock could rise by 30.7% within the next 12 months.
Cybersecurity Stock #2: Fortinet
Fortinet focuses on delivering advanced solutions such as next-generation firewalls, secure SD-WAN, endpoint protection, and cloud security. FortiGate, its flagship product line, is highly valued for its outstanding performance and affordability. With a market cap of $74.5 billion, Fortinet stock has gained 63.5%, outperforming the broader stock market.
Fortinet’s integration of AI for threat detection and response has enhanced its products, boosting adoption among enterprises. The company has consistently delivered revenue growth, primarily driven by its subscription-based services. In the third quarter, revenue rose 13% year-over-year to $1.51 billion, supported by a 19% increase in services revenue to $1.03 billion, while product revenue saw a modest 1.7% increase.
Total billings, representing future unrealized revenue, grew 6.1% to $1.58 billion. Adjusted net income surged 53.6% to $0.63 per share, and free cash flow reached $571.8 million, highlighting its strong capacity to generate shareholder value.
Looking ahead, management projects 2024 revenue between $5.856 billion and $5.916 billion, compared to $5.3 billion in 2023. Analysts forecast revenue growth of 11.06% in 2024 and 12.6% in 2025. Earnings are projected to increase by 37.7% in 2024 and 7.7% in 2025, respectively. Trading at 40 times forward 2025 earnings, Fortinet stock appears to be overvalued. However, for investors willing to embrace the risk, the growing demand for cybersecurity solutions and the company’s robust financial performance position it as an appealing long-term investment in the cybersecurity sector.
Overall, on Wall Street, FTNT is a “Moderate Buy.” Of the 37 analysts covering the stock, 14 rate it a “Strong Buy,” 22 rate it a “Hold,” and one suggests a “Strong Sell.” As of writing, Fortinet stock is trading close to its mean target price of $99.32. The Street-high target price of $120 suggests a potential price increase of 23.4% over the next 12 months.
