Following a 53% plunge in its stock price — and a big subsequent rebound — artificial intelligence cybersecurity leader SentinelOne may be poised for another advance. The AI stock is trying to break out past its latest buy point, as the major stock indexes hit record levels.
Mountain View, Calif.-based SentinelOne builds cybersecurity software that detects malware on laptops, mobile phones and other "endpoints" that access corporate networks. Additionally, it offers a broad threat-detection cybersecurity platform.
SentinelOne rivals include tech powerhouses CrowdStrike, Microsoft and Palo Alto Networks.
Second-Quarter Beat Propels The AI Stock
SentinelOne reported better-than-expected results for the second quarter on Aug. 27. The company said it had adjusted earnings of a penny per share. That reversed from a loss of 8 cents per share in the year-ago period. This marked the company's first-ever profitable quarter, per IBD MarketSurge data. That profitability is set to continue over the next four quarters. Analysts project earnings ranging from 1 cent to 5 cents a share.
Meanwhile, revenue jumped 33% to $198.9 million, decelerating slightly from the previous quarter's 40% revenue growth rate. It was also below the company's three-year sales growth rate of 74%.
Recently crossing the profitability threshold, the company shows a lackluster 75 out of a best-possible 99 EPS Rating. This rating gauges a company's quarterly and annual earnings growth performance, placing more emphasis on recent results — especially the past three years of annual earnings and the two most recent quarters.
"Based on strong execution and broad-based demand, SentinelOne delivered exceptional results with industry-leading growth and our first-ever quarter of positive net income and earnings per share," Chief Executive Tomer Weingarten said in the second-quarter news release. "We're seeing a distinct rise in customer interest and appreciation for the advantages of our patented AI-powered Singularity Platform to help build higher quality and more durable cyber defense."
Of particular interest, the company's Singularity platform has resulted in significant pipeline pickup for both SentinelOne and its partners. Several of the world's biggest companies are now engaging with SentinelOne, with some of them already making the decision to switch, including Samsung and Aston Martin.
For the current quarter ending in October, SentinelOne predicted revenue of $209.5 million, in line with estimates of $209.4 million.
SentinelOne Growth Drivers
This past week, Piper Sandler upgraded SentinelOne stock to overweight due to multiple growth catalysts set to propel shares higher. The investment firm raised its price target to 32 from 25. Shares closed at 25.99 on Oct. 16. Piper Sandler analysts noted a faulty update from CrowdStrike in July caused a massive outage affecting Windows systems worldwide. SentinelOne could benefit as customers shift their business.
"We see three key catalysts that should drive incremental NNARR [Net New Annual Recurring Revenue] in the near-term: an expanded partnership with Lenovo, an uptick in displacements from CRWD [CrowdStrike] following the July 19th incident, and traction with Purple AI/the broader automation platform narrative beginning to resonate," commented Rob Owens, a senior research analyst at Piper Sandler.
In mid-September, Lenovo and SentinelOne announced a multiyear partnership to bring AI-powered endpoint security to millions of Lenovo devices internationally. Lenovo will include SentinelOne's Singularity Platform and generative AI capabilities (Purple AI) in new PC shipments.
Owens believes the expanded partnership "will drive durable growth over the next four to six quarters, which is not currently factored into estimates."
Purple AI Enhancements
At the company's investor day this past week, SentinelOne announced enhancements to Purple AI, updates to data and security information and event management, and the releases of Singularity Hyperautomation and Ultraviolet large language models.
"Given Lenovo's leadership position in PC shipments, the new partnership could be transformational, and, along with [SentinelOne's] improved positioning following the [CrowdStrike] outage, could drive compelling upside to new ARR estimates over the coming years," Needham analyst Matt Dezort wrote in a note to clients. Dezort has a buy rating and a 32 price target on the AI stock.
Analysts expect SentinelOne earnings to swing to a profit of 3 cents per share in fiscal year 2025 ending Jan. 31. They call for a 499% surge in fiscal year 2026, according to FactSet estimates. Meanwhile, sales are expected to grow an average of 27% over the next four quarters.
SentinelOne AI Catalysts
According to SentinelOne, Purple AI is the industry's most advanced AI security analyst. Purple AI helps security teams detect earlier, respond faster, and stay ahead of attacks. It radically accelerates threat hunting, investigations and response. This saves security teams time, reduces costs and better protects their environments.
During the conference call in the second quarter, CEO Weingarten commented, "Within only months after general availability, Purple AI adoption has surpassed all our expectations and contributed to Q2 outperformance. For instance, we achieved double-digit attach rate for Purple AI across all eligible endpoints sold in the second quarter, indicating incredible momentum."
Piper Sandler's Owens contends that Purple AI will become a material contributor to new business over the coming quarters. The unique automation and threat-hunting capabilities of Purple AI help SentinelOne differentiate it from competitors.
CrowdStrike Global IT Outage
Rival CrowdStrike sent customers a faulty update to its cybersecurity software in mid-July, and the typically routine event caused a global IT outage. Countless industries ground to a halt, causing more than $10 billion in estimated damages and leaving the company with a huge crisis management challenge.
SentinelOne could be a beneficiary of that crisis if CrowdStrike customers decide to leave the company's cybersecurity platform, Falcon.
According to Owens, "In our 3Q channel checks, we surveyed resellers to get a sense of where customers who have decided to leave are moving to, with the results broadly supporting this view. Though Microsoft and Palo Alto Networks were cited by more respondents than SentinelOne, the data indicates that roughly one in four CrowdStrike customers who churn will end up moving to SentinelOne."
However, those positive indicators remain unclear for SentinelOne at this time. William Blair analyst Jonathan Ho commented in a research note, "In our view, SentinelOne will likely see a modest benefit from CrowdStrike in terms of new business win rates and incremental customer lands, but we believe it is very difficult to quantify and perhaps too early to fully understand the implications. Many contracts are multiyear in nature and few customers are likely to drop the product immediately due to the outage."
AI Stock Eyes Latest Buy Point
SentinelOne went public on June 30, 2021. It listed on the New York Stock Exchange for an initial public offering at 35. Shares popped 30% on the first day of trading and reached an all-time high 78.53 on Nov. 12, 2021. But they struggled over the next few years, falling as low as 12.43 on June 6, 2023.
Following a sharp recovery from its May 31 lows, SentinelOne stock briefly topped a 26.62 buy point on Oct. 14. That buy point is a result of a shorter base within a consolidation that stretches back to February 2024, per IBD MarketSurge chart analysis. But shares are struggling to maintain their momentum and are just below that buy trigger.
Bullishly, the relative strength line has climbed to its highest level since March. That's an important technical indicator to watch. It indicates SentinelOne stock has strong outperformance vs. the broad market, especially since the stock bottomed on May 31. The RS line measures a stock's price performance vs. the S&P 500.
Finally, with a solid 85 out of a top-notch 99 IBD Composite Rating, which is designed to help identify top growth stocks, the AI stock is a market leader to watch.
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