Investing in AI-Powered Cybersecurity: CrowdStrike vs. Palo Alto Networks

Artificial intelligence (AI) has become a key player in the stock market, particularly in cybersecurity. As companies harness AI’s transformative capabilities, investments in the right tech stocks could yield fruitful returns.

Among the top players in this space are Palo Alto Networks (NASDAQ: PANW) and CrowdStrike (NASDAQ: CRWD). These companies are leveraging advanced machine learning and AI tools to combat increasingly sophisticated cyber threats and stand poised for significant growth in the cybersecurity market.

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So, which stock should you consider for your portfolio? Let’s delve into the facts to aid your decision-making in 2025.

Image source: Getty Images.

Palo Alto Networks: A Strong Contender

Palo Alto Networks has forged its reputation on next-generation firewall technology, effectively serving as a frontline defense for organizational networks. Over the past decade, the company has transformed into a more holistic security platform, integrating artificial intelligence and machine learning (AI/ML) across its expanding cloud-based product range. Their Precision AI framework aims to revolutionize cybersecurity through autonomous threat detection and response.

This evolution has positioned Palo Alto as the largest pure-play cybersecurity company by revenue, delivering impressive returns for shareholders with a stellar 356% increase in the last five years.

Recent financial results indicate that Palo Alto’s positive trend is likely to continue. For the fiscal first quarter ending October 31, 2024, revenue grew by 14% year-over-year, and adjusted earnings per share (EPS) rose by 13%. Particularly noteworthy is the 40% growth in annualized recurring revenue (ARR) for next-generation services, fueled by AI-powered subscriptions.

Palo Alto’s valuation reflects this growth, with shares trading at 57 times the consensus 2025 EPS, a forward price-to-earnings (P/E) ratio lower than CrowdStrike’s 92. This offers a competitive edge for investors who believe in Palo Alto’s capability to sustain leadership in cybersecurity and innovate with AI.

PANW PE Ratio (Forward) data by YCharts.

CrowdStrike: Dominating Endpoint Protection

Unlike Palo Alto, CrowdStrike focuses on endpoint protection, securing devices as they access diverse network data within the Internet of Things (IoT). The company has broadened its offerings by adding identity protection, threat intelligence, and exposure management to its unified Falcon platform, which heavily employs AI/ML for advanced threat detection and predictive analytics.

This software-centric approach has spurred robust growth for CrowdStrike, with shares rising by 34% over the past year. In the latest third quarter, ending October 31, 2024, revenue increased by 29%, and adjusted EPS grew 13%. Additionally, there has been a notable uptick in customer adoption of the Falcon subscription services, propelling momentum.

CrowdStrike’s management recently raised its full-year guidance, expecting adjusted EPS of $3.74 to $3.76 for 2025, reflecting a 22% increase compared to 2024. This expectation outpaces Palo Alto’s growth forecast of about 13%, which could indicate a stronger trajectory for CrowdStrike.

Making the Decision: A Tough Choice

Deciding between these two remarkable companies is no easy feat, as both exhibit strong potential for stock appreciation. If I had to choose one, I lean towards CrowdStrike due to its superior earnings momentum—a factor that often attracts market favor. While both stocks may experience volatility based on quarterly results, CrowdStrike presents an appealing option for exposure to AI-driven themes in a diversified portfolio.

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Dan Victor has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends CrowdStrike. The Motley Fool recommends Palo Alto Networks. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.