With the AI boom, it’s no surprise that many sectors will experience heightened growth. One such sector for investors to take advantage of is cybersecurity. The cybersecurity sector has more than ample room to grow, with the demand for stronger encryption resulting from more prevalent and sophisticated cyberattacks. However, despite industry growth, there are still ample undervalued cybersecurity stocks to buy.
The cybersecurity industry is set to grow to $424.8 billion at a 13.8% CAGR. This growth rate is derived from new platforms and technologies, such as e-commerce platforms and cloud innovations, requiring improved security to prevent cyberattacks. The incorporation of new technologies into cybersecurity, specifically automations through artificial intelligence (AI), improves security solutions within the cybersecurity sector.
These factors combined indicate that the cybersecurity industry to be undervalued compared to its future value. Catch these undervalued security stocks with my three picks.
Datadog (DDOG)
Datadog (NASDAQ:DDOG) that provides oversight services for cloud applications, services and databases through a SaaS data analytics platform. Yahoo! Finance reports 42 analysts predicting a one-year price range on S between $98.00 and $146.84, with a mean of $230.00.
DDOG reports robust financials for Q1 2024. The company beat earning for both revenue and EPS, with EPS standing out by beating expectations by 25.83%. Revenue growth has outpaced operational expenses growth, demonstrating sustainable growth practices. Additionally, with net income growing 276.99 % year-over-year (YOY), DDOG shows potential for growth beyond its current valuation.
Datadog announced the launch of its new product: Data Jobs Offering. By improving troubleshooting abilities for data engineer’s work, the product is able to optimize jobs runs by identifying issues with record speed. These features can significantly reduce operational costs for clients. Additionally, DDOG has improved its LLM Observability service to identify issues like hallucinations in Generative AI applications. This update offers growth potential as businesses rush to get these applications on the market and need quality control. Indeed, this expands DDOG’s customer base. Product offerings and improvements make DDOG one of the undervalued cybersecurity stocks for investors.
Akamai Technologies (AKAM)
Akamai Technologies (NYSE:AKAM) is a cloud platform company that also offers cybersecurity products and services. Yahoo! Finance reports 26 analysts predicting a one-year price range on AKAM between $90.00 and $135.00, with a mean of $115.27.
AKAM demonstrates financial strength. While revenue may seem lackluster from missing Q2 earnings expectations, the company has demonstrated superior profitability. Net income is up 80.65% YOY. Furthermore, the company’s free cash flow for the quarter has grown 605.06% YOY, indicating excellent handling of expenditures by management. ROIC being higher than AKAM WACC indicates that the company will provide returns to its investors which, in tandem with strong profitability, makes Akamai undervalued.
Akamai has recently completed the acquisition of API security company Noname Security. This acquisition bolsters the AKAM’s offerings, in addition to expanding its clients through alliance relationships. This acquisition is timely, with customer demand for API security services growing 200% YOY. AKAM has launched a new cloud based, “media-optimized” service specialized for Nvidia (NASDAQ:NVDA) GPUs. The service specializes in optimizing GPU performance in video processing and live streaming. The company’s current position as one of the undervalued cybersecurity stocks makes AKAM a compelling choice for investors willing to capitalize on this opportunity.
Crowdstrike (CRWD)
Crowdstrike (NASDAQ:CRWD) is a cybersecurity company specializing in cyber attack response and endpoint security. With the recent surge in AI popularity, CRWD has pushed up more than 50% in the previous 6 months. However, I believe this is one of the undervalued cybersecurity stocks with further room for growth.
Despite strong financial growth, CRWD is still potentially undervalued. As reported in its April 2024 quarterly report, YOY revenue and earnings per share exceeded the lofty expectations. Even with revenue up nearly 33%, the most impressive aspect pushing this stock’s value was its net income increasing by a factor over 65 times. Coupled with 48% increase in free cash flow, further demonstrating improving profitability, a case can be made for CRWD being undervalued.
The new wave of artificial intelligence is serving the company well. Most recently, the company joined the S&P 500, one of the most traded indices in the market. Consequently, this increases trading volume while bringing attention to the company’s work. Additionally, institutions have taken notice. With over 75% of both available floats and current shares held by institutional investors, there is increasing sentiment regarding the growth potential CRWD holds. Because of the strong financials as well as the current market trends, I advise giving more thought to Crowdstrike.
On the date of publication, Matthew Rodrigues did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
