Are Cloud Security Stocks Worth Investing In for Long-Term Growth?

December 26, 2024
Are Cloud Security Stocks Worth Investing In for Long-Term Growth?

The growing significance of cloud security stocks is becoming increasingly apparent as businesses adopt cloud computing to manage their digital assets. This shift towards cloud-based solutions underscores the necessity to secure sensitive data and ensure robust cybersecurity measures, leading to a market expansion in cloud security. The focus of this article is on three key companies—CrowdStrike Holdings, Inc., Zscaler, Inc., and Cloudflare, Inc.—which are at the forefront of integrating cloud technology with cutting-edge security features.

As more businesses transition their data and applications to the cloud, the demand for reliable and effective cloud security solutions continues to rise. This trend is driven by the need to protect data across various platforms from external threats. Digital transformation has become an integral part of contemporary business strategies, meaning the adoption of cloud-based solutions is inevitable. Cloud solutions offer the advantage of accessing software and resources over the internet without the need for traditional hardware, leading to enhanced operational efficiency.

The valuation of the cloud security market stands at approximately $30.29 billion in 2023. This market is expected to expand at a Compound Annual Growth Rate (CAGR) of 14.2%, potentially reaching $100.07 billion by 2032. This substantial growth indicates the increasing reliance on cloud security as a foundational element of modern business operations. As internet-based services continue to advance, the rate of cloud adoption has escalated, further driving the demand for sophisticated security tools to safeguard business information.

The Rise of Cloud Security

Digital transformation is integral to contemporary business strategies, necessitating reliable and effective cloud security solutions to protect data across various platforms. With advancements in internet-based services, the rate of cloud adoption has significantly increased, driving the demand for sophisticated security tools to safeguard business information from external threats.

Cloud solutions provide the advantage of accessing software and resources over the internet, bypassing traditional hardware limitations, and leading to enhanced operational efficiency. The valuation of the cloud security market stands at approximately $30.29 billion in 2023. This market is expected to expand at a Compound Annual Growth Rate (CAGR) of 14.2%, potentially reaching $100.07 billion by 2032. This substantial growth is indicative of the increasing reliance on cloud security as a foundational element of modern business operations.

CrowdStrike Holdings, Inc. (CRWD)

CrowdStrike operates through its Falcon platform, offering subscription-based cybersecurity services focusing on endpoint and cloud security, identity protection, threat intelligence, vulnerability management, and AI-driven automation. The company emphasizes securing generative AI workloads and aims to enhance global security operations. The rise in cyber threats has made comprehensive security solutions critical for businesses to safeguard their assets comprehensively.

On December 9, CrowdStrike, alongside SonicWall, introduced a new Managed Detection and Response (MDR) service. This service combines SonicWall’s Managed Security Services with CrowdStrike Falcon’s AI-driven Endpoint Detection and Response (EDR) capabilities. This collaboration targets small and medium-sized businesses (SMBs) via Managed Service Providers (MSPs), improving scalability and security. Additionally, on November 7, CrowdStrike expanded its partnership with Ignition Technology to distribute the Falcon platform across various regions, including Ireland, the UK, and Nordic countries.

For the fiscal third quarter ending October 31, 2024, CrowdStrike reported a 28.5% year-over-year increase in total revenue, reaching $1.01 billion. Its non-GAAP income from operations rose by 11% to $194.92 million, while the non-GAAP net income attributable to CrowdStrike grew 17.6% to $234.26 million, translating to $0.93 per share—a 13.4% increase from the prior-year quarter. Market analysts anticipate CrowdStrike’s revenue and EPS for the fiscal year ending January 31, 2025, to increase by 28.6% and 21.7%, respectively, year-over-year, reaching $3.93 billion and $3.76. The company has consistently surpassed consensus EPS and revenue estimates in the trailing four quarters, reflecting a promising outlook.

Cloudflare, Inc. (NET)

Cloudflare specializes in cloud-based security and performance solutions, including web application firewalls, DNS, content delivery networks, and zero-trust security services. These offerings enhance security, performance, and scalability for various user groups, from businesses and developers to consumers across multiple platforms such as public and private clouds, IoT devices, and SaaS applications. Cloudflare is making significant strides in expanding its global footprint and enhancing its cybersecurity capabilities.

Cloudflare has been actively expanding its presence, particularly in the Mexican market, where it has added new infrastructure such as a data center in Guadalajara. This expansion supports integrations with key customers and partners, enhancing regional operations. Furthermore, the company acquired Kivera, a platform focusing on cloud security, data protection, and compliance. The integration of Kivera’s capabilities into the NET One platform aims to streamline security controls directly in the cloud deployment process, enhancing security, speed, and simplicity.

For the fiscal third quarter ending September 30, 2024, Cloudflare’s revenue rose by 28.2% year-over-year to $430.08 million. Its non-GAAP income from operations increased by 49.2% to $63.47 million, while the non-GAAP net income reached $72.58 million—a 31.3% year-over-year increase. The non-GAAP net income per share was $0.20, a 25% increase from the previous year’s quarter. Analysts forecast Cloudflare’s revenue for the fiscal fourth quarter ending December 31, 2024, to rise by 24.7% year-over-year to $452.06 million, with an expected EPS increase of 20.4% to $0.18. The company has outperformed consensus revenue and EPS estimates in the past four quarters, indicating a strong growth trajectory.

Zscaler, Inc. (ZS)

Zscaler provides cloud security solutions such as Zscaler Internet Access, Zscaler Private Access, and Zero Trust security, which ensure secure access and data protection across cloud environments. The company’s services cater to industries like healthcare, finance, and telecommunications. As the landscape of cyber threats evolves, Zscaler continues to offer dynamic solutions to meet the changing demands of the market.

On December 17, Zscaler announced that Nokia Oyj would deploy its Zscaler Zero Trust Exchange platform to improve security, operational efficiency, and cloud capabilities. Moreover, on November 12, Zscaler launched the industry’s first Zero Trust Segmentation solution aimed at providing a secure, agile, and cost-effective way to connect users, devices, and workloads across globally distributed locations.

For the fiscal first quarter ending October 31, 2024, Zscaler’s revenue grew by 26.4% year-over-year, amounting to $627.96 million. Its non-GAAP income from operations surged by 49.5% to $134.15 million. Additionally, the non-GAAP net income was reported at $124.26 million, up 43.8% year-over-year, with non-GAAP net income per share increasing by 40% to $0.77. Analysts anticipate Zscaler’s revenue for the fiscal second quarter ending January 31, 2025, to rise by 21% year-over-year to $635.17 million. The EPS for the same quarter is projected to be $0.69. Similar to its peers, Zscaler has consistently surpassed consensus EPS and revenue estimates in all the trailing four quarters.

Despite a slower growth in stock value compared to its counterparts, shares of Zscaler gained 4.9% over the past six months, closing the last trading session at $187.38. The company holds a strong outlook, which is reflected in its B grade in both Growth and Sentiment according to the POWR Ratings. This underscores Zscaler’s position in the cloud security market, signifying its potential for long-term growth.

Conclusion

As businesses increasingly adopt cloud computing to manage their digital assets, the importance of cloud security stocks becomes more evident. This shift to cloud-based solutions highlights the need to secure sensitive data and implement strong cybersecurity measures, bolstering the growth of the cloud security market. Three key companies leading the way in merging cloud technology with advanced security features are CrowdStrike Holdings, Inc., Zscaler, Inc., and Cloudflare, Inc.

The transition of more businesses’ data and applications to the cloud drives the rising demand for dependable and efficient cloud security solutions. This trend is fueled by the necessity to protect data across multiple platforms from external threats. Digital transformation has become essential to modern business strategies, making the adoption of cloud-based solutions unavoidable. These solutions offer the advantage of accessing software and resources online without requiring traditional hardware, thus enhancing operational efficiency.

In 2023, the cloud security market is valued at around $30.29 billion and is projected to grow at an annual rate of 14.2%, potentially reaching $100.07 billion by 2032. This significant growth reflects the increasing dependence on cloud security in contemporary business operations. As online services continue to evolve, the rapid rate of cloud adoption escalates, heightening the need for advanced security tools to protect business information.

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