Jim Cramer has consistently recommended buying cybersecurity stocks for more than a year. Two firms that regularly cross his radar are Palo Alto Networks, Inc. (NASDAQ:PANW) and CrowdStrike Holdings, Inc. (NASDAQ:CRWD). While the pair operates in the same industry, in today's AI-driven software era, they have taken opposite approaches to their products and business models.
The two firms' shares are up by 120% and 98% year-to-date, respectively. On August 6th, Cramer revealed that he had trimmed some of the positions in the firms that the CNBC Investing Club holds in the Charitable Trust: "We did trim some, we trimmed, some of both, for the Charitable Trust, cause I said, we're up too much, and I just can't do it, I can't live with myself. Up too much, got to take some off the table." The fact that Cramer trimmed the positions isn't surprising, given the share price performance of the two companies, as the shares of both are up by more than 100% over the past year.
Yet, while the CNBC TV host is a fan of both, Palo Alto Networks, Inc. (NASDAQ:PANW) and CrowdStrike Holdings, Inc. (NASDAQ:CRWD) have completely different approaches to software. Palo Alto is aiming to sell its legacy software as part of a bundle that also includes its AI offerings. This bundle includes the firm's Prisma software and sells it with its Cortex AI platform.
On the other hand, CrowdStrike Holdings, Inc. (NASDAQ:CRWD) has gone 'all-in' into AI. As opposed to PANW, the firm is focused on its Falcon Platform, a single agent offering that spans identity management, cloud tracking, and other operations. Therein lies the split between the bulls and the bears for the two firms.
CrowdStrike Holdings, Inc. (NASDAQ:CRWD)'s bulls argue that its singular focus on AI means that the firm will be able to avoid the pitfalls of fragmentation and will allow users to streamline their data in a single pipeline. However, CrowdStrike Holdings, Inc. (NASDAQ:CRWD)'s critics argue that the firm is yet to achieve profitabilty and its valuation, as evidenced by a forward P/E multiple of 181, leaves little room for disappointment. On the other hand, Palo Alto Networks, Inc. (NASDAQ:PANW)'s proponents believe that the bundling strategy enables the firm to deliver multiple services under a single roof and grow its moat in the industry.
However, the detractors counter by arguing that the discounts offered as part of the bundles can stress Palo Alto Networks, Inc. (NASDAQ:PANW)'s margins. They also outline that the firm still depends on legacy firewall platforms which can lead to a loss of market share due to customers choosing lighter options. These worries appear to be reflected in the multiple as well, since Palo Alto Networks, Inc. (NASDAQ:PANW) trades at a forward P/E ratio of 93.46.
Extract — continue reading at the source.
