Better Artificial Intelligence (AI) Stock: Palo Alto Networks vs. SentinelOne

The adoption of artificial intelligence (AI) in the cybersecurity industry has been gaining momentum in the past couple of years, unlocking a significant long-term growth opportunity for companies in this sector.

Palo Alto Networks (NASDAQ: PANW) and SentinelOne (NYSE: S) are two names in the cybersecurity industry whose AI-specific tools are having a positive impact on their business. More importantly, AI adoption in cybersecurity is currently in its early stages. One report suggests that AI-related cybersecurity revenue could triple between 2025 and 2030.

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As such, it won't be surprising to see Palo Alto and SentinelOne sustaining healthy growth levels in the long run. However, if you had to choose from one of these two names to benefit from the growing demand for AI in cybersecurity, which one should you be buying? Let's find out.

The case for Palo Alto Networks

Palo Alto Networks' AI-focused cybersecurity tools have been gaining traction among the company's customers. On its November 2024 earnings conference call, Palo Alto management pointed out that it has "hundreds of customers leveraging AI access." The company added that it is securing more than 750 AI applications, a number that it believes will continue to grow.

Palo Alto is pushing the envelope on the product development front as well. It started rolling out Strata Copilot, an AI assistant for network security administrators that's supposed to help them make faster decisions, identify risks and threats, and accelerate the resolution of cybersecurity issues. The company already offers other generative AI tools across its platform to aid cybersecurity teams in threat prevention, prediction, and remediation.

The good part is that Palo Alto's focus on deploying AI-specific tools is leading to robust growth in its future revenue pipeline. This was evident from the 20% year-over-year increase in Palo Alto's remaining performance obligations (RPO) in the first quarter of fiscal 2025 that ended on Oct. 31, 2024.

RPO refers to the total value of a company's unfulfilled contracts, and the metric stood at $12.6 billion in the previous quarter. That figure is substantially higher than the $8 billion revenue that the company generated in the trailing 12 months.

Palo Alto's RPO growth outpaced the 14% year-over-year increase in its fiscal Q1 revenue. As the company is signing contracts at a faster pace right now, it should ideally witness stronger top-line growth in the future once it starts fulfilling those contracts. Additionally, bigger contracts seem to be having a positive impact on its bottom line.

The company's earnings of $1.56 per share in fiscal Q1 exceeded the higher end of its guidance range. It is expecting its earnings to increase between 10% and 13% in the current fiscal year. Consensus estimates as per YCharts suggest that Palo Alto could show stronger earnings growth of 13.5% in fiscal 2026 followed by a 17.5% jump in fiscal 2027.

So, AI could lead to better times for Palo Alto Networks in the long run and help improve the company's earnings power.

The case for SentinelOne

SentinelOne is a smaller company than Palo Alto Networks, having generated $723 million in revenue in the trailing 12 months. However, SentinelOne is growing at a much faster pace than its bigger peer, with AI playing a central role in boosting its performance.

The company introduced its Purple AI cybersecurity platform in April 2024. SentinelOne pointed out at that time that early adopters of Purple AI reported an 80% acceleration in threat detection. Not surprisingly, the company has been finding more takers for this platform. On its December 2024 earnings conference call, SentinelOne CEO Tomer Weingarten remarked:

The market response and interest in Purple has been extremely positive. In Q3, the attached rate of Purple AI across all eligible endpoints doubled compared to Q2. Purple is one of the fastest-growing solutions in SentinelOne's history and will continue to drive meaningful growth into the future.

The attach rate refers to the number of customers who are purchasing an additional service or product from a company in addition to the primary product. Purple AI opened up a solid cross-sale opportunity for SentinelOne. The company offers its generative AI cybersecurity platform for use with data from third-party applications like Zscaler, Palo Alto, Okta, Fortinet, and others.

Even better, Purple AI now supports Spanish, German, French, Japanese, Arabic, Korean, and more. All this suggests that the adoption of Purple AI could keep improving and give SentinelOne's growth a nice shot in the arm. The company is already witnessing the positive effects of AI on its growth.

SentinelOne raised its fiscal 2025 revenue growth guidance by a percentage point to 32%. That's higher than Palo Alto's projected revenue growth of 14% for the current fiscal year. Analysts are expecting SentinelOne's revenue to grow in the mid-20% range for the next couple of years as well, according to data from YCharts.

However, there is a good chance that it could exceed that because of increased customer spending on its platform thanks to catalysts such as AI.

The verdict

Unlike Palo Alto, SentinelOne isn't a profitable company yet. However, it is growing its sales at a faster pace. SentinelOne is trading at a lower sales multiple of 9 when compared to Palo Alto's price-to-sales ratio of 16. This makes SentinelOne a more attractive AI stock to buy right now.

Palo Alto is an established name in the cybersecurity industry. But SentinelOne's better growth profile, the rapid adoption of its AI platform, and its cheaper valuation make it a better buy for investors looking to make the most of the growing adoption of AI in the cybersecurity space.

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Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Fortinet, Okta, and Zscaler. The Motley Fool recommends Palo Alto Networks. The Motley Fool has a disclosure policy.