Top 10 Growth Stocks in Cybersecurity

In this article, we will be taking a look at the top 10 growth stocks in cybersecurity.

We’ve reported before that a major growth driver in the cybersecurity industry is the fact that cyber-attacks are consistently growing across the globe. Companies are thus wracked by a sense of anxiety regarding the security of their data, which makes them likelier to invest in better, and often more expensive, cybersecurity products and services. This anxiety then translates into profits for cybersecurity companies, enabling them to consistently grow their revenues and profits.

According to a Nasdaq Investment Intelligence report, the total number of major cyber-attacks reported globally was higher in almost every month of 2020 compared to the same months in 2019 and 2018. Of the attacks in 2020, 40% were carried out using malware and 15% through account hijacking. With this growing trend of cyber-attacks, especially those targeting American businesses, the US government considered cybersecurity an important national security issue. Resultantly, the Biden administration released its National Cybersecurity Strategy this March to make the American digital ecosystem safer for all. The strategy is built on the foundation of five pillars: defending critical infrastructure, disrupting and dismantling threat actors, shaping market forces to drive security and resilience, investing in a resilient future, and forging international partnerships to pursue shared goals.

With increased governmental support for the cybersecurity sector, companies operating in this sector, like CrowdStrike Holdings, Inc. (NASDAQ:CRWD), Fortinet, Inc. (NASDAQ:FTNT), and Palo Alto Networks, Inc. (NYSE:PANW) are set to benefit and reach new highs. According to a McKinsey report published in October, around $150 billion were spent on cybersecurity in 2021, representing a growth of 12.4% annually. McKinsey estimates that at this rate, the cybersecurity sector represents a total addressable market of $1.5 trillion to $2 trillion. In such an environment, cybersecurity stocks are steadily becoming high-priority investments. This is why we have compiled a list of the top cybersecurity growth stocks to invest in today.

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Let’s now take a look at the top 10 growth stocks in cybersecurity.

Our Methodology

We have selected cybersecurity growth stocks by going through the top holdings of several cybersecurity exchange-traded funds (ETFs), such as the First Trust Nasdaq Cybersecurity ETF (NASDAQ:CIBR) and the ETFMG Prime Cyber Security ETF (NYSEMKT:HACK). These stocks have year-over-year revenue growth rates above 25%, and these revenue growth rates are among the highest in the cybersecurity sector. The stocks are ranked on the basis of these revenue growth rates, from the lowest to the highest rate. We have also used Insider Monkey’s hedge fund data for the fourth quarter, when 943 hedge funds were tracked, to show the popularity of these stocks among elite hedge funds today.

Top Growth Stocks in Cybersecurity

10. Palo Alto Networks, Inc. (NYSE:PANW)

Revenue Growth Over the Past Year as of March 9: 26.73%

Number of Hedge Fund Holders: 85

Palo Alto Networks, Inc. (NYSE:PANW) is a systems software company based in Santa Clara, California. The company provides cybersecurity solutions across the globe. It offers products such as firewall appliances and software, Panorama, a security management solution to control firewall appliances and software, and more.

An Outperform rating was reiterated on Palo Alto Networks, Inc. (NYSE:PANW) shares on February 23 by Credit Suisse analysts. The firm also raised its price target on the shares from $225 to $235.

Palo Alto Networks, Inc. (NYSE:PANW) has been performing well in 2023, having increased the number of cybersecurity product deals worth under $1 million by 19% year-over-year in the second quarter of 2023. The company also increased the number of its deals worth under $10 million by 144% year-over-year in the same quarter. Palo Alto Networks, Inc. (NYSE:PANW) ended this quarter with $6.1 billion in cash, compared to $3.7 billion in debt. This financial position allowed the company to repurchase about $250 million worth of stock. For the third quarter, the company forecasts revenue growth of 22-25% year-over-year, with expected revenue of $2.2 billion to $2.25 billion.

Citadel Investment Group was the largest shareholder in Palo Alto Networks, Inc. (NYSE:PANW) at the end of the fourth quarter, holding 3.6 million shares. In total, 85 hedge funds were long the stock, with a total stake value of $3.3 billion.

ClearBridge Investments, an investment management firm, mentioned Palo Alto Networks, Inc. (NYSE:PANW) in its fourth-quarter 2022 investor letter. Here’s what the firm said:

“Stock selection within the IT sector was the main detractor from relative performance during the period. In addition to rate hikes compressing the multiples of longerduration, high growth companies, recession concerns were also a headwind. IT companies which had proven resilient against customer budget reductions earlier in the year are starting to feel the impact of spending slowdowns as companies further scrutinize expenses in light of economic uncertainty. For example, Palo Alto Networks, Inc. (NASDAQ:PANW), which provides enterprise security solutions including next-generation firewalls and threat detection software, faced a challenging environment as customers delayed purchases and orders. However, we remain convinced of the company’s long-term growth prospects as an industry leader in a critical field and as digital attacks and ransomware continue to grow.”

Palo Alto Networks, Inc. (NYSE:PANW), like CrowdStrike Holdings, Inc. (NASDAQ:CRWD), Fortinet, Inc. (NASDAQ:FTNT), and Palo Alto Networks, Inc. (NYSE:PANW), is among the top performers in the cybersecurity space today.

9. Rapid7, Inc. (NASDAQ:RPD)

Revenue Growth Over the Past Year as of March 9: 27.96%

Number of Hedge Fund Holders: 26

Rapid7, Inc. (NASDAQ:RPD) is a provider of cybersecurity solutions based in Boston, Massachusetts. The company offers a cloud-native insight platform offering customers the ability to create and manage analytics-driven cybersecurity risk management programs.

Shrenik Kothari at Baird holds an Outperform rating on Rapid7, Inc. (NASDAQ:RPD) shares as of February 9. The analyst also placed a $56 price target on the stock.

During the first nine months of 2022, Rapid7, Inc.’s (NASDAQ:RPD) revenue was 30.5% higher than it was during the same period the year before. In the fourth quarter of 2022, the company’s revenue was $184.48 million, beating estimates by $4.89 million. Analysts see an upside potential of 3.39% on Rapid7, Inc. (NASDAQ:RPD) shares as of March 9. The average price target on the stock is $51, with a high forecast of $60.

In total, 26 hedge funds were long Rapid7, Inc. (NASDAQ:RPD) in the fourth quarter. Their total stake value was $254 million.

Chartwell Investment Partners, an affiliate of Carillon Tower Advisers, an investment management company, mentioned Rapid7, Inc. (NASDAQ:RPD) in its third-quarter 2022 investor letter. Here’s what the firm said:

“The Fund’s largest underperformer was Rapid7, Inc. (NASDAQ:RPD). Rapid7 is a software company focused on enterprise cybersecurity. The company reported a mixed second quarter, meeting expectations for revenues and margins. The management team’s commentary was cautious however, as they stated that the current macro environment is leading to an elongated sales cycle, particularly in Europe. Also an important segment of their offerings, Vulnerability Management, is showing a modest growth deceleration. Overall the entire software sector is under pressure as valuation is being compressed across the board. Given that cybersecurity software companies still have the best visibility within the software industry going forward, and since we want to maintain some software exposure within the portfolio, we are maintaining our position in Rapid7.”

8. Fortinet, Inc. (NASDAQ:FTNT)

Revenue Growth Over the Past Year as of March 9: 32.17%

Number of Hedge Fund Holders: 47

Fortinet, Inc. (NASDAQ:FTNT) is an information technology company providing cybersecurity and networking solutions across the globe. It is based in Sunnyvale, California. Some of the products it offers include the FortiGate hardware and software licenses providing security and networking functions.

On February 14, Goldman Sachs’ Gabriela Borges initiated coverage of Fortinet, Inc. (NASDAQ:FTNT) shares with a Buy rating and a $73 price target.

Fortinet, Inc. (NASDAQ:FTNT) is currently among the top-performing companies in the cybersecurity sector, demonstrating consistent growth. In 2023, the company estimated its total addressable market (TAM) to be $153 billion. This means the company’s products can generate this amount of revenue if it managed to obtain 100% of the market share for these products. In the fourth quarter, Fortinet, Inc. (NASDAQ:FTNT) reported revenues of $1.28 billion. The company’s year-over-year revenue growth of 32.17% was mainly driven by a 42.5% increase in product revenues.

Out of the 943 hedge funds tracked by Insider Monkey in the fourth quarter, 47 funds were long the stock, with a total stake value of $1.9 billion. Viking Global was the largest shareholder in the company, holding 7.1 billion shares.

7. Splunk Inc. (NASDAQ:SPLK)

Revenue Growth Over the Past Year as of March 9: 36.66%

Number of Hedge Fund Holders: 52

Splunk Inc. (NASDAQ:SPLK) is a provider of software and cloud solutions in the US and internationally. The company is based in San Francisco, California. It provides cybersecurity products such as Splunk Solutions, under which fall Splunk Security solutions that enable cybersecurity teams to streamline their security operations.

Keith Bachman at BMO Capital holds an Outperform rating on Splunk Inc. (NASDAQ:SPLK) shares as of March 2. The analyst also raised his price target on the stock from $100 to $113.

The company’s revenue in the fourth quarter was $1.25 billion, beating analyst expectations by $177 million. Splunk Inc.’s (NASDAQ:SPLK) annual recurring revenue also increased by 15.5% year-over-year, driven by cloud ARR growth. This revenue stream increased by 33% to $1.8 billion. The company has also managed to grow its customer base, through which it generated over $1 million in ARR in the fourth quarter.

Splunk Inc. (NASDAQ:SPLK) was found among the 13F holdings of 52 hedge funds in the fourth quarter. Their total stake value was $1.2 billion.

Investment management company Vulcan Value Partners mentioned Splunk Inc. (NASDAQ:SPLK) in its fourth-quarter 2022 investor letter. Here’s what the firm said:

“We exited our position in Splunk Inc. (NASDAQ:SPLK) during the quarter. A number of developments caused us to question whether Splunk’s competitive position was eroding. Splunk is a premium product, and less expensive alternatives have made progress increasing the quality of their offerings. Our research has confirmed Splunk is losing market share to these players, including Microsoft’s Sentinel. Sentinel has made a number of improvements over time and integrates with Microsoft’s other products. Notably, both of Splunk’s Co-Presidents left Splunk in 2022 to work for Microsoft. Splunk’s Chief Financial Officer left a few months later. Before the CFO left, Splunk lowered its annual recurring revenue guidance for the year. While the company attributed the change to the macro environment, we were unable to differentiate to what extent the slowdown was caused by the macro environment versus competitive factors. Based on our primary research and competitive concerns, we no longer had sufficient confidence in Splunk’s value stability. Splunk no longer qualifies for investment, and we exited the position.”

6. Okta, Inc. (NASDAQ:OKTA)

Revenue Growth Over the Past Year as of March 9: 42.92%

Number of Hedge Fund Holders: 59

Okta, Inc. (NASDAQ:OKTA) is an internet services and infrastructure company based in San Francisco, California. The company offers identity solutions and other products and services used to manage and secure identities.

BMO Capital’s Keith Bachman holds an Outperform rating on Okta, Inc. (NASDAQ:OKTA) shares as of March 2. The analyst also raised his price target on the shares from $80 to $94.

In the fourth quarter, Okta, Inc. (NASDAQ:OKTA) reported revenues of $510 million, beating analyst estimates by $20.55 million. The company has a net customer retention rate of 120% as of this March, showing that customers using its products are continuing to use them and spend more on them. The company’s customer base increased by 17% year-over-year in the fourth quarter, numbering then at 17,6000.

Citadel Investment Group was the largest shareholder in Okta, Inc. (NASDAQ:OKTA) at the end of the fourth quarter, holding 2.1 billion shares. In total, 59 hedge funds were long the stock, with a total stake value of $1.3 billion.

Okta, Inc. (NASDAQ:OKTA), like CrowdStrike Holdings, Inc. (NASDAQ:CRWD), Fortinet, Inc. (NASDAQ:FTNT), and Palo Alto Networks, Inc. (NYSE:PANW), is one of the most popular cybersecurity stocks among elite hedge funds today.

5. Darktrace plc (OTC:DRKTF)

Revenue Growth Over the Past Year as of March 9: 45.73%

Number of Hedge Fund Holders: N/A

Darktrace plc (OTC:DRKTF) is a developer of cyber-threat defense technology solutions in the UK, US, Europe, and internationally. The company is based in Cambridge, UK.

On January 25, Darktrace plc (OTC:DRKTF) shares were upgraded from Equal Weight to Overweight by Morgan Stanley’s George Webb.

Between 2021 and 2022, Darktrace plc (OTC:DRKTF) saw its revenue increase by almost 50% from $285 million to $415 million. At present, the company’s revenue growth rate is amongst the highest in the cybersecurity sector, standing at 45.7% year-over-year as of March 9. In 2022, the company’s gross profit also came in at $370.6 million.

4. Cloudflare, Inc. (NYSE:NET)

Revenue Growth Over the Past Year as of March 9: 48.57%

Number of Hedge Fund Holders: 40

Cloudflare, Inc. (NYSE:NET) is a cloud services provider based in San Francisco, California. The company provides an integrated cloud-based security solution.

Andrew Nowinski at Wells Fargo holds an Overweight rating on Cloudflare, Inc. (NYSE:NET) shares as of February 13.

Over the past few years, Cloudflare, Inc. (NYSE:NET) has maintained its net revenue retention rate consistently above 100%. In 2020, it stood at 114%, and in 2021, it stood at 121%. This indicates that the company generated more revenue from existing customers. In the fourth quarter, the company’s revenue stood at $274.7 million, beating estimates by $632,420.

There were 40 hedge funds long Cloudflare, Inc. (NYSE:NET) in the fourth quarter, with a total stake value of $635 million.

3. Zscaler, Inc. (NASDAQ:ZS)

Revenue Growth Over the Past Year as of March 9: 56.83%

Number of Hedge Fund Holders: 42

Zscaler, Inc. (NASDAQ:ZS) is a systems software company based in San Jose, California. The company operates a cloud security company.

A Buy rating was reiterated on Zscaler, Inc. (NASDAQ:ZS) shares on March 3 by T. Michael Walkley at Canaccord.

Zscaler, Inc. (NASDAQ:ZS) has posted revenue growth consistently for a while, In 2022, the company grew revenues by 62% year-over-year. In 2021, revenues grew by 56% year-over-year, and in 2020, they grew up 42% year-over-year. This shows a clear and consistent trend of revenue growth from the company, representing its financial strength even today.

Zscaler, Inc. (NASDAQ:ZS) was found among the 13F holdings of 42 hedge funds in the fourth quarter. Their total stake value was $540 million.

Artisan Partners, an investment management company, mentioned Zscaler, Inc. (NASDAQ:ZS) in its fourth-quarter 2022 investor letter. Here’s what the firm said:

“Zscaler, Inc. (NASDAQ:ZS) provides cloud-based Internet security solutions. In the quarter, it announced 54% revenue growth and expected growth of nearly 40% in 2023 (ahead of expectations). Despite solid fundamental momentum, shares have underperformed this year as investors have grown concerned about slowing demand for enterprise software as the broader global economy slows. We believe the dual trends of rising security vulnerability and increased enterprise digitization will lead to sustained demand, even in a recession. Cybersecurity remains a top concern for businesses and governments alike as cyberattacks can have devastating financial and reputational consequences. Meanwhile, managing the security needs of legacy on-premise applications, a growing number of cloud-based applications (Office 365, Salesforce, etc.) and a more remote workforce (versus pre-pandemic) make operating IT infrastructures increasingly complex. Give the attractive long-term outlook and depressed valuations, we added to the position.”

2. CrowdStrike Holdings, Inc. (NASDAQ:CRWD)

Revenue Growth Over the Past Year as of March 9: 58.29%

Number of Hedge Fund Holders: 66

CrowdStrike Holdings, Inc. (NASDAQ:CRWD) is a provider of cloud-delivered protection across endpoints and cloud workloads, identity, and data. The company is based in Austin, Texas.

Taz Koujalgi at Wedbush holds an Outperform rating on CrowdStrike Holdings, Inc. (NASDAQ:CRWD) shares as of March 8.

CrowdStrike Holdings, Inc. (NASDAQ:CRWD) is a leader in the cybersecurity space. As of this March, its customers include about 556 of the Global 2000 and 15 of the top 20 US banks. The company’s market share in endpoint security software stood at 17.7% as of March 8.

Our hedge fund data for the fourth quarter shows 66 funds long CrowdStrike Holdings, Inc. (NASDAQ:CRWD). Their total stake value was $1.6 billion.

Baron Funds, an investment management company, mentioned CrowdStrike Holdings, Inc. (NASDAQ:CRWD) in its fourth-quarter 2022 investor letter. Here’s what the firm said:

“CrowdStrike Holdings, Inc. (NASDAQ:CRWD) is a market leading cloud-native cybersecurity vendor. Shares declined on the back of a weaker-than-expected earnings report, in which revenue beat Street expectations but net new annual recurring revenue (ARR) slightly missed consensus due to elongated sales cycles that impacted deals with small- and medium-sized businesses (SMB) and phased start dates with larger customers. For example, instead of 100,000 end-points starting on day 1, start 75,000 on day 1 and 25,000 six months later. For fuller context, in the fiscal third quarter, revenue grew 53%, ARR grew 54%, net new ARR was $198 million vs. expectations about $20 million higher, and the business generated 30% FCF margins. Accounting for the net new ARR miss, the company offered conservative initial guidance for fiscal year 2024 (ending January 2024), with ARR growth in the low 30s, subscription revenue growth in the low-to-mid 30s, and FCF margins around the 30% level. While this was a painful reset, CrowdStrike noted its SMB win rates had improved, enterprise win rates remained constant, its gross and net retention rates are at best-in-class levels, and its emerging products were experiencing rapid adoption. Despite short-term weakness, Morgan Stanley’s fourth quarter CIO survey showed security software projects remained the top CIO priority, and our research continues to indicate that CrowdStrike is one of the few true platforms in the security space.”

1. SentinelOne, Inc. (NYSE:S)

Revenue Growth Over the Past Year as of March 9: 114%

Number of Hedge Fund Holders: 38

SentinelOne, Inc. (NYSE:S) is a cybersecurity provider in the US and globally. The company is based in Mountain View, California.

On February 9, T. Michael Walkley at Canaccord initiated coverage of SentinelOne, Inc. (NYSE:S) shares with a Buy rating.

Between October 2021 and October 2022, SentinelOne, Inc.’s (NYSE:S) gross profit increased from $98 million to $233 million, representing a growth of 138% year-over-year. The company’s customers also increased by 55% over the same period.

A total of 38 hedge funds were long SentinelOne, Inc. (NYSE:S) in the fourth quarter, with a total stake value of $731 million.

See also 10 Best Cybersecurity Stocks To Buy Under $20 and 17 High Growth Low PE Stocks.

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Disclosure: None. Top 10 Growth Stocks in Cybersecurity is originally published at Insider Monkey.