Since the Covid-19 pandemic, remote work has become the preferred method of employment for millions, even years after the pandemic has ended. According to the Pew Research Center, around 22 million employed adults in the United States work from home full-time, equal to roughly 14% of all employed adults.
Given this shift, investing in fundamentally robust cloud security stocks, such as Tenable Holdings, Inc. (TENB), Trend Micro Incorporated (TMICY), and Darktrace plc (DRKTY), could be advantageous. Before diving into the stocks, let's first understand the current state of the cloud security industry.
As remote work continues to rise, securing the data stored in cloud-based systems has become essential to fend off increasing cyberattacks and threats. The recent software glitch at CrowdStrike Holdings, Inc. (CRWD), which resulted in a major tech outage and left millions of Windows users locked out of their devices, highlights the need for advanced cybersecurity.
That being said, while organizations are swiftly adopting new defenses, there is still ample opportunity for innovation in strengthening cybersecurity measures. Accordingly, the increasing threat of cybercrime has made governments and organizations invest billions in beefing up the digital security.
The Biden-Harris administration has proposed $13 billion in cybersecurity funding across civilian departments and agencies for fiscal 2024. Additionally, the fiscal 2025 proposal allocates $3 billion to the Cybersecurity and Infrastructure Security Agency (CISA), marking a $103 million increase from its current budget.
Thus, the adoption of cloud security and other cybersecurity measures has become crucial for organizations to prevent data theft and breaches. According to Mordor Intelligence, the cloud security software market is projected to reach $102.59 billion by 2029, expanding at a CAGR of 17.6%.
In light of these encouraging trends, let’s examine the fundamentals of the three cloud security stock picks, starting with #3.
Stock #3: Tenable Holdings, Inc. (TENB)
TENB offers exposure management solutions for managing cybersecurity risk in information technology (IT) environments. Its solutions include Tenable Vulnerability Management, Cloud Security, Identity Exposure, Web App Scanning, Lumin Exposure View, Attack Surface Management, Security Center, and more.
On June 6, TENB announced a definitive agreement to acquire Eureka Security, Inc., a provider of data security posture management (DSPM) for cloud environments. The strategic move would enhance TENB's capability to prioritize cloud risks effectively by integrating advanced DSPM technology.
This underscores TENB's commitment to innovation in cybersecurity, positioning the company at the forefront of cloud security solutions.
On June 5, TENB announced a strategic alliance with Deloitte to offer advanced exposure management solutions, including vulnerability management, cloud security, and operational technology security. Deloitte will integrate TENB’s One Exposure Management Platform, Cloud Security, and OT Security into its cyber solutions portfolio.
The strategic alliance aims the use of preventive security measures by organizations to better understand their cyber risks and help resolve issues, in turn increasing TENB’s market exposure and opening its doors for new customers.
For the fiscal 2024 second quarter that ended June 30, 2024, TENB’s revenue increased by 13.4% year-over-year to $221.24 million. Its gross profit came in at $172.44 million, showing an increase of 13.8% year-over-year.
Moreover, the company’s non-GAAP income from operations was reported to be $42.78 million, a 41.6% increase from the previous year’s quarter. In addition, TENB’s non-GAAP net income was $38.16 million or $0.31 per share, a 45.3% and 40.9% year-over-year increase.
Street expects TENB’s revenue and EPS for the fiscal third quarter ending September 2024 to increase 10.8% and 28.4% year-over-year to $223.21 million and $0.30, respectively. Plus, the company has topped the consensus revenue and EPS estimates in each of the trailing four quarters, which is impressive.
Shares of TENB have gained 11.6% over the past nine months, closing the last trading session at $41.60.
TENB’s POWR Ratings reflect its robust prospects. The stock has an overall rating of B, which translates to a Buy in our proprietary system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
TENB is ranked #8 out of 23 stocks in the B-rated Software – Security industry. It has an A grade for Growth.
Click here to see TENB’s Value, Momentum, Sentiment, Quality, and Stability ratings.
Stock #2: Trend Micro Incorporated (TMICY)
Based in Tokyo, Japan, TMICY specializes in development and sale of computer security products and services. The company's product offering includes personal computer (PC) clients, local area network (LAN) servers, Internet servers, and more.
On August 7, the company launched a new solution, which was included in TMICY’s Vision One™ Sovereign Private Cloud — powered by NVIDIA Corporation (NVDA) NIM microservices, part of the NVDA AI Enterprise software platform. This would allow organizations to boost the potential of the AI era while maintaining business resilience.
TMICY, through this development, aims to pioneer AI for security and security for AI to ensure that any team can securely innovate without elevating risk and implement new technology appropriately to improve business resilience.
On August 6, TMICY announced its partnership with GMI Cloud, a leading AI-native GPU cloud provider known for its vertically integrated platform optimized for Artificial Intelligence (AI) and Machine Learning (ML) workloads. The collaboration aims to bolster TMICY's growth by significantly enhancing its capabilities in secure AI infrastructure.
TMICY’s net sales for the six months that ended June 30, 2024, stood at ¥134.53 billion ($913.56 million), up 12.5% over the prior-year quarter. Its operating income increased 34.4% year-over-year to ¥24.44 billion ($165.93 million).
In addition, net income attributable to owners of the parent rose 50.9% from the prior year quarter to ¥17.90 billion ($121.52 million).
Analysts expect TMICY’s revenue for the fiscal third quarter (ending September 2024) to increase 9.9% year-over-year to $466.05 million. Its EPS for the same quarter is expected to register a robust growth of 907.1% from the previous year’s period, settling at $0.50. Plus, the company has surpassed its consensus revenue estimates in three of four trailing quarters.
TMICY’s stock has gained 16.3% over the past nine months and 24.4% over the past month, closing the last trading session at $54.78.
It’s no surprise that TMICY has an overall rating of B, equating to a Buy in our POWR Ratings system.
The stock also has a B grade for Stability and Quality. It is ranked #2 out of 23 stocks in the same industry.
Beyond what is stated above, we’ve also rated TMICY for Growth, Value, Momentum, and Sentiment. Get all TMICY ratings here.
Stock #1: Darktrace plc (DRKTY)
Headquartered in Cambridge, United Kingdom, DRKTY is an autonomous cybersecurity artificial intelligence (AI) company focused on providing AI solutions for enterprises. The company’s portfolio includes Network, Cloud, Endpoint, Zero Trust, Email, Software as a Service (SaaS), and Operational Technology (OT) security.
On June 6, DRKTY launched Darktrace Managed Detection & Response (MDR), combining its leading detection and response capabilities across enterprises with the expertise of its global analyst team. The initiative strengthens DRKTY's growth by empowering organizations with AI-driven threat containment and expert alert management.
It would enable DRKTY to expand its market reach and solidify its position as a leader in advanced cybersecurity solutions, driving innovation and client satisfaction in the evolving security landscape.
For the fiscal 2024 first half that ended December 31, 2023, DRKTY’s revenues increased 27.4% year-over-year to $330.30 million. Its gross profit grew 26.8% from the year-ago value to $294.88 million. In addition, the company’s adjusted EBITDA rose 87% from the prior year’s period to $84.52 million.
Shares of DRKTY have gained 61.8% over the past year and 76.9% over the past six months to close the last trading session at $7.60.
DRKTY’s POWR Ratings reflect strong prospects. The stock has an overall rating of A, translating to a Strong Buy in our proprietary rating system.
It has an A grade for Quality and a B for Growth and Stability. DRKTY has topped the 23-stock Software – Security industry.
Beyond what we stated above, we also have given DRKTY grades for Value, Momentum, and Sentiment. Get all the DRKTY’s ratings here.
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TMICY shares were trading at $54.78 per share on Wednesday afternoon, down $1.27 (-2.27%). Year-to-date, TMICY has gained 2.62%, versus a 15.05% rise in the benchmark S&P 500 index during the same period.
About the Author: Aanchal Sugandh
Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.
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