Better Cybersecurity Stock: Palo Alto Networks or CrowdStrike?

From a business model standpoint, I don’t think there’s any real winner here, as both companies are actively following the same formula.

Winner: Tie.

During its last reported quarter, CrowdStrike delivered total revenue of $1 billion, up 29% year over year. However, revenue can be inconsistent for both of these companies, so each also reports its annual recurring revenue (ARR), which is a far more useful metric. CrowdStrike’s ARR was $4.02 billion in its fiscal 2025 Q3 (which ended Oct. 31), up 27% year over year.

The story at Palo Alto is a tale of two businesses. Its next-gen platform, which most directly compares to CrowdStrike’s offering, is booming. In its fiscal 2025 Q1 (which ended Oct. 31) next-gen ARR rose 40% year over year to $4.5 billion, edging out CrowdStrike in total ARR and growth rate. However, Palo Alto’s total gains are being dragged down by its legacy business. For the quarter, companywide revenue only grew by 14% year over year to $2.1 billion.

It is difficult to pick a winner in this category because Palo Alto is growing more slowly overall, but more quickly in the area where it matters the most.

Winner: Tie.

In terms of profitability, Palo Alto has a clear edge, as it is the older and more mature business. This is one area where its legacy business helps, as it produces a profit. CrowdStrike is not currently profitable.

CrowdStrike has a lot of room to improve on the profitability front, but Palo Alto is the winner right now.

Winner: Palo Alto Networks.

Even the best company can still be a bad investment if purchased at the wrong price. Comparing these two on valuation isn’t easy, as CrowdStrike isn’t profitable. However, it is free cash flow positive, so we can use that as a comparison point.

From that perspective, Palo Alto Networks trades at essentially half the valuation of CrowdStrike.

This means Palo Alto is by far the cheaper stock. One thing that helps Palo Alto out here is that its free cash flow margins are better than CrowdStrike’s. It has a 37% free cash flow margin over the past 12 months versus CrowdStrike’s 29%. But even if CrowdStrike’s margin improved to the same levels as Palo Alto’s, it would still be valued at 72 times free cash flow.

As a result, it’s easy to declare a winner here.

Winner: Palo Alto Networks.

With a score of two wins and two ties, Palo Alto edges out CrowdStrike. However, I think there’s more to the story than that, as CrowdStrike having a best-in-class offering should be a strong consideration. Palo Alto’s slower overall growth rate could also be seen as a drawback.

This could easily lead investors to come to a different conclusion, but I still think both cybersecurity stocks are great, and owning both makes sense.

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Keithen Drury has positions in CrowdStrike. The Motley Fool has positions in and recommends CrowdStrike. The Motley Fool recommends Gartner and Palo Alto Networks. The Motley Fool has a disclosure policy.

Better Cybersecurity Stock: Palo Alto Networks or CrowdStrike? was originally published by The Motley Fool