1 Unstoppable AI stock down 68% to buy Hand Over Fist

Artificial intelligence (AI) is predicted to drive productivity growth in the global economy, but it is also dangerous when placed in the wrong hands. According to a PwC survey earlier this year, 64% of CEOs believe artificial intelligence will increase cybersecurity risks in their organizations.

The cyber security giant Palo Alto Networks (NASDAQ: PANW) recently said it has seen a tenfold increase in email phishing attacks over the past year, as AI allows malicious actors to quickly create realistic content designed to trick corporate employees into handing over sensitive information. So the executives’ fears are well founded.

Navigating this evolving threat landscape requires advanced protection. SentinelOne (NYSE: S) offers a portfolio of cybersecurity software that uses AI-based automation to identify threats and respond to issues.

Shares of SentinelOne are trading down 68% from their all-time high set during the tech frenzy of 2021. Partly because of this drop, the stock is now trading at a very attractive valuation relative to SentinelOne’s cybersecurity peers. Here’s why it could be a buy right now.

Cybersecurity powered by artificial intelligence is the future

SentinelOne developed the Singularity platform, a holistic solution designed to protect cloud networks, employee identities and endpoints. It is packed with AI-based features because the company believes that machines react faster than humans and wants to automate as much of the cybersecurity stack as possible.

Story is a unique feature in Singularity. It autonomously tracks security events and creates a timeline that managers can review so they can quickly trace each incident back to its source. This reduces the time managers spend on manual investigations and allows them to act more quickly. In the event of an attack, they can use the one-click remediation tool to easily bring a network back to its pre-breach state.

Last year, SentinelOne released Purple AI to make Singularity even more powerful. It is an AI-powered virtual assistant that can be prompted with natural language to hunt down threats, summarize incidents and provide remediation assistance. In other words, it can turn almost any employee into a cyber expert. Early adopters of Purple AI have said it speeds up threat hunting and incident investigations by 80 percent.

During the second quarter of fiscal year 2025 (ended July 31), SentinelOne launched a new feature for Purple AI called Alert Summaries. Simply put, the platform autonomously summarizes security alerts — complete with contextual information — so that managers can make more informed decisions about whether urgent attention is needed.

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Investors should expect to see SentinelOne further expand Purple AI over time, as the company says adoption is already exceeding its expectations.

SentinelOne’s revenue is growing rapidly

SentinelOne generated revenue of $199 million in Q2. That was a 33% increase from the year-ago period and also well above management’s forecast of $197 million.

This was much faster than the revenue growth generated by Palo Alto Networks (12%) and CrowdStrike (NASDAQ: CRWD) (32%) in their last quarters. While it’s easier for SentinelOne to grow faster because it’s a smaller company with less revenue, that still suggests it’s taking market share away from its two rivals in the AI-powered cybersecurity space.

SentinelOne also achieved a major profitability milestone in Q2. The company generated a GAAP net loss of $69.2 million, which was an improvement from the $89.5 million it lost in the year-ago period. However, it generated positive non-GAAP net income ($3.5 million) for the first time in its history.

The non-GAAP figures exclude non-cash and one-time expenses such as acquisition costs and stock-based compensation, so SentinelOne has technically not reached “true” profitability. However, the company’s Q2 result was a step in the right direction.

SentinelOne stock looks cheap by a valuation

SentinelOne generated $723 million in revenue over the past four quarters, so based on its $7.7 billion market cap, its stock trades at a price-to-sales (P/S) ratio of 10. 8.

This is significantly below SentinelOne’s average P/S ratio of 27.9 since the company went public in 2021. I don’t suggest it will return there, as this level is quite expensive and skewed by the fact that it traded short at over 100. , which is a ridiculous rating.

However, the 68% drop in SentinelOne’s stock, combined with the company’s continued revenue growth since then, has reduced the P/E ratio to a more reasonable level. In fact, SentinelOne is considerably cheaper than both Palo Alto and CrowdStrike:

Typically, a company that grows its revenue faster than its peers attracts at least an equal valuation and perhaps even a premium one. Perhaps Palo Alto and CrowdStrike get more credit from investors because they are leaders in the cybersecurity industry. However, CrowdStrike is coming off one of the worst outages in modern history, costing its customers an estimated $5.4 billion.

SentinelOne says the event sparked increased interest in its Singularity platform, and that some of the world’s largest enterprises have since evaluated its products (with positive results).

But even aside from CrowdStrike’s woes, SentinelOne should experience growing demand for its platform based solely on the evolving threat landscape. Over time, I believe it will close the current valuation gap with its competitors.

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Anthony Di Pizio has no position in any of the shares mentioned. The Motley Fool has positions in and recommends CrowdStrike and Palo Alto Networks. The Motley Fool has a disclosure policy.

1 Unstoppable AI Stock Drops 68% to Buy Hand Over Fist was originally published by The Motley Fool