Motley Fool’s Pitch: The “the next major ai breakthrough Opportunity”

Wondering what Motley Fool Stock Advisor is hinting at? Uncover this hidden investment prospect that might have the power to transform your financial future.

AI-driven drug discovery has been making waves in the biotech sector, with notable stocks like Exscientia, AbCellera, Schrödinger, Absci, and Recursion drawing significant attention. Meanwhile, some investors remain cautious about BioXcel Therapeutics, an early AI-focused drug discovery IPO predating COVID. Additionally, companies such as Lantern Pharma, Benevolent AI, Relay Therapeutics, and Predictive Oncology are increasingly positioning themselves within the AI narrative. We’ve analyzed many of these names before and will likely revisit them in the future.

This time, the focus is on cybersecurity—not biotech. Motley Fool Shares Advisor’s latest ad teases us with…

 I accidentally revealed the industry, it is cybersecurity.

The Fool recommends four distinct publicly traded companies in the cybersecurity sector.

CrowdStrike (CRWD) has long been a Motley Fool favorite, recognized for its scalability in the cybersecurity sector. With strong revenue and profits growth expected in the coming years, it remains a key player in the industry. However, its valuation is lofty, currently trading at 100 times projected future earnings. Meanwhile, its main competitor, PANW, trades at roughly 50 times forward earnings but has a slower projected growth rate. At present, not a single one of the major cybersecurity firms appear to be trading at a bargain.

We have received some hints regarding their runner-up choice. as well.

Microsoft’s (MSFT) cybersecurity division crossed the $20 billion annual revenue milestone reached in 2022. While it remains a substantial contributor, it’s not the primary engine of the company’s growth. With total revenue reaching approximately $225 billion and net income hitting 82 billion dollars last year, Microsoft is far from a dedicated cybersecurity company poised to benefit directly from increased cybersecurity expenditure. For reference, its cybersecurity revenue is about half that of Microsoft Office but surpasses its Gaming and LinkedIn segments.

Microsoft stands as one of the world’s largest and most profitable companies, boasting strong margins, consistent 10-15% annual revenue growth, and an impressive 20% earnings growth per year over the past 5 years. It holds dominant positions in corporate software and cloud computing, trailing only Amazon in the latter. However, its valuation remains steep, trading at roughly 35 times forward earnings offering a dividend return below 1%. While betting against Microsoft is rarely a wise move, its $3 trillion market cap and a trailing P/E ratio of 38 leave me hesitant to buy at current levels.

What might suggest two more stocks that are worth considering?

The specific stocks featured in the “special report” promo remain a mystery, as no clear hints were provided. However, given Motley Fool’s past recommendations, it’s reasonable to speculate that some of their cybersecurity favorites could be included. They’ve previously highlighted stocks like PANW, Cloudflare, Fortinet, Okta, Zscaler and Cisco Systems. If history is any guide, Fortinet, Zscaler might be the ones becoming part of crowdstrike in portfolio of four stocks, but that’s merely an educated guess.

Two notable ETFs in the cybersecurity space are CIBR, HACK. Both funds hold comparable investment holdings and have largely mirrored the S&P 500’s performance throughout the last ten years. However, HACK has struggled more recently. Despite strong corporate demand for cybersecurity solutions, the sector hasn’t delivered exceptional returns overall. This could be due to intense competition and periodic setbacks among major players, such as slower growth or customer losses. Interestingly, an overweight position in cybersecurity wouldn’t have provided any clear advantage over the broader market in the past ten years.

Here’s a three-year chart illustrating the broad performance range in this sector — sentinelone, okta, zscaler trailing positioned at the lowest point, while PANW, cyberark lead the pack, with fortinet and crowdstrike landing near the middle. this isn’t a complete list of cybersecurity equities, but it provides a representative snapshot

Do you got any top picks related to AI or cybersecurity? Share your thoughts by commenting below. Thank you for reading!