Cybersecurity Spending Set to Surge 73%: 1 Best-In-Breed Stock to Take Advantage

The cybersecurity industry is evergreen because most companies won't shut off their digital defenses just to save a few dollars. It can be tougher to land large contracts during economic downturns, but the top cybersecurity companies can usually offset that pressure by generating stable recurring revenue from their existing customers.

That market should continue to expand as more frequent, complex, and devastating cyberattacks drive more organizations to boost their cybersecurity budgets. According to Forrester, global cybersecurity spending could surge from $174.8 billion in 2025 to $302.5 billion in 2029. The research firm expects that 73% annual increase to be driven by a growing need to secure new cloud-based deployments and emerging technologies like generative AI applications.

There are plenty of ways to capitalize on that secular trend, but one "best in breed" stock stands out in that crowded market: CrowdStrike (NASDAQ: CRWD). Its stock price has already risen nearly 15 times from its IPO price of $34 in June 2019, but it could soar even higher over the next few years.

Image source: Getty Images.

What sets CrowdStrike apart from its peers?

In the past, most cybersecurity companies installed their services through on-site appliances. These appliances took up space, consumed a lot of power, required constant maintenance, and were expensive to scale as an organization expanded.

That's why CrowdStrike launched a cloud-native platform, Falcon, which didn't require any on-site appliances. Instead, it roped its customers into stickier subscriptions with a starter set of four cloud-based endpoint security modules. It subsequently boosted its revenue per customer by selling additional modules for more add-on services.

How fast is CrowdStrike growing?

CrowdStrike's first-mover advantage in the cloud-native space attracted a lot of customers. It now serves 314 of the Fortune 500 companies and 564 of the Fortune 1,000 companies. From fiscal 2020 to fiscal 2025 (which ended this January), its annual revenue grew at a CAGR of 52% from $481 million to $3.95 billion.

At the end of fiscal 2020, only 33% of its customers had adopted at least five of its cloud modules. That percentage more than doubled to 67% by the end of fiscal 2025.

Its adjusted subscription gross margin rose from 75% to 80%, indicating it wasn't sacrificing its pricing power to gain those new customers. It also turned profitable on a non-GAAP (generally accepted accounting principles) basis in fiscal 2021, and its non-GAAP net income grew at a CAGR of 99% through fiscal 2025.

How long can CrowdStrike maintain its momentum?

In the first half of fiscal 2026, CrowdStrike's revenue rose 21% year over year to $2.27 billion, its adjusted gross margin dipped by a percentage point to 80%, and its non-GAAP net income only increased 1%. That slowdown was caused by several near-term macro and micro challenges.

On the macro front, sticky inflation, elevated interest rates, and other economic challenges drove many companies to rein in their software spending. That made it difficult for CrowdStrike, which already serves most of the largest companies in America, to secure new deals. It also caused its existing customers to adopt fewer new modules.

As for the micro issues, CrowdStrike's reputation was tarnished in July 2024 after a faulty software update knocked many of its top customers offline. To retain those customers, it offered recurring credits and incentives, which reduced its revenue and margins. At the same time, it ramped up its spending on new features to stay competitive.

That mix of slowing growth and declining margins might seem like a red flag, but CrowdStrike expects its net new annual recurring revenue (ARR) growth to accelerate again in the second half of fiscal 2026 as it expands its consumption-based "Falcon Flex" plans (which don't require rigid subscriptions or module purchases) to attract a broader range of customers in this challenging market. Its new generative AI tools could also simplify and streamline Falcon's threat detection services.

Why is CrowdStrike still a good long-term investment?

From fiscal 2025 to fiscal 2028, analysts expect CrowdStrike's revenue and adjusted EPS to grow at a CAGR of 22% and 17%, respectively. Its growth is cooling off as its business matures, but it should still have plenty of room to expand over the next decade.

At $503 per share, CrowdStrike isn't cheap at 108 times next year's adjusted earnings. But its leadership of the cloud-native security space should continue to draw in new customers and impress its investors. That makes it one of the easiest ways to profit from the upcoming surge in cybersecurity spending.

Leo Sun has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends CrowdStrike. The Motley Fool has a disclosure policy.