Cyber Defense Stocks Become Popular

I don’t want to state the obvious because the obvious is staring us straight in the face, but the likelihood of global conflict escalating in the short term is surging.

Explosive global turmoil is great for cybersecurity software stocks, and that is why I started piling into these gems of tech companies today.

I first added some Palo Alto Networks, Inc. (PANW), then helped myself to a serving of Datadog, Inc. (DDOG), then another bit of Cloudflare, Inc. (NET).

Most of you have heard of the first company, PANW, because it has been around for quite a while.

However, what about the latter NET? Let’s look into why this is a good investment.

NET boasts leadership in the cloud services and cybersecurity markets.

First, Cloudflare’s innovative business model positions it at the forefront of the digital transformation wave.

The company provides a global content delivery network (CDN) and cloud-based security solutions that enhance website performance and protect against cyber threats. With data centers in over 300 cities worldwide, Cloudflare ensures low-latency access for nearly 95% of the global internet population within 50 milliseconds.

This edge computing capability is increasingly critical as businesses shift to cloud-based infrastructure, making Cloudflare an essential partner for enterprises seeking speed, reliability, and security.

Its freemium model, offering free services to attract users and upselling premium features, has successfully grown its customer base to over 3.2 million properties, including 151,000 paying customers.

Second, Cloudflare operates in a massive and expanding total addressable market (TAM), estimated at $135 billion by 2024, up from $32 billion in 2018.

This growth reflects the company’s expansion beyond traditional CDN and security services into network services, zero-trust security, and developer tools like Workers AI.

The rising demand for cybersecurity, driven by a reported 76 billion cyberattacks daily, mitigated by Cloudflare’s network, and the emergence of edge AI applications, further bolsters its TAM.

The company’s recent deployment of NVIDIA GPUs at the edge highlights its strategic move into AI inference workloads, positioning it to capitalize on the AI boom.

The company’s net retention rate, a key metric of customer expansion, improved to 111%, indicating that existing clients are increasing their spending.

Large customers, defined as those spending over $100,000 annually, now account for 69% of revenue, up from 66% last year, reflecting strong enterprise adoption.

NET’s competitive moat and strategic partnerships enhance its long-term prospects. Its global network, built on commodity hardware and smart software, is difficult to replicate, giving it an edge over competitors like Amazon CloudFront, Microsoft Azure, and Google Cloud.

Partnerships with companies like Shopify, which relies on Cloudflare for e-commerce scalability, and JD.com in the Asia-Pacific region, where revenue growth has accelerated to 43%.

NET is still growing revenue by about 30%, and that is hard to find in today’s world.

It’s no surprise that this 30% is still quite common in the subsector of cybersecurity software.

Software is integral to business in today’s cutthroat world, and getting the strongest protective software is important for a corporation otherwise, hackers will take you for a ride to the bank.

Don’t go to a gunfight with a knife.

I expect cybersecurity companies to become bigger players in the tech world moving forward.