3. SentinelOne, Inc. (NYSE:S)
Market Cap as of March 27: $6.1 billion
Number of Hedge Fund Holders: 47
SentinelOne, Inc. (NYSE:S) operates as a cybersecurity provider. Its Singularity Platform provides AI-powered autonomous threat prevention, detection, and response capabilities throughout an organization’s endpoints, cloud workloads, and identify credentials, resulting in seamless and autonomous protection against a spectrum of cyber threats. The increased sophistication of cyber threats resulted in higher demand for advanced, AI-powered security solutions. SentinelOne, Inc. (NYSE:S)’s core strength revolves around its AI-driven architecture, placing it well to capitalize on this trend. With companies looking for effective ways to detect and respond to threats in real-time, the company’s Singularity Platform can see higher adoption.
Furthermore, SentinelOne, Inc. (NYSE:S)’s investments in emerging technologies such as Purple AI and Cloud Native Security remain in line with broader market trends. Such innovations can fuel increased customer engagement and upsell opportunities, enhancing the company’s revenue growth and market share gains. SentinelOne, Inc. (NYSE:S) remains on track to exceed $1 billion in ARR and revenue this year. For over a decade, the company has patented leading machine learning security models — now, it focuses on pioneering fully autonomous, agentic AI workflows.
Baron Funds, an investment management company, released its Q2 2024 investor letter. Here is what the fund said:
“We are huge believers in the practical uses of AI, and we have several investments in companies that adapt AI models to enhance their products and services. These include companies like GitLab Inc., Sentinelone Inc. (NYSE:S), and Couchbase, Inc., which were among our top detractors at one point in the second quarter (GitLab and SentinelOne recovered significantly in the last week of the quarter). As of the second quarter at least, the market has just not been ready to reward AI companies beyond those providing “picks and shovels.” This led to all three of these companies trading at or near all-time low valuation levels during the quarter. Nevertheless, we believe that in the coming quarters the market will broaden its level of interest from AI hardware to “adaptive AI” investments like GitLab, SentinelOne, and Couchbase. In that scenario, all three of these stocks have significant upside potential.
GitLab is a subscription software company that enables enterprise software developers to develop new software applications rapidly and securely for their firms. GitLab uses AI to help with code suggestions, to check for holes in security, and to automate collaboration among the many developers within an enterprise. GitLab recently launched a product called Duo that we believe will provide revenue upside for the company and enhance the competitiveness of their product of offerings. SentinelOne is a cybersecurity company that provides endpoint protection (a much more advanced version of legacy “anti-virus” software) both at customers’ physical sites and in the cloud. It uses AI to detect anomalous behavior on the network and to automate the remediation of the security flaws that led to the intrusion. Both companies are recurring revenue entities, with high gross margins (78% for SentinelOne and 90% for GitLab) and are growing rapidly (revenue growth of 25% or more). Yet both are trading at or near all-time low valuation levels. SentinelOne slightly beat full-year revenue guidance but guided to an operating loss that was $7.5 million worse than consensus (entirely accounted for by the increased operating expense pulled in from acquisitions – including PingSafe which allows SentinelOne to scan cloud-based workloads without the need to install a software agent). This led to a one-day stock drop of as much as 31% which we attribute purely to market skittishness. By quarter end, SentinelOne’s shares had fully recovered. We believe the company can grow revenues by 25% from 2024 through 2028 and that free cash flow will go up over 10-fold in this period. We see the stock at least doubling from its current price.”
