Expanding IoT And AI Platforms Will Transform Cybersecurity

Key Takeaways

• Explosive adoption of AI-driven security and platform innovation positions SentinelOne for outsized revenue acceleration, rapidly expanding its addressable market and enterprise deal sizes.
  
• Unique public sector footholds and industry-leading automation enable margin gains, boosting free cash flow and paving the way for dominant, long-term growth.
  
• Intensifying competition, platform consolidation trends, and challenges in maintaining differentiation could threaten SentinelOne's growth, margins, and long-term profitability amid rising market and technological pressures.

Catalysts

Operates as a cybersecurity provider in the United States and internationally.

• Analyst consensus expects robust ARR and revenue growth as SentinelOne becomes a comprehensive AI-native platform, but this could be greatly understated: rapid adoption of Purple AI and newly launched Agentic AI capabilities are at an inflection point, positioning the company for outsized revenue and ARR acceleration as AI-native security rapidly becomes the global enterprise standard.
  
• While analysts expect scale-driven margin improvement from AI-powered innovation and automation, the potential is far greater-early indicators from Purple AI and Hyperautomation suggest a step-function decline in marginal costs, increasing net margins and free cash flow well beyond current forecasts as large customers broadly adopt autonomous workflows across cloud and endpoint environments.
  
• SentinelOne's deepened FedRAMP High authorizations across multiple products uniquely positions it as the dominant AI security provider to U.S. federal agencies; with only nascent penetration and expanding compliance mandates, public sector ARR is primed for exponential growth and multi-year contract wins, accelerating long-term revenue and earnings.
  
• The proliferation of IoT and connected devices is leading to a massive, underappreciated expansion of SentinelOne's total addressable market, as rapid endpoint and cloud adoption outpaces legacy vendors' ability to adapt-this wave will drive substantial upside to platform adoption, resulting in far higher ARR per customer and unlocking hypergrowth in enterprise deal sizes.
  
• The convergence of security operations onto unified, real-time, AI-infused platforms-where SentinelOne is a clear innovator-will rapidly displace fragmented legacy architectures; as this paradigm shift accelerates, SentinelOne is poised for winner-take-most economics, pushing net retention rates, earnings, and sustained revenue growth above the industry's structural ceiling.

SentinelOne Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on SentinelOne compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming SentinelOne's revenue will grow by 24.2% annually over the next 3 years.
• Even the bullish analysts are not forecasting that SentinelOne will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate SentinelOne's profit margin will increase from -49.4% to the average US Software industry of 13.2% in 3 years.
• If SentinelOne's profit margin were to converge on the industry average, you could expect earnings to reach $219.2 million (and earnings per share of $0.6) by about August 2028, up from $-426.5 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 64.9x on those 2028 earnings, up from -13.9x today. This future PE is greater than the current PE for the US Software industry at 39.7x.
• Analysts expect the number of shares outstanding to grow by 3.39% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.86%, as per the Simply Wall St company report.

SentinelOne Future Earnings Per Share Growth

Risks

• Rising commoditization and price competition in the cybersecurity software market may compress SentinelOne's margins and undermine its pricing power, challenging the sustainability of its industry-leading gross margins over the long term.
  
• The growing trend of enterprise customers consolidating IT security platforms could reduce demand for standalone endpoint and point solutions, prolong sales cycles, and limit revenue growth opportunities for SentinelOne, whose core products still depend on such dynamics.
  
• Persistent challenges in achieving consistent profitability and durable free cash flow, implied by ongoing heavy investment in R&D and sales as well as negative operating margins until very recently, could limit long-term earnings visibility and magnify future net margin volatility.
  
• Difficulty in maintaining differentiation as large competitors such as Microsoft, CrowdStrike, and Palo Alto Networks enhance their own AI/ML-based cybersecurity offerings, increasing the risk of customer churn and market share erosion, especially as SentinelOne grows closer to industry incumbents in both scale and product suite.
  
• Accelerating adoption of open-source and collaborative security tools, together with increasing sophistication of attackers that could potentially outpace SentinelOne's automated EDR/XDR and AI-driven platforms, may weaken the perceived value of proprietary solutions and result in slower customer acquisition, directly impeding both top-line revenue growth and long-term strategic positioning.

Valuation

• The assumed bullish price target for SentinelOne is $31.05, which represents two standard deviations above the consensus price target of $23.1. This valuation is based on what can be assumed as the expectations of SentinelOne's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $36.0, and the most bearish reporting a price target of just $17.0.
  
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $1.7 billion, earnings will come to $219.2 million, and it would be trading on a PE ratio of 64.9x, assuming you use a discount rate of 7.9%.
  
• Given the current share price of $17.94, the bullish analyst price target of $31.05 is 42.2% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.