Oracle provides a slew of software and hardware tools for on-premise and cloud environments… with an understandable focus on shifting towards cloud deployments. It has 3 main segments that tie very closely together. 

Oracle Cloud Infrastructure (OCI) is its fully managed business for infrastructure services (virtual machines, storage, managed high-performance compute data centers etc.). This segment also includes platform services to build apps in its safe, controlled environment (serverless and container-based).

Strategic software as a service (SaaS) includes Oracle NetSuite. This is a set of applications for enterprise resource planning (ERP), customer relationship management (CRM), human capital management (HCM), e-commerce and more. It’s hard at work on launching more industry-specific software apps across areas like Healthcare. It has a more customizable, feature-rich version of this product suite called Oracle Fusion geared towards larger customers.

The last segment is Oracle Database (OD). Creating valuable apps from GenAI infrastructure requires great models and great data products to properly season those models. That’s where its Oracle Database (OD) product comes in. It provides a not only structured query language (NoSQL) database for unstructured data, which is highly important in the age of GenAI. Oracle closely integrates with the 3 big hyperscalers to allow its OD database products to run anywhere. This also means that customers can migrate their on-premise databases to the cloud via OCI or through any of these hyperscalers, diminishing the friction associated with using OD. Oracle believes that this data cloud interoperability provides inherent cost advantages with data transferring. Cost benefits are estimated to be “several times cheaper” for model training than any competitive product, according to leadership.

Oracle is (re)-emerging as a digital infrastructure titan. While the company did take longer to roll out its high-performance compute product suite, it has since achieved fantastic traction.

Note that exiting its advertising business lowered cloud revenue growth by 2 points. Cloud includes Infrastructure as a Service (IaaS) and Software as a Service (SaaS). 

OCI (key part of IaaS) rose 51% Y/Y FXN vs. 52% Y/Y growth last quarter, with consumption based revenue +57% Y/Y. Unsurprisingly, this was driven by AI demand, as GPU consumption within IaaS rose 250% Y/Y. Training is driving the bulk of this growth. 

“Front-loading” of some CapEx to address capacity constraints weighed on FCF generation this quarter. “Given the demand” they’re seeing, Oracle continues to expect CapEx to double to roughly $32B in FY 2025. They remain “careful in aligning CapEx with booking trends.”

For next quarter, it expects 9% Y/Y revenue growth, which missed roughly 9.5% Y/Y growth estimates. Sales estimates for FY 2025 fell by 1% after this report. It also expects 26% Y/Y cloud growth and $1.63 in EPS, which missed estimates by $0.15. The EPS miss led to estimates falling for FY 2025by 2.5%. For FY 2025, it reiterated 50% Y/Y cloud growth.

For FY 2026, it guided to 15% Y/Y revenue growth, which led to very modest upward revisions to sales estimates; EPS estimates for 2026 fell by 3.5%.

Finally, it expects 20% Y/Y revenue growth in FY 2027, which is higher than its previous guidance. This led to sales estimates for that year rising by 2.6% and EPS estimates also rising ever so slightly. Their confidence in reaching these targets is rising and based on stellar bookings momentum, not hope. Finally, it expects continued OpEx discipline to drive more operating leverage in the future.

Oracle EPS is expected to grow by 8% this year and by 13% next year.

Bookings Explosion:

This was the best quarter in Oracle’s lengthy history for bookings. The company signed $48 billion worth of contracts, which does not even include the Stargate project, which it is a key piece of. How did Oracle beat out several other hyperscalers for this project? Per Ellison, it’s pretty simple:

“We can build these huge AI clusters with technology that actually runs faster and more economically than our competitors.” 

CTO/Founder/Chairman Larry Ellison

Customer wins this quarter included an AMD contract involving 30,000 of their newest MI series GPUs, as well as Palo Alto and CrowdStrike.

Simply put, rapid RPO growth directly points to more cloud workload consumption growth from its customers. That is the forward-looking demand gauge here, and it looks wonderfully strong. This is what is informing the strong multi-year guidance. Within RPO, the cloud portion rose by 90% Y/Y; 31% of this will be enjoyed as revenue over the next year.

OCI:

Where is this bookings explosion coming from? Glad you asked. OCI continues to shine brighter and brighter for this company. OCI’s edge comes from a few places. First is the singular, highly malleable data center layout. It doesn’t have a maze of custom configurations, which sheds complexity, simplifies manufacturing and creates a uniform base of inventory to easily add new server racks to. Furthermore, the company sees its level and breadth of automation (across OCI and its fully autonomous databases) as a core strength. For clients, this results in delightfully lower-cost scaling.

Second, its server density helps it add more capacity to the same amount of data center real estate. It complements this with liquid cooling (like many others) to lower heat-based waste. Next, leadership views its ability to build networks that can easily, cheaply and rapidly move data to and from GPU clusters as unmatched. When customers are renting space for finite periods of time, this matters a lot for cost efficiency. All of these attributes make Oracle a strong total cost of ownership vendor within a rapidly growing field. Good spot to be in.

All of this incremental efficiency means Oracle can rationally service smaller micro-regions to collect profitable revenue from parts of the market that aren’t as attractive to the AWS’s of the world. The company can use its singular data center layout to profitably build very small clusters for customers, as its design resembles lego blocks that can be delivered individually, or in massive configurations. It has done a great job to create a niche within public cloud computing and take its piece of this prize — despite competing with three of the best companies on the planet.

This quarter, OCI crossed 100 global cloud regions, and thinks it’s “just a matter of time before” it has the most regions out of any competitor. It expects to double its data center footprint in calendar 2025. Again, this has a lot to do with its ability to rationally build micro-regions to service smaller customers.

“Our Gen 2 cloud infrastructure is faster and cheaper than our competitors… What we are seeing in the market is that we are the destination of choice for both AI training and inferencing.”

CEO Safra Catz

OCI remains supply constrained. Component delays are ongoing, but it does expect these constraints to meaningfully alleviate in the first quarter of FY 2026.

“New customers and new businesses are migrating to the Oracle Cloud at an unprecedented rate.”

Founder/Chairman/CTO Larry Ellison

Data Services:

The firm’s suite of database products continues to emerge as yet another rapidly growing business segment. They say it every quarter and they’re 100% right. OCI is a perfect complement for OD, but not the only option. In a GenAI world, multi-cloud and avoiding data silos have never been more important. This is why Oracle offers OD through Azure, AWS, Google Cloud etc. The firm’s multi-cloud OD business rose by more than 92% Q/Q. Small base but palpable progress. OD is now running in 18 of its cloud regions. 40 more are planned in the coming quarters, with plenty of hyperscaler demand to support this expansion.

This quarter, Oracle debuted the AI Data Platform to augment the breadth and partner-integrations for its database services. Now, customers can access OpeAI, Meta and xAI models to organize information for better data processing and analytics within OD and their apps. This builds on last quarter’s introduction of Database 23AI, which makes it even easier to “use existing data to augment and specialize training GenAI models.” 23AI offers theme-based vector search to deepen querying breadth and retrieval-augmented generation (RAG) to push vector search results into associated large language models (LLMs). 

“All you do is push a button and the new 23AI database allows you to convert your data into vector format. Nobody else has that. Nobody else has that. We let you easily train models for inference and agent building automatically with OD.”

Founder/Chairman/CTO Larry Ellison

Many other companies have vector search tools, but Oracle thinks its ease of onboarding and use is what’s unmatched.

All of these tools will be core parts of the new AI Data Platform. Combining all needed data with world-class models should accelerate learning curves and pace of innovation for customers across all industries. Oracle also sees this as playing a major role in its budding AI inference business. While training was the main factor, inference did play a material role in driving the massive RPO outperformance. They see inference as a “much nigger opportunity.”

AI Agents:

Ellison thinks Oracle’s quality of AI agents for sectors like Healthcare are best-in-class and a key source of differentiation. The firm’s more meaningful level of tedious work automation is saving healthcare billions a year already. It thinks its suite of Fusion apps – across financial services, human resources etc. – features similar AI agent differentiation. Along with supporting its strategic apps business, Oracle fully expects this to drive adoption for OCI and OD. If customers can get the best agents on Oracle… more will want to do their infrastructure and data business with Oracle too. Why? The cliché of vendor consolidation driving lower costs and better outcomes.

Headline numbers were a tad underwhelming but the bookings number was phenomenal and multi-year guidance was also strong. The company has established a highly compelling niche within GenAI data centers, with a perfectly complementary suite of data products and apps to give customers more of what they need in one place. It does this while driving better efficiency and lower cost in a world where compute inflation is top of mind. 

The company’s revenue is highly visible, its valuation is reasonable and the signs they’re directly observing point to this growth engine having plenty of room to run. This is my favorite infrastructure play not currently in the portfolio. Candidly, I’d own this over Microsoft and that would be an easy decision. But? I do love Alphabet and Amazon as investments and I am already over-indexed in this sector.

Part one of the review – which contains financials, balance sheet data & guidance, can be found here (section 1b).

A Transition Year – Table Setting:

2024 was a year of changes that Block made to enable “faster building.” CEO Jack Dorsey implemented a “functional organization model” to enable teams to focus on what they do best, with fewer productivity bottlenecks standing in the way. It views most of this work as complete and 2025 as the year to “prove it.” 

A Transition Year – Square:

Most of the restructuring work happened on the Square side of the business. Block fully overhauled Square’s tech stack to evolve from a payments solution to a commerce platform. That sounds identical to what PayPal is currently doing with its seller value proposition. A big piece of this revamping is simply improving onboarding flows, removing friction-fostering clutter and more effectively matching merchants with products. To accomplish all of this, it launched the Square Point of Sale app, which combines 5, somewhat disparate apps it had been running for various point solutions within this overarching umbrella. 50% of new sellers are opting into this app and it is beginning to move existing merchants to it as well. With this unification work more complete, attention will turn to accelerating the pace of product iterating and shipping to expand its value proposition and cross-selling engine. It needed to rebuild its foundation to allow this to take place… and now it has. Some early examples of newness under the new product development engine include instant payouts for restaurants using 3rd part delivery services.

For a lot of the product work, the company will take a bit of an industry-by-industry approach to tackle unique problems. The first example (based on traction and size of opportunity) has been quick service food and beverage. Its previously rolled-out digital bar tab feature is performing well and it introduced scan-to-pay at tables to “pay without waiting.” It also added a new tool for full-service restaurants to seamlessly split items on tabs. Many others have offered these new tools for years, and it’s good to see Block plug the product utility gaps.

Square plans to aggressively pursue growth from the largest and the smallest of merchants. Starting with the smallest, it wants to become the “leading tech platform for neighborhood businesses.” It wants to establish a support network of local merchants, while using its large consumer base on the cash app side to help drive more merchant revenue and success. 2025 will be the year of more tightly integrating the Square and Cash App ecosystems to nurture and support each side the two-sided network.

It accelerated Square marketing spend with strong returns throughout the back half of 2024 to spread the word. To them, this is a clear signal to keep spending more in 2025. For larger enterprises, it’s “rapidly scaling” its U.S. account and field sales teams while bolstering international efforts as well. Marketing returns for this segment have also been stellar throughout 2024 and support its plans for more investment. For Square overall, marketing spend rose 60% Y/Y in Q4.

To keep management accountable for their 2025 promises, investors have been told to expect an acceleration in Square gross payments volume (GPV) acceleration.

Cash App:

Cash app GPV is also expected to accelerate in 2025 following a year of better product execution. That should hopefully also mean an acceleration in monthly active user (MAU) growth, which has been flat for about a year now. They’ve gotten more in depth on customer onboarding to set themselves up for easier cross-selling, but that has perhaps slowed top-of-funnel growth more than desired.

2024 for Cash App was about rounding out its consumer-facing product suite. The firm is going after all households earning up to $150,000/year, which is different than what a company like American Express or PayPal caters to. The demographic here is more similar to Upstart. While this means more macro fragility, higher credit risk and lower propensity to spend per customer… it’s also a somewhat less competitive market with a higher rate of underserved needs to cater to. Puts and takes.

For cash app products, its paycheck deposit offering rose 25% Y/Y in 2024, with growth accelerating throughout the year as a result. Whether it’s the complementary high-yield savings tool, ATM withdrawals, stock/crypto investing, overdraft protection or comped tax filing, consumers are responding positively to all of this change and trusting Cash App as more of a primary bank account. Cash App Borrow also reached $9 billion in 2024 originations.

Perhaps most interestingly, Block debuted a new AfterPay and Cash App product integration. It allows consumers to “retroactively” apply pay later options to cash app card purchases across channels. Considering Cash App card’s 25M MAUs represent 21% of 18-21 year/old Americans and younger consumer preference for buy now, pay later (BNPL), this is compelling. Block earns a “small fee” and consumers enjoy more flexibility. Per the team, this has already boosted gross profit per active. Just like for Square, Cash App plans to rev the marketing engine in 2025, following doubling that cost line during the 2nd half of 2024 and enjoying robust returns. The AfterPay integration and Borrow are expected to be two main growth drivers for Cash App in 2025 while supporting more direct deposit growth.

2025 Goals:

More neatly organizing and uniting Block’s various product pillars will be a theme for 2025. It sees this initiative driving more economic access for its customers. In practice, this will look like a “new neighborhood network to connect sellers and buyers.” It wants to support local businesses with marketing tools, checkout, working capital and success in general. It will do that by more effectively connecting its consumer-facing network to these businesses with rewards and offers to keep them coming back. PayPal is running a very similar playbook, with both determined to utilize all of their data to drive personalization and superior two-sided experiences. 

“As the world becomes more global and uniform, people will seek out authentic, local, real-life interactions. We’re going to help sellers provide it and help buyers find it.”

Founder/CEO Jack Dorsey

Secondly, Block wants to become more open. This part of the earnings report sounded like Dorsey has been listening to Mark Zuckerberg lately. They want to build software with open-source tools and framework to “raise trust and adoption.” This will take place most prominently in its platform-level and Bitcoin product work. Along these lines, it will “deliver its first Bitcoin mining chips” in 2025 while “building the infrastructure to scale faster and investing in next-gen chip and mining systems.”

Why does it care about contributing to open source programs instead of focusing on proprietary, closed-source value creation? It thinks it can contribute a lot of “valuable code” to support the overall ecosystem, while using work from others to support its own product development. It also knows that attracting top engineering talent requires “working on the most exciting technologies.” The team thinks being a leader in open-source AI Agent and other work sets them up to secure coveted developers.

Finally, it will also use this open-sourced, AI-based automation to “remove mechanical burdens that get in the way of creativity.” This is really just saying automation will lower tedious task workload and enable focus on more meaningful projects. It sees this goal as enabling all of its other bold plans for 2025, by making the company more efficient and less wasteful. 

More on Go-To-Market:

Like many enterprise software firms in other parts of the market, Block is realizing how effective of a growth outlet channel partnerships can be for its business. This is a key priority for most of the software names I follow in 2025 and Block is no different. The partnerships group outperformed in Q4, while delivering material uplifts to volume per customer. It will grow this team in 2025, which is part of the Square marketing growth plans already mentioned.

The quarter really was not that bad. It coincided perfectly with Mr. Market’s latest fit, which I think led to the sell-off intensifying beyond what it otherwise would have. As part 1 laid out, guidance was actually better than expected. The firm did fantastic work to right-size its cost base and deliver better margins over the last few years. Square and Cash App are both solid assets. Now, it needs to show signs of nurturing those assets and durably accelerating the growth curve without sacrificing margins. Guidance points to that happening, but there is palpable skepticism over the company reaching its targets.

This has never been my favorite company and Dorsey has never been my favorite CEO. I don’t love the Bitcoin focus; I don’t love how much they paid for AfterPay while PayPal built BNPL internally. At the same time, it is dirt cheap now and much of the pessimism I’ve laid out is likely priced in at this point. If they do meet their targets, the stock is likely in a position to be materially rewarded. Unless fundamentals fall off of a cliff, which I don’t expect, I don’t think shareholders will get burned too badly from here. I just prefer to focus on other investments and companies in the sector.

SentinelOne directly competes with CrowdStrike, Microsoft Defender and Palo Alto in endpoint security. It specializes in small-and-medium-sized business (SMB) clients and is expanding up-market. While CrowdStrike’s overarching platform is called Falcon, SentinelOne’s comparable suite is called the “Singularity Platform.” Core products include Endpoint Detection and Response (EDR). EDR offers constant monitoring and protection of endpoints (like a company iPhone). It unveils, prioritizes and responds to observed threats. Like CrowdStrike, it offers highly autonomous services and a slick, lightweight agent to drive interoperability. This, in turn, means overarching coverage and superior breach protection vs. legacy incumbents.

Also similar to CrowdStrike, SentinelOne boasts a complementary data analytics platform (which it calls the Singularity Data Lake). This lake can ingest structured data from a multitude of diverse security products. It’s the perfect sidekick for every product it offers, as it can seamlessly collect data once, and recycle that data across as many relevant use cases as it needs to. This capability is especially important for the firm’s Extended Detection and Response (XDR). XDR is simply EDR with more diverse data usage to extend protection beyond solely the endpoint.

The Singularity Data Lake ingests data via “log scale,” which means logarithmically organizing and storing information. The company also says customers get lower cost and faster querying speeds with it too. The service of aggregating data (or “logs”) to help organizations uncover and remediate threats is called Security Information and Event Management (SIEM). It recently launched an AI-augmented SIEM tool… fittingly named AI SIEM.

All in all, there are three compelling effects of this product architecture:

Just like CrowdStrike (noticing a theme?), it’s also actively expanding into cloud security. Important cloud security acronyms:

Agent vs. Agentless in Cloud:

CWP takes an agent-based approach while CSPM is agentless. Agent-based requires a direct software installation, while agentless does not. One isn’t objectively better than the other. Agentless is considered cheaper, easier to deploy and easier to scale. It’s perfect for lower-stakes use cases like configuration analysis and is an ideal complement to CWP. Companies just starting out with finite budgets, massive potential scaling needs and a lack of hyper-sensitive data can adopt an agentless approach. Agent-based is considered more comprehensive and has more complete visibility. Industries with tighter regulation, more sensitive assets, a need for real-time EDR and more complex compliance are well served by agent-based. By offering both, SentinelOne can address both markets, thus eliminating the need for disparate point solutions.

GenAI:

PurpleAI is SentinelOne’s overarching GenAI platform layer to up-level its product offering. It’s quite similar to CrowdStrike’s Charlotte AI, in that it can actively detect anomalies, summarize cases, help orchestrate remediations and fix issues with a human analyst’s permission. All of this pushes beginner-level security analysts to much higher levels of capability. This matters a lot in our budget and talent-constrained world.

SentinelOne made the intentional decision to retire a product this quarter. It was contributing to results and had a material impact on revenue and ARR during this quarter. Leadership said NNARR growth was in the “mid-single digits” excluding this move. Assuming this means 5% growth, NNARR would have been $63.4M without this for a 2.9% beat. ARR would have been slightly ahead of expectations. Vital context. For more context, normalized NNARR growth for CrowdStrike (ex-outage) was down slightly Y/Y compared to this 5% normalized growth (ex-sunsetting) for SentinelOne.

The retired product is its legacy deception tool designed to trick attackers into showing their cards on attack strategies in a low-stakes environment. When SentinelOne acquired Ativo, it acquired these assets (including a hardware component) too. It never had any interest in running this non-core business for the long haul. Maintenance costs were coming at the expense of investments into its AI, data and cloud growth priorities, while return on investment (ROI) was very low. This was an easy decision to make, but did lead to the Q4 ARR miss and some guidance weakness discussed shortly.

This was the firm’s first full year of positive FCF and net income.

Annual revenue guidance missed by 2% and represents 23% Y/Y growth. Excluding the impact of product sunsetting, revenue guidance would have missed by 1% and growth expectations would have been 24% Y/Y. It also expects to generate 2% Y/Y NNARR growth or 23% Y/Y ARR growth. Excluding the same product retirement item, NNARR growth guidance would have been 7% Y/Y. Please also note that the large Lenovo deal is not supposed to start helping results until Q4, with the meaningful impact beginning next fiscal year.

EBIT and GPM guidance both met estimates. It thinks FCF margin will be “several points higher” than EBIT margin. Considering the 3.5% EBIT margin guidance and 9% FCF margin expectations, I think we can call this in line. Finally, it also expects $200M in NNARR for next year, which represents 22% Y/Y ARR growth. Excluding product sunsetting, ARR growth guidance would have been 23% Y/Y.

Next, the team was clear that its intention was to beat annual guidance like it has done in the past. It also “remains mindful of the macro environment,” heightened geopolitical chaos, and federal spending uncertainty, which was all baked in. When asked what the source of weakness was beyond the product retirement, it directly said it was “factoring in unknowns.” Sounds like there’s a decent margin of safety here… like there has been in recent years.

“We’re focused on setting reasonable expectations that reflect the potential we see in the business. We believe this is the right starting point for the year.”

CFO Barbara Larson

It expects to add about $31M-$33M in NNARR for Q1. Excluding aforementioned items, NNARR growth guidance would be 0% Y/Y. It will accelerate throughout the rest of the year.

EPS estimates should be largely stable Y/Y following this report. SentinelOne just turned profitable. It trades for 85x forward EPS expectations. Off of a very low base, EPS is expected to compound at a 300%+ clip over the next two years. When ignoring 10x growth expected this year, it’s still expected to deliver 95% Y/Y EPS growth in FY 2027 (calendar 2026). It also trades for about 70x forward FCF estimates. FCF is expected to compound at a 150% clip for the next two years.

Platform:

SentinelOne is effectively expanding its product suite beyond endpoint use cases. Its ability to tie seven related product categories together into the unified, automated Singularity platform is key. It allows SentinelOne to enjoy the typical selling points associated with vendor consolidation: Better outcomes at lower costs. 

This is already showing up in its financials. For calendar 2024, 50% of total bookings were outside of the endpoint, as cloud and AI set new quarterly records. It delivered 25% Y/Y growth in $100,000+ ARR customers. 25% Y/Y growth may lag revenue growth this quarter, but Q/Q growth led it. Good to see for a company some think is not capable of meaningfully taking share with the big boys like it has with smaller customers. They’ll have to continue to prove it.

Over the last two years, customers with 3+ modules tripled to 40% of its total base; 4+ module customers quadrupled over that same time period to 20% of its total base. This helped drive more Y/Y growth in average deal size and ARR per customer. Cross-selling was a material piece of this quarter’s top-line outperformance and will keep becoming more important for the overall growth engine. In terms of cross-selling contributors, its AI and data products are the fastest-growing categories, but cloud is also a big factor here.

Platform-Level Wins:

Partners:

12+ “large partners” adopted its AI SIEM, Purple AI and CNAPP this quarter. Managed Security Service Providers (MSSPs) continue to lead this strength. As these partners focus on selling more of S’s product offering and pursue longer-term deals, SentinelOne enjoys “more visibility and predictability into future growth.” This also helped drive 30% Y/Y remaining performance obligation (RPO) growth and a Q/Q growth acceleration.

Competitive Landscape:

Rounding out its platform and fixing go-to-market issues over the last year have gotten this company in a much healthier place. That’s being masked somewhat by decisions to terminate antiquated offerings, but the core business is performing reasonably well vs. the competition. They continue to take market share and “mindshare” from everyone. Win rates were called strong and improving, while SentinelOne enjoyed a record quarter for competitive displacements. This includes large enterprises, where it’s enjoying continued momentum. At the same time, it did caution that sales cycles for this type of deal are longer, but “market interest and customer engagements are strong and contributing to its expanding pipeline.” Win rates also continued to rise this quarter. Salesforce productivity is improving and will keep improving as more of its new hires get ramped (same as Zscaler). Macro improvement is not the cause of the NNARR acceleration… These changes are.

“Every go-to-market indicator that we track is looking better.”

Founder/CEO Tomer Weingarten

As the GPM trajectory tells us, the pricing environment is stable. It is not discounting any more than it has in its history. Still, SentinelOne is copying CrowdStrike’s Flex pricing program in its own go-to-market optimization. It’s making it easier for customers to pick and choose modules at their leisure, which should mean more overall adoption and more spending. This has worked extremely well for CrowdStrike and I think the same will be true here.

One more note on CrowdStrike. As I discussed last quarter, the uptick from the outage will be felt gradually over years… not rapidly over months. SentinelOne leadership said the same exact thing last quarter, but I suppose some were still banking on a more dramatic uptick. Pretty much every customer stuck with CRWD, but consideration for SentinelOne as those deals approach renewal is uniformly rising. Per SentinelOne, many CRWD customers didn’t want to cut the existing relationship, but S thinks it will win more of those renewals in the coming years as a result of the outage. We shall see… CrowdStrike is certainly an elite player in both product and go-to-market.

3rd Party Evaluations:

A lot of the competitive success has to do with SentinelOne’s strong performance across 3rd party research organizations. It led MITRE Att&ck evaluations for the 5th straight year. It delivered 100% detection accuracy and 88% fewer false positives than the field (new testing category). That’s highly important, as false positive inundation can quickly drain finite resources for cyber teams. In the same report, Palo Alto delivered 4x more alerts, with far more waste. Everyone else surveyed was even worse (CrowdStrike doesn’t participate in this). SentinelOne has a 96% peer recommendation rate on Gartner. It was named a Frost Radar CWP leader and a G2 CNAPP leader (top-rated).

AI SIEM:

The AI SIEM product is rapidly turning into a routine piece of large deals. It is quickly enabling S to win bigger, with more modules, higher margin and better retention. It’s expeditiously morphing into a secret weapon in its platform consolidation push. The firm secured a 5x upsell with a large financial institution because of this. AI SIEM was also the deal-maker for another large expansion with a retailer, which expects to save $1M per year with this tool.

“Customers are starting to migrate away from legacy SIEM products and modernize their infrastructures. We're partnering with them at their pace. The momentum is clear”

Founder/CEO Tomer Weingarten

AI:

SentinelOne leadership sees the firm as the only one with AI natively embedded in all product offerings… as the default. Whether it's conversational querying or alert triaging, this is now the SentinelOne standard.

Much of this integration focus is understandably on Purple AI. A year into the product’s launch, and the team says “it’s clear how much it can scale and automate time-consuming tasks.” Notably, Purple AI also nudges customers to best practices for breach protection, cloud hygiene etc. This inherently means other SentinelOne products that could be valuable in certain situations are surfaced for customers more often. That should support the cross-selling engine as it augments awareness of everything S provides.

Going forward, SentinelOne sees the growth ceiling for its AI work as sky-high. To optimize the opportunity, it is “committed” to running an open platform that easily shares data and context with other client vendors. This quarter, it added 3rd party support for Zscaler, Okta, Fortinet and even Palo Alto and Microsoft – two fierce endpoint competitors.

To SentinelOne, it’s Purple.AI + “Hyperautomation” (launched in Q3) that serves as the “bedrock for Agentic AI in security.” As a reminder, Hyperautomation provides pre-built, no-code integrations and malleable templates for common cybersecurity issues like ransomware. It automates tedious, repetitive tasks to make security analysts more productive, building on the utility of Purple AI. The user interface was designed to be as friendly and seamless as possible, with a “drag-and-drop” process for designing workflows. 

Cloud:

SentinelOne signed its largest CNAPP deal since acquiring PingSafe. It inked a multi-million dollar contract with a large software firm that adopted “several cloud solutions” for better efficacy and lower cost. More customer case studies like this… please & thank you. Cloud is a massive greenfield opportunity for pretty much every next-gen security company. It’s great to see SentinelOne enjoying sizable wins in this large, untapped space.

Lenovo:

Go-to-market elements of the Lenovo partnership are now “in place.” But again, this will be “much more meaningful” in the years ahead for this long-term arrangement. The ramp will modestly begin in Q4 of this year.

Potential Federal Headwinds:

While SentinelOne seemed a bit cautious about federal budgets and deal timing, once we work our way through the uncertainty, it thinks it’s in a good spot. The federal pipeline is actually growing, and that has a lot to do with the cost synergies it can deliver in these contracts. Agencies can routinely save money by switching to SentinelOne.

When I read these headline numbers, my preliminary take was one of material disappointment. As I listened to the call, learned about the product sunsetting, heard hints of conservatism in guidance commentary and digested these numbers, my viewpoint has brightened somewhat. Material disappointment shifted to slight disappointment.

While I don’t like seeing annual guidance misses, decisions to stop offering the Deception product drove most of that; I think prudence drove the rest of it. And at the end of the day, we still have a company guiding to normalized mid-20% revenue growth, 650 bps of EBIT margin leverage and several hundred bps of FCF margin leverage. We still have a company explosively inflecting to profitability. We still have a company taking market share in a massive field where they’re showing clear signs of product expansion. We still have a company with no debt and 18% of its market cap held in cold hard cash. And? We still have a company trading at a PEG well under 1x and at a nearly 70% gross profit multiple discount to CRWD. Is some of that discount warranted? Yes it is. But that degree of the gap is borderline egregious in my mind, as SentinelOne permanently turns profitable from a net income and FCF standpoint.

Still, the last 3 quarters here have all been modestly disappointing. Not terrible… but not robust either. For this reason, I think I’ve allocated enough capital to this name. I am not adding into this weakness and am placing it on my do not accumulate list for now. I’m not ready to give up here but my optimism is not unconditional. It never is. I want to see that guidance was cautious and NNARR continues to accelerate. I want to see more cross-selling and upmarket traction. That’s what I expect. That’s what I require to stay in this position for the long haul. Go make it happen.