Check Point Software: A Hidden Gem in Cybersecurity, Fuelled by AI

Cybersecurity remains a critical battleground for enterprises, and Check Point Software Technologies (CHKP) has long been a stalwart in the space. Yet, investors may be overlooking its true potential. While the company's financial metrics suggest a mature business—steady but unexciting—its recent strategic moves into AI-driven cybersecurity could position it as a growth leader in an increasingly digitized world. Here's why CHKP is a compelling buy for long-term investors.

The Case for Stagnation: ROCE and Capital Employed Signal Maturity

Check Point's Return on Capital Employed (ROCE) has remained stubbornly flat over the past five years, averaging around 24% since at least 2023. This figure, calculated as EBIT divided by capital employed (total assets minus current liabilities), is well above the cybersecurity industry average of 7.3%, signaling efficient capital use. However, the lack of ROCE growth—coupled with stable capital employed figures—points to a company operating in a mature phase.

Capital employed, a measure of funds invested in the business, has stayed near $3.8 billion since 2023. This stability suggests Check Point isn't reinvesting heavily in aggressive expansion—a hallmark of a mature firm focused on sustaining profitability. While this is prudent, it also means organic growth is unlikely to accelerate without new catalysts.

Yet, here's the catch: maturity doesn't mean stagnation. Check Point's 6% revenue growth in 2024 and 13% rise in security subscriptions highlight a resilient business model. Add a robust cash flow of $1.06 billion (2024) and a shareholder-friendly strategy (e.g., $1.3 billion in annual share buybacks), and the company's fundamentals are solid.

The AI Opportunity: Acquisitions as a Growth Lever

The real story lies in Check Point's strategic moves to harness AI in cybersecurity. Consider its acquisition of Cyberint Ltd, a firm specializing in AI-driven threat detection and digital risk protection. Such moves are part of a broader shift toward AI-powered solutions like Check Point Harmony Email, which uses machine learning to combat phishing attacks, and the Infinity Platform, an AI-enhanced cloud security suite.

These investments are critical. As enterprises increasingly adopt AI and automation, cybersecurity threats will evolve in complexity. Check Point's AI capabilities could make it a go-to provider for next-gen security solutions. Analysts at Goldman Sachs have noted that AI-driven cybersecurity is a $20 billion addressable market by 2027, with Check Point's early leadership in this space offering outsized upside.

Why Now? Undervalued, But Poised for Lift-off

Despite its strengths, Check Point's stock has underperformed compared to peers like Palo Alto Networks (PANW) and CrowdStrike (CRWD) over the past five years. This is partly due to its mature profile and conservative reinvestment strategy. However, the market may not yet appreciate the secular tailwinds from AI-driven cybersecurity adoption.

Check Point's current P/E ratio of 18 is below its five-year average of 22, suggesting it's undervalued relative to its growth prospects. Meanwhile, its ROE of 30.48% (as of early 2025) underscores strong equity returns, and management's focus on margin discipline (e.g., 40% operating margin in 2024) bodes well for sustained profitability.

Risks and the Bottom Line

No investment is without risks. Check Point's reliance on legacy enterprise customers could slow adoption of new AI tools. Additionally, intense competition in cybersecurity and regulatory headwinds remain concerns. However, the company's $2.79 billion in shareholders' equity and fortress-like balance sheet ($1.6 billion cash as of late 2024) provide a buffer.

For investors, the calculus is clear: CHKP is a low-risk, high-reward hidden gem. Its mature metrics offer stability, while its AI bets position it to capture explosive growth in a $2 trillion cybersecurity market. As enterprises ramp up AI adoption, Check Point's stock could finally get the valuation uplift it deserves.

Investment Takeaway: Buy CHKP for a balanced portfolio. Target a 12-month price target of $90–$100, reflecting a P/E expansion to 22x and 15–20% upside from current levels. Hold for the long term as AI reshapes cybersecurity—and Check Point's role in it.

Nick Timiraos
June 19, 2025