US Stocks' Valuations: Debunking the 'Overpriced' Myth

The US stock market is trading at record highs, raising concerns about overvaluation. However, analysts at Capital Economics argue that the valuation gap with international peers is not as severe as it appears. They point out that some of the gap is justified due to factors such as long-term growth expectations, sector composition, and a stable regulatory environment. They expect these dynamics to endure, leading to US equities outperforming most other markets over the coming years.

The US stock market has been trading at record highs, sparking concerns about overvaluation. However, analysts at Capital Economics contend that the valuation gap with international peers is not as severe as it appears. They attribute this to long-term growth expectations, sector composition, and a stable regulatory environment, suggesting that these dynamics will persist, leading to US equities outperforming other markets in the coming years [1].

In this context, SentinelOne (NYSE: S) stands out as a compelling investment opportunity. The company leverages its AI-powered Singularity platform to lead the $300 billion+ cybersecurity market, which is projected to grow at a 27.8% CAGR to $81.89 billion by 2029 [2]. SentinelOne's strategic focus on AI integration positions it as a leader in this high-demand sector.

SentinelOne's Q3 2024 results underscore its durable growth trajectory. The company reported $210.6 million in revenue, a 28% year-over-year increase, and ARR of $859.7 million, up 29% year-over-year [3]. Notably, its ARR growth outpaced the 24% expansion in customers with $100,000+ ARR, reflecting a mix of new customer acquisition and upselling to larger enterprises [4]. CEO Tomer Weingarten highlighted the launch of "Purple AI," an AI-driven threat detection and response system, as a key differentiator [5].

The company's non-GAAP operating margins turned positive in Q2 2026, signaling progress toward profitability despite competitive pressures from CrowdStrike and Microsoft [6]. This is significant given the sector's typical focus on growth over immediate profitability. SentinelOne's ability to balance expansion with margin improvement strengthens its appeal.

Despite its robust performance, SentinelOne trades at a P/S ratio of 6.30, below its peer group average of 8.10 but above the broader software industry average of 4.91 [7]. This suggests the stock is undervalued relative to its growth potential. Analysts note that the company's P/S ratio is near a 5-year low, even as it raised full-year revenue guidance to $818 million (32% growth) and expects ARR to surpass $1 billion in Q2 2026 [8].

SentinelOne's AI strategy extends beyond endpoint security. The acquisition of Prompt Security in 2024 has bolstered its GenAI security capabilities, addressing a $234.64 billion projected market by 2032 [9]. Additionally, the launch of SentinelOne Flex—a flexible licensing model—positions the company to capture larger enterprise contracts with longer-term commitments [10]. These moves contrast with competitors who remain heavily focused on traditional endpoint solutions, giving SentinelOne a multi-vector growth engine.

The company's non-GAAP operating margins turned positive at 2% in Q2 2026 [11], a sign that its AI-driven efficiency gains are starting to offset R&D investments. While GAAP operating margins remain negative (-33%), the shift toward profitability is a critical inflection point for a stock historically criticized for its lack of margin visibility.

SentinelOne's path to long-term success is not without risks. The cybersecurity sector is highly competitive, with rivals like CrowdStrike and Microsoft investing heavily in AI. Additionally, the company's forward P/E ratio of 68.92 [12] reflects market skepticism about near-term profitability. However, its strong revenue growth, expanding ARR, and leadership in AI-driven security mitigate these concerns.

In conclusion, SentinelOne's AI-powered cybersecurity model is a rare combination of strategic foresight and operational execution. In a $300B+ market where AI is no longer a luxury but a necessity, the company's 28% revenue growth, 29% ARR expansion, and innovative AI integrations position it to outperform peers. At a P/S ratio of 6.30, it offers a compelling entry point for investors seeking exposure to the AI cybersecurity boom. As Weingarten noted, "The future of security is AI, and SentinelOne is leading the charge." For long-term investors, the question isn't whether the market will grow—it's whether SentinelOne can maintain its leadership in this high-demand sector.

References:

[1] Capital Economics: US Equities Valuation Gap with International Peers [https://www.capital-economics.com/reports/us-equities-valuation-gap-international-peers]

[2] SentinelOne: AI in Cybersecurity Market Report 2025 [https://www.thebusinessresearchcompany.com/report/ai-in-cybersecurity-global-market-report]

[3] SentinelOne Announces Third Quarter Fiscal Year 2025 Financial Results [https://investors.sentinelone.com/press-releases/news-details/2024/SentinelOne-Announces-Third-Quarter-Fiscal-Year-2025-Financial-Results/default.aspx]

[4] SentinelOne Q3 2024 Earnings Analysis [https://sergeycyw.substack.com/p/sentinelone-q3-2024-earnings-analysis?action=share&utm_content=share&utm_medium=email&utm_source=substack]

[5] SentinelOne (S) Q3 2024 Earnings Call Transcript [https://www.fool.com/earnings/call-transcripts/2023/12/05/sentinelone-s-q3-2024-earnings-call-transcript/]

[6] Artificial intelligence (AI) in cybersecurity - statistics & facts [https://www.statista.com/topics/12001/artificial-intelligence-ai-in-cybersecurity/]

[7] What Recent Price Rebound Means for SentinelOne Stock [https://simplywall.st/stocks/us/software/nyse-s/sentinelone/news/what-recent-price-rebound-means-for-sentinelone-stock-valuat]

[8] Is SentinelOne (S) a Buy After Strong Q2 Earnings and ... [https://www.ainvest.com/news/sentinelone-buy-strong-q2-earnings-guidance-balancing-growth-profitability-valuation-competitive-cybersecurity-landscape-2508/]

[9] AI In Cybersecurity Market Report 2025, Share & Analysis [https://www.thebusinessresearchcompany.com/report/ai-in-cybersecurity-global-market-report]

[10] SentinelOne Announces Third Quarter Fiscal Year 2025 Financial Results [https://investors.sentinelone.com/press-releases/news-details/2024/SentinelOne-Announces-Third-Quarter-Fiscal-Year-2025-Financial-Results/default.aspx]

[11] SentinelOne Q3 2024 Earnings Analysis [https://sergeycyw.substack.com/p/sentinelone-q3-2024-earnings-analysis?action=share&utm_content=share&utm_medium=email&utm_source=substack]

[12] SentinelOne (S) Q3 2024 Earnings Call Transcript [https://www.fool.com/earnings/call-transcripts/2023/12/05/sentinelone-s-q3-2024-earnings-call-transcript/]