Wall Street analysts say the recent sell-off in cybersecurity shares may be mispriced, arguing that artificial intelligence is more likely to fuel the sector’s growth than threaten it.
After a rough start to the year for software stocks, strategists across major firms say investors may be underestimating how much demand for digital defense is about to rise. Analysts at Wedbush and Morgan Stanley both say AI is expanding the scale and sophistication of cyber threats, which should increase spending on protection tools rather than reduce it.
Why Analysts Are Turning Bullish
Wall Street researchers point to several structural forces supporting the sector:
- AI is lowering the cost and time needed to launch cyberattacks while increasing their precision.
- New AI systems create fresh vulnerabilities such as prompt injection and model manipulation.
- Companies adopting AI are expanding their digital infrastructure, which increases the number of potential entry points for attackers.
- Security budgets tend to be among the last expenses companies cut, even during downturns.
Morgan Stanley estimates the AI security market could grow from about $16 billion today to more than $45 billion in coming years if spending intensity rises to match broader IT investment.
Analysts’ Top Picks
Wedbush identified three companies it believes are best positioned to benefit:
- CrowdStrike
- Palo Alto Networks
- Zscaler
CrowdStrike is described as a “gold standard” in the industry, with analysts projecting major upside despite its recent drop. Palo Alto Networks is expected to benefit as businesses consolidate vendors and automate defences. Zscaler’s cloud-native security model is seen gaining importance as AI traffic across corporate networks accelerates.
| Ticker | Company Name | Current Price | Price Target | Potential Upside | MS Rating |
|---|---|---|---|---|---|
| CRWD | CrowdStrike | $429.64 | $537.00 | ~25% | Equal-Weight |
| PANW | Palo Alto Networks | $166.95 | $245.00 | ~47% | Over-Weight |
| ZS | Zscaler | $177.72 | $305.00 | ~71% | Over-Weight |
| SAIL | SailPoint | $15.92 | $25.00 | ~57% | Over-Weight |
| S | SentinelOne | $13.87 | $18.00 | ~30% | Equal-Weight |
| NTSK | Netskope | $11.89 | $27.00 | ~127% | Over-Weight |
Other firms highlighted by analysts as undervalued or promising include SentinelOne, SailPoint, Netskope, Rapid7, Qualys, and Tenable.
Valuations Suggest Opportunity
According to Jefferies, about 63 percent of cybersecurity companies it tracks are trading near their lowest valuation levels in five years. The broader software slump dragged the sector down even though fundamentals have remained comparatively strong.
The contrast is visible in ETFs. While a major software fund has fallen more than 20 percent this year, a cybersecurity-focused ETF is down less than 5 percent, showing relative resilience.
AI Is Both Threat and Tailwind
The same technology rattling investors elsewhere is the main bullish argument for security stocks. As AI adoption spreads, attackers are using it too. Companies like Anthropic have warned organizations to strengthen defenses quickly to protect code, data, and models.
Security firms are also integrating AI directly into their own platforms, improving detection speed and automation. CrowdStrike, for example, uses AI to identify abnormal activity on devices and shut down threats in real time.
The market’s recent sell-off treated cybersecurity like any other software segment. Analysts increasingly think that was a mistake. If AI continues to expand both digital infrastructure and cyber risk, security providers may end up among the biggest long-term winners in tech.
Disclosure: This article does not represent investment advice. The content and materials featured on this page are for educational purposes only.
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