Sean Sharpe
Catalyst Swing Trader, Author of Stocks in Play Newsletter
Cybersecurity has never been more important as reported vulnerabilities at Apple, Alphabet, Amazon and Microsoft go parabolic. That favors Rubrik, CrowdStrike, Cloudflare, Zscaler and Palo Alto Networks. x.comÂ
CrowdStrike, Palo Alto Networks, Zscaler, Fortinet and Okta could spike on fear stirred by Sam Altman's AI warning. x.comÂ
Legacy cybersecurity companies CrowdStrike and Palo Alto Networks are structurally threatened now that AI can autonomously breach classified systems. Per @BullTheoryio, citing The Economist and Senator Mark Warner, the NSA's director said Anthropic's Mythos broke into almost all of its classified systems in hours. Anthropic calls it a minor jailbreak, but open-weight orchestration should replicate Mythos-level autonomous penetration within months; compute has been weaponized. x.comÂ
Palo Alto Networks, Fortinet, Okta and CrowdStrike benefit because data and data privacy are core ingredients of AI, making protection against cyberattacks essential. Per Chamath Palihapitiya and others on the All-In podcast, AI creates many opportunities for data leaks, a clear story behind cybersecurity's relative strength. Cyber companies also get special access to Anthropic's top Claude model, Claude Mythos, which gives them significant leverage. x.comÂ
OneSpan's subscription and recurring-revenue growth add operating evidence for its place among the identity-security picks. Revenue beat expectations at $63.9M, and full-year revenue, ARR and adjusted EBITDA guidance rose. Mitek and Clear Secure also look attractive. Financial institutions in Korea and India reported breaches; CrowdStrike says the Korean attacker used an AI penetration-testing tool. Binance had not confirmed the suspected hot-wallet hack. x.com x.comÂ
Benioff's enthusiasm and continued bullish promotion on CNBC suggest cybersecurity-stock sentiment is near a peak. Benioff could mark the top in security stocks, the inverse of Bezos's 2022 bottom tick. x.com x.comÂ
Cybersecurity, the best-performing part of software this year, can keep rising as AI safety concerns emerge. Okta is up 116% year to date, Fortinet 113%, Palo Alto Networks 104%, CrowdStrike 99%, Datadog 69%, Cloudflare 67%, F5 61% and SentinelOne 50%. Every one beat on both revenue and EPS last quarter and trades above major technical supports. x.comÂ
CrowdStrike's re-rating reflects a massively expanded market in which security seats are defined by AI agents rather than employees. The Mythos model announcement and a frontier model going rogue with cyber attacks changed the fundamentals since the stock was at $100. It is very expensive versus its history and peers, and @InvestingVisual notes it trades at 109x forward free cash flow, but that does not mean nothing has changed. x.comÂ
CrowdStrike, Palo Alto Networks, Fortinet and Okta offer terrible risk/reward because their valuations need a lot to go right. The thesis is correct: more AI agents mean more identities, endpoints and attack surfaces, so security spend should keep growing. But CrowdStrike trades at 147x forward earnings, Palo Alto at 79x, Fortinet at 44x and Okta at 41x. These are good, some exceptional, businesses, yet a great business can still be a terrible investment at the wrong price. x.comÂ
Cybersecurity stocks catching a bid makes sense, because boards and CTOs will react strongly to cyber risks from agent proliferation. AI lab chiefs Dario Amodei and Sam Altman proving untrustworthy again also makes CTOs less willing to use their labs for cyber. The multiples are too high, though. x.comÂ