Research & Invest
Investor, Institutional Asset Management Background
Cybersecurity vendors CrowdStrike, Palo Alto Networks and Cloudflare face pressure from much cheaper AI security models such as Google's Gemini 3.8 Flash Cyber, about 85% cheaper and often better. Google's Chrome Security team found it produced 2.6 times more correct vulnerability patches than larger commercial models, Wiz measured 7.5-9.7% higher penetration-testing recall at 2.3-5.2x lower cost, and Google researchers used it to find a critical vulnerability in under two hours. x.comÂ
Microsoft's frontier-grade security at half the cost spells doom for CrowdStrike, Palo Alto Networks and SentinelOne. Per CEO Satya Nadella, Microsoft's first cybersecurity model, MAI-Cyber-1-Flash, combined with MDASH delivers world-class vulnerability finding at 50% of the cost of leading models. It is sold through Project Perception, an agentic offering whose specialized agents simulate attacks, detect and triage threats, and remediate them. x.comÂ
Cybersecurity stocks' large run-up is at risk from a cheaper, open Chinese AI model. ValsAI reports that DeepSeek V4.1 Flash 1017 beat GPT 6 Sol on its offensive cybersecurity task; DeepSeek is far cheaper to run than a closed US model. x.comÂ
Security software is arguably more of an AI bubble than semiconductors. Firms are bid up to nosebleed multiples on moderate AI-related revenue acceleration while facing medium- to long-term risks from Microsoft, Google and the AI labs and a 10-year Treasury yield above 5%. Their forward P/Es rest on non-GAAP earnings that exclude large stock compensation. A reversal could come from results missing high buy-side bars, security share gains by Microsoft or Google, or AI lab security launches. x.com … Show more
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
Cybersecurity is the real bubble right now, because greater importance in the age of AI does not justify paying valuations like 40x sales for names such as Cloudflare, CrowdStrike and Palo Alto Networks. x.comÂ
Hyperscaler cloud integration and frontier AI labs could take a fair bit of cybersecurity's economics. Rising AI-token budgets also make higher cyber spending a stretch. Palo Alto Networks, CrowdStrike and Cloudflare have nearly $1 trillion in market cap on less than $20 billion in revenue; even high-quality Palo Alto and Cloudflare look too expensive, while Okta looks indefensibly expensive. The theme has real demand, but these valuations look too high in the short to medium term. x.comÂ
AI-powered attacks are spreading so fast that companies are unlikely to cut security budgets, even if they slow broader AI spending. The latest wave hit governments, banks, hospitals, grocery chains and businesses, while AI finds vulnerabilities and breaks in around the clock. That is why Cloudflare, Zscaler, CrowdStrike and Palo Alto Networks rose as broader AI concerns hit tech shares. x.com x.comÂ
Microsoft is a relative beneficiary of slower, safety-focused frontier AI, mainly through cybersecurity, though to a lesser degree than CrowdStrike and Palo Alto Networks. Agentic AI risk from misbehaving internal agents and adversaries should make security every enterprise's top priority, driving upgrades to best-of-breed providers and much larger budgets. A paced frontier also lowers extreme tail risk for software broadly. Compute plans should not change, as supply stays severely constrained. … Show more
Cybersecurity is a great AI play, but some valuations are getting absolutely ridiculous, and great companies are not great stocks at any price. CrowdStrike trades at 186x forward earnings and 40x sales, Cloudflare at 209x and 43x, Palo Alto Networks at 87x and 21x, and Rubrik at 327x and 11.5x. 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
Cybersecurity stocks such as CrowdStrike and Palo Alto Networks are set to de-rate in 2027 as Anthropic and OpenAI aggressively productize frontier models into cybersecurity. The whole cyber industry would face competitive risk and lose budget share. Frontier models have a tangible edge over apps in cyber, and the labs need such revenue to justify their valuations. Palo Alto's Nikesh Arora and CrowdStrike's George Kurtz may talk big now; their demeanor 12-18 months from now is the test. x.com … Show more
