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Thus far, the artificial intelligence boom rewarded the companies supplying the necessary computing power. Semiconductors, servers, networking equipment and data centers became the market’s primary focus as technology companies raced to build AI infrastructure.The next phase may reward the companies responsible for protecting it.
In an increasingly digital economy, cybersecurity has become a foundational piece of modern business infrastructure. These companies often benefit from recurring revenue, attractive margins and powerful secular growth drivers. AI is now adding another catalyst by creating more data, applications, cloud workloads and digital identities that must be secured.
Yet a strong industry does not always produce strong stock returns. The post-pandemic software boom pulled years of expected growth forward, as aggressive spending, easy financial conditions and enthusiastic positioning pushed valuations to unsustainable levels. When growth normalized and interest rates rose, those multiples compressed sharply.
The damage was especially severe for Okta ((OKTA - Free Report) ) and SentinelOne ((S - Free Report) ), both of which remain well below their prior-cycle highs. Fortinet ((FTNT - Free Report) ), by comparison, has traded much better and already demonstrated that it can compound through a difficult software environment.
Now, the investment setup appears to be improving. AI is strengthening the industry’s long-term demand outlook, valuations have moved closer to historical norms and earnings estimates are rising. Fortinet currently carries a Zacks Rank #1 (Strong Buy), while SentinelOne and Okta each hold a Zacks Rank #2 (Buy), indicating positive earnings-estimate momentum across three very different areas of cybersecurity.
Image Source: Zacks Investment Research
Why Cybersecurity Could Be AI’s Next Major Investment ThemeAI creates a powerful two-sided catalyst for the cybersecurity industry.
On one side, enterprise adoption is expanding the attack surface. Every new AI application can introduce additional models, cloud workloads, databases, devices and connections that must be monitored and protected. The growth of autonomous AI agents could be particularly important, as businesses will need to control which systems, applications and sensitive information those agents are permitted to access.
On the other side, AI is making cyberattacks more scalable. The same tools that improve the productivity of software developers and security teams can help criminals automate phishing campaigns, identify vulnerabilities and execute increasingly sophisticated attacks. Fortinet has already described the threat environment as becoming more complex and intensified by AI, while its research has identified agentic AI as an emerging enabler of large-scale data theft.
Cybersecurity spending is also more durable than many other areas of enterprise software. Companies can postpone discretionary technology projects during periods of uncertainty, but they cannot simply ignore a major security vulnerability. As AI becomes more deeply integrated into business operations, security should increasingly be treated as an essential cost of adoption.
Fortinet: The Proven Cybersecurity LeaderFortinet is the highest-quality and most established selection of the three. The company built its leadership position in network firewalls but has expanded into a much broader platform spanning secure networking, operational technology, security operations and secure access service edge, or SASE.
Its integrated hardware-and-software model provides meaningful differentiation. Fortinet designs specialized processors and operates its products through a common operating system, allowing customers to consolidate security functions without stitching together numerous independent products.
AI should increase demand across the platform. Expanding data center infrastructure, heavier network traffic and rising connectivity requirements all create a need for greater throughput, segmentation and protection. Fortinet reported that several recent product deployments were directly related to customers securing AI infrastructure. AI-driven security operations billings increased 23% during the latest quarter.
The underlying financial momentum is already strong. First-quarter revenue increased 20%, billings grew 31% and non-GAAP earnings advanced 41%. Fortinet also raised its full-year revenue-growth outlook to 15%.
FTNT trades at 51x forward earnings,compared with its ten-year median of 63.8x. While that is not necessarily cheap, the valuation is supported by high margins, strong cash generation and demonstrated execution.
Fortinet is the steadier compounder and potentially the lower-risk way to participate in the theme. The primary drawback is that the stock has already performed well, leaving less room for execution errors than the beaten-down alternatives.
Image Source: Zacks Investment Research
SentinelOne: The AI-Native TurnaroundSentinelOne represents the highest-risk, highest-potential-return selection.
Its Singularity platform uses automation and machine learning to identify and respond to threats across endpoints, cloud workloads, identities and data. That architecture gives SentinelOne a natural connection to the AI theme: as attacks become faster and more automated, companies increasingly need defensive systems capable of responding at machine speed.
The stock remains deeply below its prior cycle high after slowing growth and investor skepticism toward unprofitable software companies crushed its valuation. The current bullish case, however, does not depend on returning to pandemic-era multiples. SentinelOne must instead demonstrate durable growth alongside improving profitability.
That process is underway. First-quarter revenue increased 21%, while annualized recurring revenue grew 23% to $1.16 billion. Non-GAAP operating margin improved to 4% from negative 2%, and management raised its full-year operating-income outlook.
S trades at 54.8x forward earnings, with long-term EPS projected to grow 46.9% annually, giving it a PEG ratio just over 1.
Competition remains intense, and SentinelOne still needs to prove that it can deliver consistent profitability. But if growth stabilizes and operating leverage continues to improve, the stock could undergo a meaningful revaluation.
Image Source: TradingView
Okta: Securing the AI WorkforceIdentity may become one of the most important security layers of the AI economy.
Every employee, customer, application and AI agent requires a verified identity and clearly defined access privileges. As businesses deploy autonomous agents, the number of non-human identities and access decisions could rise dramatically. Okta is positioned directly within that identity-management layer.
Like SentinelOne, OKTA remains far below its 2021 high following the collapse of software valuations and several company-specific execution issues. But the business has become substantially more profitable, and recent results suggest that demand is stabilizing.
First-quarter revenue increased 11%, while remaining performance obligations grew 16%. Okta generated a 35% free-cash-flow margin and a 25% non-GAAP operating margin, demonstrating that the company no longer needs extraordinary revenue growth to produce attractive economics. Management has also identified AI agents as a rapidly emerging workforce that must be secured alongside human users.
OKTA trades at 39x forward earnings, compared with its historical median of ~80x.
Competition from Microsoft and other platform providers remains a major risk. Still, Okta’s independent identity platform, improving profitability and exposure to agentic AI make it a compelling second-act recovery story.
Image Source: TradingView
Cybersecurity Stocks’ Resurgence The first phase of the AI boom was about building the infrastructure. The next phase will increasingly be about protecting the data, networks and identities running through it.
Fortinet offers proven execution and profitable growth. SentinelOne provides the most speculative turnaround opportunity, while Okta offers direct exposure to the growing importance of identity in an agent-driven economy.
With earnings estimates moving higher and valuations far below their previous extremes, cybersecurity may be one of the most compelling areas emerging from the software reset.