By Jacob Sonenshine

Jaguar is the latest large company to endure a cyberattack. It speaks to an expanding market for security solutions -- benefiting several software stocks.

Jaguar and Land Rover are extending a production delay this week because of an attack. It's the latest of many news items recently that have centered on cybersecurity attacks, data breaches and the likes.

That's where cybersecurity software providers come in. They provide the software that protects customers' data, and they are expected to grow their businesses over the long term. Companies are spending more on cybersecurity because as they digitize their data, there's an increasing amount of it to protect. Spending on the services could hit $500 billion by 2030, growing about 13% annually, according to Grandview Research.

A growing portion of that spend will go toward products that use artificial intelligence. According to Morgan Stanley analyst Keith Weiss, companies could spend $45 billion on AI security software by 2028, for over 30% annual growth. The AI-enabled offerings are better at detecting and preventing intrusions, and they save companies money on human talent. The best products right now are managed detection and response ( MDR) solutions, which provide 24/7 detection and reduce the need for trained professionals.

The companies that see the largest parts of their businesses from MDR solutions are Palo Alto Networks, CrowdStrike and Microsoft, Weiss writes. We will leave Microsoft out for the moment because the tech behemoth's software offerings are more diversified, while the former two companies are security pure-plays and will see a larger benefit from MDR.

Palo Alto, with a $134 billion market capitalization, should continue to grow briskly. Its $11.1 billion in sales that analyst forecast for 2026, according to FactSet, would be up 14% year over year. That doesn't even include the more than $800 million in forecast second half sales from CyberArk Software, which it agreed to acquire this year. The transaction is expected to close in the second half of 2026, when it will contribute revenue to Palo Alto. Analysts haven't yet included that revenue in their estimates.

CyberArk could make Palo Alto more competitive versus other providers. The company says the acquisition helps complete its package of offerings to customers. This could help Palo Alto take market share and grow faster than the broader security business, which the company said on its second-quarter earnings call is a possibility.

With AI helping companies save money, bulls hope the company's subscription prices could increase, another driver of fast sales growth. Wedbush Securities analyst Dan Ives writes he expects to see continued strength in that regard, after Palo Alto disclosed annual revenue per customer has been increasing this year.

The growth can moderately outpace higher expenses such as marketing and employees. That's partly because the CyberArk deal should include cost synergies, meaning Palo Alto can slash redundant costs as it integrates CyberArk. Analysts expect growing profit margins over the long term, translating into almost 16% annual operating profit growth from the end of this year though 2028, according to FactSet.

That can boost the stock, which has slipped a few dollars in the past few days. Software stocks, broadly, have dropped in that time, as investors take profits from what has been a multiyear rally. Now, Palo Alto has underperformed the iShares Expanded Tech-Software Sector Exchange-Traded Fund's 14% gain this year by almost three percentage points. As it proves its business over the coming quarters, Palo Alto can catch up to the software rally.

The $120 billion CrowdStrike is also well positioned. It's a little smaller than Palo Alto, with analysts foresting $5.7 billion of sales next year for 22% growth. They expect 27% earnings per-share growth.

That could take the stock higher. Yes, it trades at 21 times expected sales for next year, versus the software fund's almost 10 times. But if CrowdStrike can sustain its faster growth versus aggregate earnings expectations for the software ETF for the long term, it might deserve that valuation, in which case rising profits can bring the stock higher.

Give these two stocks a look.

Write to Jacob Sonenshine at jacob.sonenshine@barrons.com

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September 25, 2025 15:33 ET (19:33 GMT)

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