Cybersecurity stocks have fallen this year alongside a broader retreat by the software sector — yet growing calls from inside the artificial-intelligence world for stronger digital defenses give some on Wall Street reason to believe they are poised to rally.

Jefferies analyst Joseph Gallo is one person who is bullish on the cybersecurity industry for several reasons. He wrote in a note that he believes cybersecurity companies will actually be a “net beneficiary” of AI given the “growing volume and sophistication” of cyberattacks.

Cybersecurity stocks have been pulled down this year amid a steep selloff in software stocks. The Amplify Cybersecurity ETF has fallen 4.8% in 2026, while the S&P 500 index has gained 0.2%.

Gallo said there are four reasons he believes the selloff in cybersecurity stocks is overdone.

For one, he noted that the industry is poised to benefit from growing demands from AI companies focused on the urgent need for better tools to defend against hacks.

For instance, Anthropic wrote in a recent statement: “Our view is this is a moment to move quickly — to empower defenders and secure as much code as possible while the window exists.” 

Gallo pointed out that AI companies aren’t trying to “displace” cybersecurity vendors; rather, they have indicated a willingness to be more “partnership-oriented.” The cybersecurity company Palo Alto Networks’ collaboration with Anthropicis one such example.

Gallo also observed that the emergence of disclosures on security breaches — such as Anthropic’s disclosure in November of an espionage campaign against its Claude AI agent — have brought to light the growing demands for cybersecurity solutions.

Concerns over the threats posed by AI have also led to a proliferation of expert conferences, such as the upcoming RSA Conference in March, to assess the risks that AI poses but also who could benefit, he added.

Finally, Gallo said the underlying fundamentals of cybersecurity companies have been strong relative to the wider software industry. He said that could lead to further “tailwinds pertaining to the security of AI,” although it could take time.

The shares of 63% of the cybersecurity companies Gallo covers are trading around the lowest valuations — in terms of enterprise value over expected revenue over the next 12 months — seen over the past five years.

He listed shares of Rapid7, Qualys, Gen Digital, SentinelOne and Tenable Holdings among those closest to their valuation troughs.

Meanwhile, stocks that are trading the most above their valuation lows include Cloudflare, CrowdStrike Holdings and Palo Alto Networks.

Gallo said that while it would be “naive” to say that AI won’t “encroach” on some parts of the cybersecurity industry, an opportunity to take advantage of cheap valuations could appear soon.

“We believe investors are looking for clear data points to regain confidence in the long-term durability of the space” he wrote.