MW 4 reasons why cybersecurity stocks are primed for a turnaround

By Hannah Pedone

Shares of most of the cybersecurity companies Jefferies covers are trading at the lowest valuations seen over the past five years

Jefferies analyst Joseph Gallo said the cybersecurity sector is poised to benefit from the expansion of artificial intelligence, rather than be hurt by it.

Cybersecurity stocks have fallen further than the broader technology sector this year - yet growing calls from inside the artificial-intelligence world for stronger digital defenses give some on Wall Street reason to believe the industry's stock slump won't last.

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 by a wider slump in the software industry. As the iShares Expanded Tech-Software Sector ETF IGV has tumbled 22.8% so far this year, the Amplify Cybersecurity ETF HACK has fallen 4.7%, while the State Street Technology Select Sector ETF XLK has slipped 2.9%.

Gallo said there are four reasons he believes the selloff in cybersecurity stocks appears to be 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' (PANW) collaboration with Anthropic is one such example.

Read more: Palo Alto Networks' stock slides as underwhelming outlook overshadows AI messaging

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 and conversations, such as the 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 stronger 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 close to 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 $(RPD)$, Qualys $(QLYS)$, Gen Digital (GEN), SentinelOne (S) and Tenable Holdings $(TENB)$ among those closest to their valuation troughs.

Meanwhile, stocks that are trading further above valuations lows include Cloudflare (NET), CrowdStrike Holdings (CRWD) 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, investors are watching for signs of a turnaround so they can take advantage of the cheap valuations.

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

See also: Cybersecurity firms hit by report of China ban

-Hannah Pedone

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February 19, 2026 14:15 ET (19:15 GMT)

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