I'm going to use recent note by Dan Ives as a 'jumping in' point for the debate around Wall Street cyber stocks.
It came on the same day the sector fell between 6% and 9%, making it either an act of conviction or extraordinarily bad timing, depending on where you stand.
The note, titled "Guarding the AI Gold Rush," comes from Yorkville Ives & Co., which Ives co-founded with Roger Briggs after leaving Wedbush Securities in July, where he had spent eight years as Wall Street's most prominent technology bull.
The firm initiated coverage of 49 technology stocks earlier this month, all rated Outperform, with Thursday's dedicated cybersecurity note following as a sector deep-dive pitching CrowdStrike, Palo Alto Networks, Zscaler, Fortinet and Check Point as the five names to own heading into 2027.
AI attack surface
The core argument is that the agentic era of AI is expanding the cybersecurity opportunity rather than threatening it, because every autonomous agent deployed across a corporate network becomes a new identity to govern, a new path to sensitive data and a new point of entry for attackers.
That argument only holds up if you think that current cyber-tech holds up to this new era. And, as you'll read later in this piece, not everyone is on the same page,
Sticking with Ives for now, he projects security rising from roughly 5% of corporate IT budgets toward 10% over three years, a direction broadly supported by Gartner's forecast of $248.9 billion in information security spending this year. IANS Research surveys of chief information security officers put large-enterprise security allocations at around 10-12% already, with AI as a standalone line item still running at roughly 3%.
M&A
The note landed the morning after Proofpoint, the enterprise email security company owned by Thoma Bravo, agreed to buy data security firm Varonis for $6.3 billion in cash, at $49.75 a share, a 52% premium to where Varonis traded before takeover speculation began in June.
The deal, described by BankInfoSecurity as the largest pure-play cybersecurity acquisition of 2026 and valuing Varonis at 53 times its last twelve months of free cash flow, is the kind of transaction Ives uses as evidence for his consolidation thesis.
This envisages scaled platforms buying data and AI security specialists to close capability gaps smaller vendors cannot afford to bridge independently.
Five picks
CrowdStrike, the cloud-native endpoint security company, tops the list at a $335 price target, with Ives arguing that its Falcon Guardian and Charlotte AI tools make it the control point for AI agents across enterprise environments.
Palo Alto Networks carries a $500 target as the consolidation leader, having absorbed CyberArk to extend its platform into identity and runtime protection for agentic workloads.
Zscaler, whose Zero Trust Exchange routes agents directly to resources without placing them on the corporate network, earns a $250 target, while Fortinet and Check Point round out the five at $225 and $150 respectively, with Ives calling Check Point "one of the most underappreciated franchises" in the group given its privileged access to frontier cyber models.
The five Outperform ratings are more contrarian than they look on paper.
Street pushback
Consensus on both Fortinet and Check Point sits at Hold, and Mizuho and Wells Fargo have Underperform ratings on Fortinet even after nudging their price targets upward this week, while.
Wedbush, Ives' former employer, downgraded both Fortinet and Check Point to neutral last month before Yorkville initiated them at Buy.
On valuation, the bears have real ammunition: CrowdStrike trades at more than 170 times estimated earnings, second to Tesla among S&P 500 members, with Palo Alto at around 91 times and Fortinet at 48 times.
Phillip Securities cut Palo Alto to Neutral this week, noting it trades at roughly 97 times earnings [different methodology] against a five-year average closer to 54 times.
Bernstein analyst Peter Weed has argued the sector may have got ahead of itself, writing that valuations imply a pace of acceleration more consistent with hyperscale computing than with security software, where growth is ultimately constrained by factors including customer headcount.
Thursday's sell-off, in which Palo Alto fell around 7%, SentinelOne lost 9% and Zscaler dropped 6%, was driven partly by AI financing concerns.
Add to the mix a Goldman Sachs note on hedge funds reducing AI exposure, and a reported zero-day vulnerability in Palo Alto's PAN-OS firewall software, this left both CrowdStrike and Palo Alto more than 13% below their October 6 record closes.
Bringing security in-house
The sector faces a longer-term threat, which is Frontier AI labs moving into security rather than simply widening the opportunity for incumbents.
OpenAI is reportedly in early-stage talks to acquire Trail of Bits, a specialist cybersecurity research firm..
And Google's $32 billion acquisition of cloud security company Wiz in March handed the search giant a direct foothold in one of the sector's fastest-growing segments.
Bank of America's Tal Liani countered that cybersecurity remains "a mega-theme and enabler of the AI era," and Citi and Wells Fargo channel checks published this week pointed to security spending gathering momentum ahead of 2027 budget cycles.
So, yes cyber-tech remains at the heart of AI scaling. But in what form? The range of opinion (on grounds of valuation, the fast-moving pace of innovation, consolidation etc) suggest Nostradamus would struggle to predict the future of this sector.
