Cyber security is going to be a huge growth area for the AI sector, says Wedbush's Dan Ives
Speakers
Dan Ives — Analyst, Wedbush
— Wedbush analyst
Summary
- Cybersecurity IT budgets are projected to surge from historical levels of 5-8% to 20-25% of total IT spend due to the integration of AI.
- The market currently misprices AI as a headwind (risk of disintermediation) for cyber stocks, whereas the analyst views it as a massive tailwind driving "300 to 500 basis points" of acceleration.
- Palo Alto Networks is highlighted as a "double table pounder" with significant upside potential driven by platformization and AI-driven M&A.
Trade Ideas
"Cybersecurity is now not 5 to 8%. You could argue from everything we're seeing, 20, 25% of now the potential budgets... I think is being mispriced, that AI is a headwind where in fact, I think it actually is going to change the view of the sector." Investors fear that AI tools (like Anthropic) will replace traditional software and security vendors. Ives argues the opposite: the deployment of AI use cases requires massive "end-to-end" security infrastructure, effectively tripling the addressable budget share for leaders like Palo Alto and CrowdStrike. He cites M&A activity (specifically mentioning a deal involving CyberArk and Palo Alto) as proof of this platform shift. LONG. Ives explicitly calls PANW a "double table pounder" and identifies CRWD and ZS as top picks that will benefit from this inflection point. The sector is currently "guilty until proven innocent" with negative sentiment; risk of earnings upsets (as seen previously with PANW); market skepticism regarding the timeline of AI monetization.
