Cybersecurity stocks rally as AI spending puts data security in focus

Cybersecurity shares have staged a sharp recovery, with CrowdStrike up 68% this year and Palo Alto Networks up 88%, according to CNBC’s Investing Club with Jim Cramer. Both companies touched intraday record highs on Monday before easing on Tuesday, extending a rebound that has recast parts of the software sector as beneficiaries of artificial intelligence spending.

The Investing Club said the rally reflects a broader shift in how investors are assessing AI infrastructure. Memory-chip stocks have been among the strongest performers, with Sandisk up more than 625% year to date and Micron Technology up 250%, as demand for high-bandwidth memory has constrained the buildout of AI systems.

High-bandwidth memory is used alongside advanced processors to move large volumes of data quickly enough for AI workloads. CNBC’s Investing Club said that while central processing units remain important, memory availability has become a key bottleneck for large-scale agentic AI, where systems can carry out tasks with limited human intervention.

The club drew a parallel between that hardware constraint and the renewed interest in cybersecurity. Once companies install AI infrastructure and begin running applications on it, they need systems that protect internal data and customer information. Agentic AI can require access permissions for many software agents, expanding the number of points attackers could target.

CrowdStrike Chief Executive George Kurtz addressed that shift on the company’s June earnings call. “The inflection point is that every player in this value chain is experiencing hyper growth and every one of these technologies needs cybersecurity,” Kurtz said, according to CNBC’s Investing Club.

Kurtz also said the market’s view of the sector had changed after what he called the “Mythos moment.” He said cybersecurity was increasingly being seen as “a strategic accelerator and a critical enabler of AI adoption,” rather than only as a function of compliance, risk management and protection.

That reference was to Anthropic’s Project Glasswing, announced in early April. The effort initially brought together 11 organizations, including CrowdStrike and Palo Alto Networks, to help secure Anthropic’s Mythos model, which CNBC’s Investing Club said had shown an ability in testing to identify security gaps. The project has since grown to about 200 organizations, according to the club.

The economics of cybersecurity differ from memory chips. Hardware sales can be more cyclical because supply, demand and pricing interact directly when physical components are scarce. Cybersecurity companies typically sell subscriptions or other recurring services, so revenue growth is more tied to customer adoption, deployment and workload expansion than to an immediate shortage of product.

Recent earnings comparisons show that difference. Micron’s earnings per share rose 1,200% from a year earlier in its latest quarter, according to CNBC’s Investing Club. Palo Alto Networks’ earnings per share increased 156%, while CrowdStrike’s rose 51%.

Palo Alto Networks Chief Executive Nikesh Arora cautioned on the company’s latest earnings call against assuming a sudden near-term surge in cybersecurity results. “I wouldn’t get ahead of my skis and start throwing the kitchen sink at numbers for cybersecurity companies because there is still a process, a mechanism, a cycle that people buy in and there’s execution and deployment,” Arora said. He added that he saw good demand and expected “robust growth,” rather than a windfall in the next quarter or the one after that.

CNBC’s Investing Club said hyperscalers Amazon, Alphabet, Microsoft and Meta Platforms are projected to deploy a combined $750 billion this year, more than 80% above 2025. The club said cybersecurity demand is more likely to follow the installation and use of that infrastructure than to appear immediately as hardware is purchased.

The Investing Club disclosed that Jim Cramer’s Charitable Trust owns shares of CrowdStrike, Palo Alto Networks, Amazon, Alphabet, Microsoft and Meta Platforms.

This story draws on original reporting from CNBC.