Cyber’s high bar

The biggest threat facing cybersecurity stocks this week wasn’t hackers. It was investors.

First up was Netskope, which beat on both revenue and earnings for the quarter. Revenue rose 28% year over year, while annual recurring revenue grew 29%. But with investors hoping for an even bigger upside surprise, and with CFO Drew Del Matto announcing his departure, shares tumbled 19.11%.

CrowdStrike got a similar reaction. The cybersecurity giant narrowly beat expectations, with revenue increasing 26% from a year ago. Management even announced a four-for-one stock split, but shares still fell 3.81%.

Palo Alto Networks also saw its revenue rise 31% year over year. Its backlog—the value of signed contracts that have yet to be recognized as revenue—grew 36%. Even so, shares slipped 0.42% this afternoon.

The AI alliance

Part of the selloff may simply be a case of investors taking profits. Cybersecurity stocks have been among the market’s best performers this year, with CrowdStrike and Palo Alto both up over 50% year to date. After a run like that, investors expected them not just to beat estimates, but to smash them.

The sector’s performance has proven more resilient to AI disruption than many investors once feared. Rather than competing, AI and cybersecurity companies are increasingly working together: Both CrowdStrike and Palo Alto are early participants in Anthropic’s Project Glasswing, an initiative to find and patch vulnerabilities in critical software.

Cybersecurity firms are also racing to embed AI into their own platforms through acquisitions. CrowdStrike recently acquired identity security startup SGNL and AI security company Pangea, while Palo Alto has closed five AI-related acquisitions over the past year.

Survival of the biggest

Analysts were quick to jump in after the selloff. Oppenheimer and BTIG both lowered their price targets on Netskope while maintaining bullish ratings, noting that the company’s updated fiscal 2027 outlook sets a high bar for future performance. Meanwhile, sentiment around Palo Alto and CrowdStrike remained more constructive, with analysts continuing to view both companies as key beneficiaries of AI.

Morgan Stanley Managing Director Meta Marshall raised an interesting point: Companies now worry about new risks, like employees using AI unsafely, AI-generated cyberattacks, and AI agents accessing sensitive data. That complexity benefits large cybersecurity platforms as customers increasingly want one system that can handle many security functions at once.

For smaller firms like Netskope, even strong earnings means the bar is getting higher. At the end of the day, in cybersecurity’s AI era, the biggest winners could simply be the biggest platforms.—SY