Cyber stocks have endured a rough 2026 alongside an AI-driven sell-off in software stocks. That may create a buying opportunity, according to Wedbush analyst Dan Ives.
“AI will be a major tailwind to the cyber security sector over the coming years as protection of use cases, data, and end points expand markedly,” Ives wrote in a research note published Tuesday.
While the growing use of AI has raised questions about business models in sectors ranging from enterprise software to real estate, Ives argued that the rise of AI-driven threats is making cybersecurity a mission-critical expense that companies simply cannot cut.
That bullish thesis rests on a stark reality. As hackers use AI to launch faster and more sophisticated attacks, corporations are effectively forced to spend more on defense. Wedbush’s data shows that vendors are hiking their sales targets by as much as 30% this year to keep up with a strengthening demand pipeline. This shift suggests that while general enterprise software budgets may be under scrutiny, security remains a priority.
Despite this long-term optimism, investors are currently staring into a sea of red. The performance of major sector trackers has been lackluster in the past month. For instance, the First Trust Nasdaq Cybersecurity ETF (CIBR) is down roughly 9%, while WisdomTree Cybersecurity Fund (WCBR) has slipped about 5%. For the year, they are down about 3% and 7%, respectively.
Although bulls see a generational opportunity as AI expands the “attack surface” for major firms via APIs and workloads, some skeptics worry slowing revenue growth and lofty valuations could hamper certain players.
The primary concern in the bear case is that the “AI tax” on corporate budgets could cannibalize other areas of IT spending, leaving cyber firms to fight over a finite pool of capital.
Tech bull Ives identified three specific companies as best-positioned “winners” to navigate this shift. The first is CrowdStrike (CRWD), which he labels the industry’s “gold standard.” The firm argues that CrowdStrike’s Falcon platform is becoming increasingly effective as hackers become a larger threat. Although shares of the cybersecurity firm have tumbled almost 13% year to date, Wedbush maintains an Outperform rating and a $600 price target.
Second is Palo Alto Networks (PANW), which remains a Wedbush favorite for 2026 despite its stock being down nearly 12% year to date. Ives believes the company’s “platformization” approach, combined with the acquisition of CyberArk, is a game changer for securing AI data pipelines. The strategy aims to reduce vendor fatigue by offering a consolidated suite of tools, a move that analysts believe could capture a larger share of the enterprise market. The firm issued a $225 target on the stock.
Finally, the note highlights Zscaler (ZS) as a premier name to own, giving it a $350 price target. Wedbush notes that the company’s “Zero Trust” strategy is seeing durable subscription growth as enterprises see a massive acceleration in AI traffic.
For investors, AI is not just a buzzword in this sector — it is an intensifying force that validates high-margin, recurring revenue models. As the attack lifecycle shrinks from “weeks to hours,” the premium on automated, AI-driven defense will likely continue to rise, “reinforcing budget resilience in this new AI driven IT budget world,” Ives notes.
Francisco Velasquez is a Reporter at Yahoo Finance. Follow him on LinkedIn, X, and Instagram. Story tips? Email him at francisco.velasquez@yahooinc.com.
