The AI Supercycle's Biggest Blind Spot: Why Cybersecurity Growth Stocks Could Outperform in 2026

Artificial intelligence (AI) stocks have been driving the stock market's action over the course of the three-year bull market that began in late 2022. AI stocks like Nvidia, Broadcom, Micron, and Palantir, to name a few, have put up astronomical returns.

But there is one area of the tech sector that has not seen a major boost from the AI supercycle -- at least, not yet: cybersecurity. However, some notable Wall Street analysts see that changing, forecasting that cybersecurity stocks will break out in 2026.

Is this investment blind spot about to emerge as a bright spot for investors amid the currently murky environment for tech stocks?

Image source: Getty Images.

Why cybersecurity stocks have lagged

Over the three-year bull market, the leading pure-play cybersecurity stocks have generally lagged other leading AI stocks, and there are a few broad reasons for that. Some, like CrowdStrike (NASDAQ: CRWD), are extremely overvalued and have been for several years. Also, those companies endured some high-profile problems in recent years, most notably the massive computer outage CrowdStrike triggered in July 2024 when it released a flawed software update. That single error temporarily tanked CrowdStrikeʻs stock.

But more broadly, during the past three years, a large share of tech spending went toward AI infrastructure and areas that could boost productivity and efficiency. While cybersecurity is a necessity, it is largely seen as a more defensive area of spending, so it wasn't getting the massive budget increases that other areas of the AI universe were.

More recently, cybersecurity stocks were pummeled along with many other types of software stocks, as investors panicked that AI models (like Anthropicʻs Claude Code Security, for example) would make their traditional offerings less useful.

But now, that narrative is starting to shift. Recently, JPMorgan Chase Private Bank came out with a report that projected global cybersecurity spending would reach $240 billion in 2026. Further, JPMorgan strategists predict that spending on cybersecurity will hit $320 billion by 2029, which would be an 11% compound annual growth rate, and that spending on AI-related cybersecurity will grow 3 to 4 times as fast as the broader industry.

AI's next wave?

This spending increase will be driven by a few factors, according to JPMorgan Chase. First, rising global geopolitical tensions are elevating the need for better, faster, and more advanced cybersecurity measures for governments, corporations, and systems. And the JPMorgan Chase commentary came out before the U.S. launched its war with Iran in late February.

Since the Iran war began, cybersecurity stocks have jumped. CrowdStrike has gained about 3.3% in the past month, while Palo Alto Networks (NASDAQ: PANW) has gained 6.1%, and Cloudflare (NYSE: NET) has surged 15.4%.

The other factor that will drive cybersecurity spending, according to JPMorgan Chase, is the need to protect the AI infrastructure investments that companies and governments have made in their systems. While cybersecurity was largely overlooked in the last wave of AI spending, it will be a central focus in the next wave.

Analysts at Wedbush largely concur with these conclusions. In a research note published in February, Wedbush analyst Dan Ives wrote that "AI will be a major tailwind to the cybersecurity sector over the coming years as protection of use cases, data, and end points expand markedly."

It will become even more critical because cybercriminals are using AI, and upgraded defenses are needed to combat it. Ives also dismissed concerns that AI models will replace enterprise cybersecurity because the systems are far too vast and complex to be protected effectively solely with AI-devised models.

Both JPMorgan Chase and Wedbush have pointed to three companies they expect will be winners in the cybersecurity space: CrowdStrike, Palo Alto Networks, and Zscaler (NASDAQ: ZS).

Zscaler is rated a buy by 86% of analysts covering it, and their median price target of $220 per share would represent 56% upside. CrowdStrike is seen as a buy by 71% of analysts, and its median price target of $494 per share forecasts a 26% upside. Palo Alto is considered a buy by 83% of analysts who follow it, and its median price target of $206 per share would be a 28% return from current levels.

Investors should keep an eye on their valuations, though. All three of these stocks have high price-to-earnings ratios and may be overvalued at present.

JPMorgan Chase is an advertising partner of Motley Fool Money. Dave Kovaleski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends CrowdStrike, JPMorgan Chase, Micron Technology, Nvidia, Palantir Technologies, and Zscaler. The Motley Fool recommends Broadcom and Palo Alto Networks. The Motley Fool has a disclosure policy.