The artificial intelligence revolution is rewriting the rules of cybersecurity, and the financial stakes are massive. AI-powered cybersecurity will skyrocket from $15 billion in 2021 to a staggering $135 billion by the end of the decade, according to Morgan Stanley.
But the battle for supremacy in cybersecurity isn't just about market growth. It's also a high stakes arms race. While companies like Palo Alto Networks are embracing AI to make networks more secure, criminals are using the technology to launch more sophisticated cyberattacks.
"It's a very dynamic environment right now," Wendi Whitmore, chief security intelligence officer at Palo Alto Networks, told Investor's Business Daily. "And we're not just talking because of technology tools that attackers are using. But now you have the geopolitical landscape shifting."
Cybersecurity Stocks In 2025
Cybersecurity stocks have drawn more interest thanks to a slate of high-profile hacking incidents. A prominent example was the "Salt Typhoon" attack, where Chinese-backed state hackers successfully infiltrated U.S. telecom providers including AT&T, Verizon and T-Mobile in 2024.
The increased importance of cybersecurity in cloud computing was also highlighted when Google-parent Alphabet agreed to buy fast-growing cybersecurity firm Wiz in an all-cash $32 billion deal announced in March.
The Computer Software Security industry group ranks No. 15 out of 197 groups tracked by IBD.
Major cybersecurity stocks have been posting solid gains. Cloudflare is up roughly 46% this year, while Zscaler has added 38% and CrowdStrike is up 28%.
The impact of President Donald Trump's tariffs has emerged as a wild card for the industry. But Wall Street analysts still expect corporate spending on cybersecurity to remain a priority.
"Cybersecurity names such as Palo Alto, Zscaler, CrowdStrike, Checkpoint, CyberArk will be defensive names where investors could rotate from semis to software to hunker down during this Category 5 storm and likely outperform other subsets of tech," Wedbush analyst Dan Ives wrote in an April 7 note to investors.
Whitmore said more organizations are thinking ahead when it comes to dealing with cyber threats. "What we're seeing is so many more organizations shifting left and being able to say, 'We're going to invest proactively.'"
AI In Cybersecurity
Industry experts expect AI to continue playing a crucial role in cybersecurity.
"The onset of AI has a lot of organizations asking questions about how they can protect their own environments," Whitmore said. "Organizations that are not investing in those capabilities to build out their security operations centers, to build their detection capabilities and processes, they're going to be left behind."
Cybersecurity firms expect AI tools will help reduce the time it takes to detect and respond to various forms of hacking incidents. Generative AI will help companies deal with the shortage of software engineers by enhancing automation capabilities in security operations centers, they say.
At this year's RSA Conference, which gathered cyber professionals from around the globe, the buzz was centered around the development of agentic AI. Unlike generative AI systems that require human prompting, these agentic AI agents can think and problem solve on their own.
Whitmore says the rise of agentic AI signals a fundamental change in the cybersecurity landscape.
"It's taking over more of the processes which used to be more repetitive," Whitmore stated. "It means we're solving more advanced problems for our clients worldwide."
Palo Alto Networks Expands AI Footprint
Like many of its industry peers, Palo Alto Networks is adding more AI to its computer security products. On April 28, the company announced the acquisition of Protect AI, a Seattle-based startup that specializes in AI-based attacks.
The deal, reportedly valued at $500 million, is Palo Alto Networks' biggest acquisition since 2020.
Palo Alto has expanded from the network firewall business into security operations center management, endpoint protection and other areas. In an interview with IBD, Palo Alto Chief Executive Nikesh Arora talked about how his platformization strategy will drive long-term growth for Palo Alto stock.
"We feel very comfortable that we have the organic capability to keep innovating," Arora told IBD.
In 2023, Palo Alto stock climbed above a $100 billion market cap, making it the first cybersecurity firm to reach that milestone.
On Feb. 19, Palo Alto stock rose to an all-time high 208.39. From there it pulled back in sync with the market correction. Like some other industry leaders it's shown a bit of renewed strength. Shares reestablished themselves above key moving averages in late April.
Nation-State Cyber Threats
While cybersecurity firms are turning to autonomous, goal-driven AI agents, state-sponsored hackers are also adopting new generative AI technologies.
"I think AI in particular fuels an easier ability for attackers to scale," Palo Alto Networks' security chief Whitmore said. AI could allow attackers to quickly identify vulnerable machines and applications en masse, she said.
"That has a lot of downstream impact because if you're a nation-state actor, you might get access to those systems and lay in wait for some sort of later time when you need to leverage that capability," Whitmore added.
State-sponsored cyber threats are a serious concern for both businesses and governments.
"Cyberspace is increasingly becoming the battlefield on which America's adversaries seek to undermine our sovereignty and threaten the services that Americans depend on," wrote Mark E. Green, MD, chairman of the House Committee on Homeland Security, in a November 2024 report titled "Cyber Threat Snapshot."
An April 2025 report released by Forescout Research outlined the escalation of these state-sponsored hacktivist attacks. The report analyzed 780 hacktivist attacks in 2024 and found that critical infrastructure — defined as government entities, transportation, logistics and financial services — remained a key target.
The main culprits have been groups backed by Russia, China and Iran. But Whitmore says North Korea also presents a growing threat. "They're not only looking to conduct ransomware attacks in order to bring the payment back into their country, but then they're also looking to create these fraudulent workplace scams."
