Bernstein’s latest report sends a clear signal: AI-driven cybersecurity demand is real and strong, and business model innovation is genuinely improving sales efficiency, but after a substantial rally, sector valuations have fully or even excessively priced in these positives. The risk-reward ratio for most covered companies is no longer compelling, and only Zscaler, with its sales transformation nearing completion and relatively reasonable valuation, still receives an “Outperform” rating. Overall, industry fundamentals have not deteriorated, but share prices now demand significantly more from future growth.
Bernstein downgraded Palo Alto Networks (PANW), Okta (OKTA), and SentinelOne (S) to “Neutral.”
Bernstein was strongly bullish on the cybersecurity industry earlier this year, with the core thesis being the new security demand created by AI. Although AI labs have successively launched their own security products, raising substitution concerns, the firm maintained its positive view. Mid-year CISO and CIO surveys showed further improvement in demand signals, and recent discussions that cybersecurity risks could limit the pace of AI lab development have also improved investor perceptions of traditional security companies. The problem, however, is that share prices may have risen faster than fundamentals have improved. Since the beginning of 2026, multiple cybersecurity stocks have posted cumulative gains of about 100% or even more, and sector crowding has increased markedly. Even using revenue forecasts above Wall Street consensus, the firm still struggles to find sufficient upside from current valuations except for Zscaler.
Based on its latest valuation model, Bernstein sharply raised valuation multiples for cybersecurity companies and lifted price targets for several, but downgraded three companies. Palo Alto Networks’ price target was raised from $253 to $351, Okta’s from $143 to $174, and SentinelOne’s from $21 to $25, with all three ratings cut to “Neutral.” Bernstein said these three companies had previously been considered “too cheap,” but after re-rating, their risk-reward ratios are no longer attractive. Ratings for CrowdStrike, Cloudflare, Fortinet, and Zscaler remained unchanged, but the firm is particularly cautious about CrowdStrike’s current valuation, believing it is clearly above the level implied by its industry regression model. Although SentinelOne was downgraded, it is still seen as an attractive potential strategic acquisition target, possibly becoming an acquisition target for AI labs, hyperscale cloud companies, or other large security vendors. Okta’s biggest potential upside variable may come from AI agent infrastructure, but the timing and pricing of large-scale mature deployment remain unclear. Zscaler is the exception, with Bernstein sharply raising its price target from $224 to $298 and maintaining its “Outperform” rating.
