Artificial intelligence chips and data centers have captured a lot of attention, but cybersecurity stocks are also major beneficiaries of AI. As the build-out continues and more people use AI products and services, more points of vulnerability emerge. This larger surface area warrants more advanced cybersecurity resources to protect sensitive information from hackers.
Some investors have spotted the opportunity. CrowdStrike (CRWD +2.27%) and Fortinet (FTNT +3.88%) are two of the cybersecurity stocks that have more than doubled year-to-date. Here's why the current rally could continue.
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Physical AI can require cybersecurity for everyday products
Cybersecurity isn't just for computers and keeping a hacker out of your bank account. Modern cars have built-in cybersecurity protections to mitigate risks. The National Highway Traffic Safety Administration said it is focused on strong cybersecurity to ensure that advanced driver assistance technologies are safe and work as intended. The agency also noted that these technologies increase vulnerabilities.
"Cybersecurity rose out of necessity to protect these systems and the information contained within them," it said in a report detailing vehicle cybersecurity.
That's important for physical AI. Alphabet's (GOOG +0.22%) (GOOGL +0.35%) Waymo is already conducting more than 500,000 paid rides per week with its robotaxis. Self-driving vehicles already exist, and they are gradually going mainstream. These cars require far more technology than regular vehicles, and that intensifies cybersecurity needs.
Humanoid robots, which could hypothetically perform all household chores in the future, also need cybersecurity software. Chinese robot maker X Square Robot recently hosted an event demonstrating the types of chores humanoid robots could perform, so it's no longer science fiction.
If physical AI grows as quickly as ChatGPT did in its early days, demand for cybersecurity should soar similarly.
AI also makes it much easier for hackers to infiltrate leaky systems
CrowdStrike, Fortinet, and Palo Alto Networks all delivered strong earnings results, with accelerating revenue growth and mentions of artificial intelligence. They all cited AI as a key growth driver, but CrowdStrike CEO George Kurtz highlighted the "Mythos moment," which "translated into mass-market acceptance that AI adoption needs security."
NASDAQ: CRWD
Key Data Points
The dream scenario is that cybersecurity revenue accelerates quickly, as Google Cloud did, and the Mythos moment might justify it. This event refers to when Anthropic announced the Claude Mythos Preview. However, this new AI model was too powerful and could pinpoint thousands of cybersecurity vulnerabilities in an instant.
Naturally, that would be a hacker's dream, which explains why Anthropic held back from releasing the model. However, AI will continue to advance. It has many positive uses, but hackers can very easily get into systems with leaks. Quantum computing can make this feat even easier once the technology becomes commercially viable.
As AI scales and becomes more important for the economy and national security, businesses will require deeper investments in cybersecurity. This reality explains why cybersecurity stocks have been outpacing the broader market lately, and this tailwind doesn't seem likely to end anytime soon.
