Cybersecurity Software Emerges as a Pillar of Growth in Tech Sector
Technology consistently garners extensive media attention, and for good reason. Over recent years, technology stocks have represented substantial contributors to market advancements, captivating interest from myriad investors. However, the term “tech” encompasses diverse categories, prompting a focus on an increasingly vital segment: cybersecurity software.
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A recent communication from Morgan Stanley’s esteemed software division highlights a straightforward truth: cybersecurity represents both a critical market segment and a burgeoning opportunity for growth-oriented investors.
In elucidating the landscape and potential in the realm of cybersecurity stocks, the analysts assert that security expenditures will inevitably command a larger share of IT budgets as the breadth of threats expands and the velocity of assaults accelerates.
The cybersecurity arena, valued at approximately $270 billion, is poised to grow at a compound annual growth rate (CAGR) of around 12% from 2025 to 2028, positioning it as one of the most rapidly advancing markets within the software sector.
Furthermore, CIO surveys consistently indicate that cybersecurity expenditure will increase approximately 50% faster than overall software spending, solidifying its status as the most resilient domain of IT allocation. With artificial intelligence amplifying both the attack surface and the complexity of threat vectors, this sector is set to experience growth that outstrips most IT categories.
As cybersecurity ascends as a frontrunner in software expansion, Morgan Stanley’s analysts have identified several stocks that exhibit promise within the industry. We delved into the TipRanks database to ascertain broader Wall Street perspectives on two cybersecurity stocks that the financial institution endorses. Herein, we examine them closely.
Okta, Inc. (OKTA)
First among these is Okta, a company valued at $16 billion, specializing in identity security solutions. Okta’s offerings encompass verification processes for both human and non-human identities, addressing secure protocols for agentic AI. Its products are meticulously designed to assist customers in safeguarding users, employees, and business partners while concurrently enhancing operational efficiency.
Okta delivers comprehensive online identity protection for workforces and developers alike, fortifying digital infrastructure on multiple fronts. Pertaining to workforce management, the Okta Platform streamlines identity verification and access for employees, contractors, and various partners. The company prides itself on its simplicity, asserting that reduced complexity and risk can scale universally to enterprises of diverse sizes.
Meanwhile, for developers, the Auth0 platform simplifies authentication and authorization workflows for customer identities, empowering users to construct secure applications that can adapt to evolving needs.
Building upon its extensive experience in identity security, Okta has unveiled Okta AI, its latest platform. This innovation is engineered to integrate seamlessly into both the workforce and customer identity clouds, facilitating real-time actions driven by the latest data insights.
The incorporation of artificial intelligence enhances security measures, fosters greater productivity, and ultimately refines user experience. Remarkably, Okta AI reportedly reduces bot traffic by 90% within 90 days, blocking 79% of automated login attempts.
Turning to financial health, Okta’s most recent quarterly report for fiscal Q2 2026 revealed a revenue of $728 million, surpassing estimates by $16 million and reflecting a 13% year-over-year increase. Non-GAAP earnings reached 91 cents per share, exceeding expectations by 6 cents.
Looking ahead, Okta anticipates revenues ranging from $728 million to $730 million for the upcoming fiscal third quarter, comfortably above the $723.1 million forecasted by Wall Street.
Analyzing Morgan Stanley’s perspective, 5-star analyst Keith Weiss articulates the company’s robust potential. He notes, “While Okta’s foray into Identity Governance (OIG) and Privileged Access Management (PAM) is still nascent, with the former launching in North America in August 2022 and establishing a >$100 million annual contract value (ACV) business (exceeding $400 million when including LCM and Workflows) involving 1,300 customers, this underscores substantial opportunities for upselling within the next 12 to 24 months.”
Furthermore, the analyst emphasizes the growth trajectory of Okta’s AI functionalities, remarking, “Beyond OIG and governance at large, the deployment of AI agents necessitates secure interactions among non-human identities, while Okta’s Auth for GenAI solution equips developers with integral authentication processes and additional safeguards such as Fine Grained Authorization for RAG, ensuring accurate document retrieval within client GenAI applications.”
Weiss has assigned an Overweight (Buy) rating on OKTA shares, setting a price target of $123, which suggests a 34% upside potential over the forthcoming year. The consensus emanating from 32 recent analyst recommendations comprises 19 Buys, 11 Holds, and 2 Sells, culminating in a Moderate Buy rating.
Currently, shares are priced at $91.96, with an average target price of $118.89, indicating prospective growth of 29% in the next year.
Zscaler (ZS)
The subsequent cybersecurity stock warranting attention is Zscaler, which adopts a ‘zero trust’ philosophy in its operations. Utilizing AI technology, Zscaler delivers secure and efficient digital security solutions, facilitating real-time protection across diverse networks, encompassing IoT and OT connections.
This Zero Trust infrastructure empowers users to consolidate their security frameworks, alleviating the intricacies of interdependent security measures across networks and devices.
This approach is equally adaptable to cloud computing environments, where it provides robust workload security and constant defense against emergent threats. Zscaler’s unified platform has demonstrated itself to be a financially prudent shield for hybrid cloud architectures, enabling lateral movements while thwarting unauthorized access attempts.
The scale of Zscaler underscores its success; since its inception 18 years ago, the company has evolved into a ~$44 billion leader in the cybersecurity sector. The platform manages over 500 billion transactions daily, thwarting an excess of 9 billion incidents and policy violations.
Notable clients, including GE and Siemens, have reported substantial improvements in user experience and corresponding reductions in infrastructure costs.
In a strategically significant move for investors, Zscaler announced its acquisition of online security provider Red Canary earlier this year; last month, both companies confirmed that the acquisition had been successfully completed.
This initiative integrates Red Canary’s expertise in exposure management and agentic AI threat supervision into Zscaler’s existing framework, although the financial particulars of the deal remain undisclosed.
From a financial perspective, Zscaler recently disclosed its results for fiscal Q4 2025, concluding on July 31. The company’s revenue for this final quarter reached $719.2 million, reflecting a 21% year-on-year growth and exceeding expectations by over $12 million.
The reported non-GAAP earnings per share were 89 cents, surpassing forecasts by 9 cents, while the annual recurring revenue (ARR) experienced a 22% year-over-year growth, culminating at $3.02 billion.
Referring again to analyst Weiss, we note his generally optimistic outlook on Zscaler. He admires the company’s operational prowess, writing, “We envision ZS potentially solidifying its position as the next leading platform (alongside PANW and CRWD), as it maintains its growth trajectory within the $34 billion SASE market (projected to grow at a 24% CAGR) while transcending traditional network security through the Red Canary acquisition, strengthening the AI narrative.
With only 47% of organizations currently adopting SASE, and projections suggesting penetration could reach 47% by 2027, a significant tailwind lies ahead for Zscaler. Moreover, Zscaler currently trades at 0.7x EV/26e Rev/g, only marginally above the cybersecurity average, placing it favorably relative to growth opportunities.”
Weiss also maintains an Overweight (Buy) rating with a price target of $320, translating to a potential upside of 12% within the next year. The stock enjoys a strong consensus rating, with 35 recent analyst assessments yielding a favorable 30-to-5 split favoring Buy over Hold.
Currently priced at $286.66, the average target price of $328.35 indicates a viable growth potential of 14.5% in the upcoming year.
For those seeking compelling stock ideas at attractive valuations, exploring TipRanks’ Best Stocks to Buy offers a comprehensive resolution amalgamating all of TipRanks’ investment insights.
Disclaimer: The perspectives articulated within this article solely represent the opinions of the highlighted analysts. The content is designed for informational purposes exclusively. Conducting an independent analysis prior to any investment decision is highly recommended.
Source link: Finance.yahoo.com.
