AI fears send cybersecurity stocks higher
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Fear is splitting the AI trade — the same technology advances that are raising alarms about rogue agents, cyberattacks and apocalypse are creating a bull case for the companies paid to protect against those threats.
Why it matters: Investors are, in a way, leaning into the scary AI talk, betting that companies and governments will increase cybersecurity spending to deal with rapidly advancing threats.
The big picture: The mood around AI is darkening as long-simmering doomer fears are gaining more attention.
Catch up quick: Over the weekend, Anthropic's Dario Amodei, OpenAI's Sam Altman and SpaceX's Elon Musk called for a slowdown in advancement of the most sophisticated models to effectively deal with safety risks, calling it "pacing the frontier."
State of play: That seemed to spook investors on Monday, pushing down stocks in sectors connected to the AI trade, like chip and memory companies. Surging oil prices and the rise in the 10-year Treasury yield were also a factor.
- At the same time, stocks rose for cybersecurity companies.
By the numbers: CrowdStrike and Palo Alto Networks — two of the largest cybersecurity companies — were up roughly 14% and 13%, respectively, on Monday.
- Both stocks have basically doubled over the past six months, sharply outperforming chipmakers Nvidia and Broadcom. (See chart above).
Zoom in: The scary AI headlines this weekend and earlier have been a useful marketing tool. "I spent eight years trying to convince people cybersecurity is important. Dario did it in one week — better than me, clearly," Palo Alto Networks CEO Nikesh Arora told a Goldman Sachs conference last week, per an AlphaSense transcript.
- Earlier this month, Arora said on an earnings call that "AI represents a significant long-term tailwind that is expanding our total addressable market in network security."
- Even if the frontier labs Anthropic and OpenAI slow down development, there are still risks from Chinese AI models, which are gaining ground.
What to watch: This is all moving at breakneck speed, and the AI cybersecurity market is still getting built.
Flashback: The cybersecurity industry shifted earlier this year — after Axios reported that Anthropic's new model Mythos would make it far easier for cybercriminals to exploit software vulnerabilities.
- This "Mythos moment" made clear how quickly cybersecurity threats can erupt now, Palo Alto Networks' Arora said on the earnings call.
- Flaws that used to take months for humans to uncover can now be exploited in minutes, he said. That's driving spending for companies and revenue for cybersecurity businesses.
Zoom out: Gartner estimated in January that spending on AI cybersecurity will total $51.3 billion worldwide this year, and grow to $86 billion in 2027.
Yes, but: That's a small fraction of the more than $2.5 trillion in total AI spend for 2026.
Between the lines: AI may or may not end humanity, but in the meantime it's accelerating risks that governments and businesses need to manage — and that costs money.
Reality check: It also raises risks for businesses. "As an investor, I'm far less worried about AI ending humanity than about it causing operational or security failures with real financial consequences," Mark Malek, chief investment officer at Siebert, told Axios recently.
- Malek pointed to the example of CrowdStrike, which released a flawed software update a few years ago that wiped out a good chunk of its market cap.
- "That's the more realistic template for how an AI stumble — not a doomsday scenario, but an operational one — would actually hit a portfolio."
