Summary
Bank of America analysts say the spread of artificial intelligence is creating fresh security risks that are likely to boost demand for cybersecurity solutions. At the same time, the analysts note that investors are growing more selective and that valuation multiples across the software sector have compressed, prompting the firm to reduce price targets for several security vendors even as it maintains its ratings.
AI adoption and cybersecurity demand
The analysts argue that increased AI adoption is driving enterprises to seek stronger protections against new forms of risk. Those risks include more sophisticated cyberattacks and heightened data vulnerabilities enabled by AI tools, which, in the analysts' view, should lift demand for cybersecurity products and services.
Despite that structural tailwind, Bank of America observes a market environment in which investors place greater emphasis on free cash flow visibility and sustainable growth, making valuation support more dependent on near-term financial clarity.
Ratings maintained, targets lowered
Bank of America held its ratings on a number of cybersecurity companies while adjusting valuation assumptions downward to reflect broader software multiple compression. The firms named by the bank include SailPoint (NASDAQ:SAIL), SentinelOne (NYSE:S) and Zscaler (NASDAQ:ZS).
The firm cut Zscaler's price target to $175 from $335, citing slower billings growth, elongated sales cycles and rising competition from larger platform vendors that are bundling security offerings. SailPoint's target was trimmed to $16 from $27.50, and SentinelOne's was reduced to $16 from $18. The analysts said these moves were in part a response to investor reluctance to pay premium valuations for software businesses with weaker free cash flow generation or protracted sales cycles.
Opportunity for content delivery networks
Bank of America also identified potential upside for content delivery network companies as AI workloads generate greater demand for inferencing capacity. The bank specifically mentioned Akamai Technologies (NASDAQ:AKAM) and Fastly (NASDAQ:FSLY) as firms that could capture growth stemming from increased AI inferencing requirements.
Implications
The note frames a mixed outlook: AI-related threats are a catalyst for higher cybersecurity spending, but sector-level valuation pressure and investor focus on cash flow are constraining near-term upside. The outcome, according to the analysts, will depend on execution metrics such as billings growth, sales-cycle length and free cash flow performance.