Big Money Turns to Cybersecurity Stocks

Big Money Turns to Cybersecurity Stocks

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BY JASON BODNER, EDITOR, QUANTUM EDGE PRO

Innovation drives growth, and growth builds wealth.

Unfortunately, that’s true for criminals as well as investors.

Artificial intelligence is reshaping much of how we live and thrive, from faster drug discovery to improved automation to cyberattacks and security.

It’s also driving some of the best investing opportunities, and cybersecurity stocks are among those.

Hackers are using AI for more sophisticated and dangerous attacks. Like “spear phishing,” a targeted version of the old phishing emails that has a better chance of duping individuals because the email incorporates information specific to the target.

AI also helps hackers evade detection, trick firewalls into thinking malware is benign, and even poison or manipulate data.

Cyberattacks are not new, of course, but they are increasing in number, scale, and severity. Last year’s Digital Defense Report from Microsoft (MSFT) revealed that its customers were facing 600 million attacks every day.

They’re hitting close to home, too – like at grocery stores. United Natural Foods (UNFI) supplies 15,000 stores and is Whole Foods Market’s biggest supplier. It disclosed last week a damaging attack that disrupted business, leaving grocery stores with empty shelves and scrambling to find other suppliers. That pressured the entire industry’s supply chain.

Retail stores get hit consistently. A school system in Virginia just announced a “cybersecurity incident.” Hospitals are increasingly vulnerable and targeted.

It’s scary, disruptive, and costly, which is why AI-driven cybersecurity is racing to stay a step ahead. AI-based security is projected to soar 800% this decade from $15 billion in 2021 to $135 billion by 2030, according to Morgan Stanley.

The expanding capabilities of hackers elevate cybersecurity’s importance in our digital world, and smart investors should look to capitalize on the elevated potential.

Here are the top three cybersecurity stocks in my Quantum Edge system. All three recovered their losses from the selling earlier this year and are trading at or near 52-week highs. Their average gain in 2025 is a stellar 49%.

In fact, their Quantum Scores are identical. But when analyzing future potential, there is one key difference to be aware of – one of these companies has far superior fundamentals to the rest.

Third Place: Cloudflare (NET)

Cloudflare (NET) provides network and security products for consumers and businesses, from mitigating denial-of-service attacks to detecting bots. When a website asks you to verify if you’re human, it might well be powered by Cloudflare.

The company says it blocks billions of threats online for its customers every day.

NET’s Quantum Score of 77.6 puts it firmly in the buy zone:

Source: TradeSmith Finance

At the same time, you can see looking at the scores that technicals are driving the bus right now. Shares have doubled just since the April low, lifting the Technical Score from 52.9 to 91.2.

Technical Scores above 90 indicate shares are overheated, especially in this case when balancing it with solid but not yet spectacular fundamentals. Sales and earnings are growing nicely, but the profit margin is still negative at -4.7%, and debt is high at 140% of equity.

Valuation is rich after the run with shares trading 227 times future earnings. I don’t mind paying up for growth, but that’s pushing it for me – especially considering debt and margins.

Source: MoneyFlows.com

Big Money has actively bought shares much of the time since last October – there’s that one long pause between February and May when the market weakened. You can see six Big Money inflow signals since the middle of May – including one on Tuesday – which helped drive the big-time bounce.

Second Place: Zscaler (ZS)

Zscaler (ZS) is a “zero trust” cybersecurity company. (Shouldn’t all cybersecurity companies be?) Its software verifies every user and device before granting access, and the company says it secures more than 500 billion transactions daily.

Its quant data is identical to Cloudflare’s:

Source: TradeSmith Finance

The Quantum Score is also 77.6. Shares have risen 85% off the April lows, lifting the Technical Score to the same 91.2. And the fundamentals also rate significantly lower at the same 58.3.

That means the analysis is also much the same – super strong technicals that are overheated to go with solid but not elite fundamentals. ZS’s profit margin is negative but slightly better at -2.7%, and debt is also high – though not as high – at 97.2% of equity. Valuation is a little less rich but still up there at 95.6 times future earnings.

Big Money has been a big buyer of late, with 12 green bars since the end of April – again including one on Tuesday. Those signal unusual inflows that mean institutions and hedge funds are at work.

Source: MoneyFlows.com

There’s a lot to like about ZS right now. If debt and profit margins improve, the risk of a future disappointment goes down.

First Place: Palo Alto Networks (PANW)

Palo Alto Networks (PANW) may be my favorite cybersecurity stock right now for long-term gains. NET and ZS are hotter in the short term, but PANW’s data already falls in line with the 70% probability of success I count on through my Quantum Edge system.

That’s why I recommended it to my TradeSmith Investment Report readers nearly two months ago.

Palo Alto has evolved from a hardware-heavy security outfit into a cloud-first, AI-powered fortress builder for the digital world. As hacks grow more devastating – crippling hospitals, pipelines, and even governments – PANW’s mission took on greater urgency and global importance.

PANW sports an identical Quantum Score of 77.6, but there’s a big difference. Shares are not overheated, and PANW has superb fundamentals to go along with the technicals:

Source: TradeSmith Finance

Earnings and sales growth aren’t quite as strong as NET and ZS, but the profit margin is excellent – and positive – at 32.1%. Debt is just 27.3% of equity, which is certainly acceptable. Valuation is also better at 60.5 times future earnings.

The technicals are excellent but in the too-hot-to-touch zone. I see one Big Money inflow signal in late May, but if you look at it in perspective over the last two-and-a-half years, Big Money has done a ton more buying (green bars) than selling (red bars), driving shares 189% higher.

Source: MoneyFlows.com

Cybersecurity is no longer optional. With cyberattacks growing in sophistication – particularly with the rise of generative AI-based threats – businesses are spending heavily to upgrade and future-proof their defenses.

Smart investors who look to the best companies with Big Money flows can own a piece of the internet’s future immune system and set themselves up for healthy profits in the future.

All three of these stocks are worth looking at, but PANW’s data is right where I like to see it. That’s why I recommended it in TradeSmith Investment Report along with another cybersecurity leader we added earlier this year.

Talk soon,

Jason Bodner
Editor, Quantum Edge Pro

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