Key Takeaways
- OpenAI CEO Sam Altman said a “tidal wave” of cybersecurity problems is coming from open-source AI models, and society will have to accept some fairly severe incidents.
- If he’s right, spending on defense becomes a permanent part of the cost of AI, and that supports the premium valuations on CrowdStrike and Palo Alto Networks.
- Morgan Stanley expects corporate spending on cybersecurity software to grow 23% a year through 2028, and 33% a year if major attacks bring new government rules.
- CrowdStrike trades at about 193 times forward earnings and Palo Alto at about 97, both well above their five-year averages, so much of that growth is already in the price.
OpenAI CEO Sam Altman has a warning for every company with a computer network, and CrowdStrike (CRWD) and Palo Alto Networks (PANW) shareholders will want to hear it:
“There is a coming tidal wave of cybersecurity problems that are going to come from these open source models,” Altman said on Tuesday’s episode of Vanity Fair’s Fair Game podcast.
Then he went further. Altman supports open source models and doesn’t want them banned. In his words, that means “we’re going to as a society, I think, have to just accept some fairly severe cyber incidents from open models in exchange for the liberty that comes with that.”
That’s quite a thing for the head of OpenAI to say out loud.
The market has already caught on. The First Trust Cybersecurity ETF hit an all-time high Monday, while two of its biggest holdings, CrowdStrike and Palo Alto Networks, have both more than doubled this year.
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The wave is already building
Jim Scharf, chief technology officer of MongoDB (MDB), said on the MTS podcast that the rate of CVEs (public reports of security flaws in software) “across the industry, across all software, all vendors, is just going exponential right now.”
AI agents add a new target on top of that. Zscaler (ZS) founder and CEO Jay Chaudhry told Yahoo Finance’s Brian Sozzi that a hijacked agent on a company network is “far more dangerous because they work at machine speed. They have no coffee break, no weekend, no sleep time.”
Morgan Stanley’s analysts rate both CrowdStrike and Palo Alto Networks as Overweight. They expect corporate spending on cybersecurity software to grow 23% a year through 2028, and possibly 33% a year if major cyberattacks lead to new government mandates.
Set that second number next to Altman’s “fairly severe cyber incidents,” and the faster case starts to look a lot more realistic.
Fighter #1: CrowdStrike
CrowdStrike is already growing at roughly the pace Morgan Stanley expects for the industry as a whole. Annual revenue climbed from $3.95 billion in the year to January 2025 to $4.81 billion in the year to January 2026, and analysts see it nearly doubling from there, to almost $9 billion, by the year to January 2029.
That’s roughly 22% to 25% growth a year, right in line with Morgan Stanley’s 23%. And this is pure speculation, but if Altman’s severe incidents bring the mandates Morgan Stanley describes, these estimates are more likely to go up than down.
Investors are paying up for that growth, though. At 193 times forward earnings, CrowdStrike trades at a steep premium to its five-year average of about 117 times.
(It’s still nowhere near its late-2021 peak of nearly 482 times.)
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Fighter #2: Palo Alto Networks
Palo Alto Networks shows how fast investors changed their minds about the whole group. Earlier this year, cybersecurity stocks got pulled into the software sell-off on fears that AI would disrupt traditional business models.
Palo Alto’s forward P/E bottomed at 37.6 times in February. Today it’s 97 times. That’s close to its five-year high of 101 times in August and far above its average of about 57 times.
In under eight months, the market went from pricing Palo Alto as a possible AI casualty to pricing it as one of AI’s defenders.
Isn’t Altman talking his book?
It’s a fair question. OpenAI sells its own closed models, so warning about open ones costs Altman nothing. He even pitched OpenAI as part of the defense: “We’ve got a little bit of a lead, we want to help you defend.”
Not everyone in cybersecurity agrees with him, either. In a separate Politico interview, Altman said the world should accept some bad things happening in exchange for AI’s benefits. On Monday, Chaudhry pushed back on that view:
“Models need to do better work on their side, and enterprises need to put better guardrails and policies in place. That’s where we come in, working with model companies, working with enterprises, and bringing the two together.”
Here’s the thing: Chaudhry’s fix also runs through security budgets. Whether companies accept the incidents, as Altman would, or fight them with better guardrails, as Chaudhry would, they end up spending more on defense.
The upshot
If Altman is right, defense spending becomes a permanent part of the cost of AI. CrowdStrike and Palo Alto are two of the biggest names in line to collect it. That’s what their premium multiples are pricing in, and I think the case holds up: the people building AI and the people defending against it both expect the attacks to keep coming.
At 193 and 97 times forward earnings, the stock already prices in a lot of good news. Any slowdown in growth would leave little room for error.
Of course, it’s still early. We don’t know yet how big the open-model wave gets, or whether governments respond with the kind of mandates that would push spending toward Morgan Stanley’s faster case.
So what is CrowdStrike stock actually worth?
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Disclaimer:
Please note that the articles on TIKR are not intended to serve as investment or financial advice from TIKR or our content team, nor are they recommendations to buy or sell any stocks. We create our content based on TIKR Terminal’s investment data and analysts’ estimates. Our analysis might not include recent company news or important updates. TIKR has no position in any of the stocks mentioned. Thank you for reading, and happy investing!
