AI Is Supercharging Cybersecurity Stocks. Here Are Wedbush’s 2 Favorite Picks.

AI Is Supercharging Cybersecurity Stocks. Here Are Wedbush’s 2 Favorite Picks.

Sristi Suman Jayaswal

Mon, September 14, 2026 at 7:29 PM GMT+3 10 min read

Artificial intelligence (AI) is changing cybersecurity in a big way, and not just because companies are using it to defend against attacks. The same technology that helps security teams spot threats faster is also giving hackers new ways to move faster, automate attacks, and find weaknesses. In other words, the AI arms race is making cybersecurity less of a "nice to have" and more of a constant battle, while also changing where companies are choosing to put their security dollars.

That shift is now catching Wall Street's attention. Wedbush Securities recently launched new analyst coverage of the cybersecurity sector, taking a bullish view of AI-native platform vendors while turning more cautious on standalone vulnerability management companies. Analyst Steven Wahrhaftig and his team argue that the rise of AI-driven threats may not necessarily mean companies will spend more overall on cybersecurity. Instead, the bigger story could be where that money goes.

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The brokerage firm sees five themes shaping cyber budgets—AI-versus-AI defense becoming the norm, greater platform consolidation, data becoming the new perimeter, observability evolving into core infrastructure, and disruption in vulnerability management.

Against that backdrop, Wedbush believes a handful of cybersecurity platforms are emerging as long-term winners. Two names stand out in particular: Palo Alto Networks (PANW) and Rubrik (RBRK), both rated "Outperform" and added to Wedbush's Best Ideas List. Let's take a closer look at these two stocks.

Stock #1: Palo Alto (PANW)

Palo Alto Networks has grown from a cybersecurity specialist into one of the biggest names in digital security. Founded in 2005 and headquartered in Santa Clara, California, the company now has a market capitalization of roughly $270.5 billion. Its business spans network security, cloud protection, and enterprise security, with AI playing an increasingly important role in detecting threats and responding in real time.

Rather than selling isolated security tools, Palo Alto is bringing more of those capabilities under one roof through its integrated platform approach. Its Unit 42 team adds threat intelligence and incident-response expertise, while its focus on Zero Trust helps customers secure increasingly complex digital environments. With cyber threats evolving alongside technology, Palo Alto is positioning itself as a one-stop security partner for enterprises.

Palo Alto Networks' stock has had quite a run, but lately the ride has gotten a bit more chaotic. After hitting a 52-week high of $398.88 in mid-August, PANW stock pulled back nearly 17.1% as investors locked in some gains and the lofty valuation left less room for disappointment. Yet this morning, Sept. 14, PANW has shot up 12% in early trading.

Still, zoom out, and the picture remains strong—the stock is up 90% over the past 52 weeks, an impressive 103% on a year-to-date (YTD) basis, and an equally impressive 124% over six months. Much of that climb was fueled by strong enterprise demand for its AI-driven security offerings and growing adoption of its platformization strategy. More recently, however, PANW has still slipped nearly 3% over the past month.

PANW is not a bargain-bin stock. At roughly 78.9 times forward adjusted earnings and 19 times forward sales, it trades well above sector averages. Investors are clearly willing to pay a premium for its growth, but that premium also raises the bar, and so any slowdown in growth or execution could quickly put pressure on the stock.

The cybersecurity giant reported its fiscal Q4 and full-year 2026 results on Sept. 1, with revenue climbing 34% year-over-year (YoY) to $3.4 billion, comfortably ahead of analysts' expectations. The quarter benefited from broad-based strength across Network & AI Security, Cortex, and Idira, while record adoption of its platformization strategy added another layer of momentum.

Product revenue rose 28.6% to $738 million, accounting for 21.6% of total revenue. Meanwhile, subscription and support revenue jumped 36.2% to $2.7 billion, making up the lion's share, or 78.4%, of revenue. That recurring mix is important because it gives the business greater visibility as customers increasingly consolidate their security spending.

The bottom line held up nicely, too. Non-GAAP EPS increased 7.4% YoY to $1.02, beating Wall Street's expectations.

The forward indicators may be even more interesting. Next-Generation Security ARR surged 63% to $9.1 billion, while remaining performance obligations rose 34% to $21.2 billion. Net new NGS ARR nearly doubled, jumping 98% to roughly $970 million, marking the company's strongest quarterly addition yet.

Platformization is clearly becoming a bigger piece of the puzzle. Palo Alto added about 220 net new platformizations, up 44% YoY. Net retention among platformized customers topped 120%, and more than 65% of NGS ARR now comes from platformized customers.

Cash generation also remains a strength. Adjusted free cash flow increased to about $1.3 billion from $954 million a year earlier, while the adjusted FCF margin edged up to 37.8% from 37.6%. Palo Alto ended the quarter with $2.514 billion in cash and cash equivalents and another $557 million in short-term investments.

Management is not exactly tapping the brakes for fiscal 2027. For Q1, it expects revenue of $3.30 billion to $3.31 billion, representing 33% to 34% growth; NGS ARR of $9.54 billion to $9.56 billion; RPO of $20.8 billion to $20.9 billion; and non-GAAP EPS of $0.96 to $0.98.

For the full fiscal year 2027, revenue is expected to be between $14.1 billion and $14.2 billion, implying 23% to 24% growth. NGS ARR is projected at $11.075 billion to $11.175 billion, RPO at $25.2 billion to $25.4 billion, and non-GAAP EPS at $4.16 to $4.19. Palo Alto also expects to maintain a strong 38% adjusted FCF margin.

Analysts tracking the company project its EPS to rise 13.4% YoY to $2.29 in fiscal 2027 and then surge by another 21.4% annually to $2.78 in fiscal 2028.

Along with initiating coverage on PANW stock with an "Outperform" rating, Wedbush set a price target of $400, which suggests upside potential of about 21% from the current price levels.

Overall, sentiment on PANW remains firmly bullish, with the stock's consensus rating at "Strong Buy." Out of 55 analysts, 39 recommend a "Strong Buy," three have a "Moderate Buy," and the remaining 13 are giving it a "Hold" rating.

Its average price target of $393.64 implies upside potential of 6%. Meanwhile, the Street-high target of $475 suggests PANW stock could rise as much as 28% from the current price levels.

Stock #2: Rubrik (RBRK)

Rubrik sits in a part of cybersecurity that becomes especially important when things go wrong—protecting data and making sure businesses can recover quickly. Founded in 2013 and headquartered in Palo Alto, California, the company has built its business around cyber resilience, helping organizations secure and recover data, applications, identities, and workloads across increasingly complex cloud environments.

But Rubrik is not stopping at traditional data protection. Its newer AI push expands the platform into the world of enterprise AI agents, with tools designed to monitor agent activity, apply guardrails, and help companies deploy AI more safely at scale. That puts Rubrik at an interesting crossroads between cybersecurity, data, and AI. And because its technology sits deep within customers' IT infrastructure, replacing it can be a complicated and costly decision. With a market capitalization of roughly $18 billion, Rubrik is increasingly becoming a name investors can't easily ignore.

RBRK stock has rallied about 44% over the past three months and a striking 131% from its April low of $42.25. Even after pulling back 9% from the $107.91 record high reached on Aug. 27, the stock remains 31% higher over the past 52 weeks and has gained a massive 81% in six months. A broader cybersecurity rally helped put wind in its sails.

Before today's 14% spike, though, the trade had seemingly cooled, and RBRK is still down about 4% in the past month. After such a strong run, investors took some chips off the table following the fiscal Q2 2027 results, while concerns about cash-flow margins and weakness across software stocks added pressure. That looks more like it was just a breather than a broken thesis, especially if today's rally continues.

Valuation-wise, RBRK stock is priced at 172.2 times forward adjusted earnings and 10.6 times forward sales, representing a premium to the sector averages.

On Aug. 27, the security and AI operations company released its second-quarter results for fiscal 2027, with revenue reaching $427.3 million, up 37.9% YoY. Subscription revenue rose 37% to $407.2 million. Meanwhile, the bigger improvement came at the bottom line, with non-GAAP EPS of $0.20, compared with a -$0.03 loss per share in fiscal Q2 2026. Both the top and bottom lines beat Wall Street's projections.

Subscription ARR climbed 33% YoY to $1.66 billion as of July 31, 2026, while net new Subscription ARR increased 35%. Cloud ARR grew even faster, rising 39% to $1.48 billion, with adjusted net new Cloud ARR up 20%. Meanwhile, the Subscription ARR contribution margin improved to 14%, from 9.4% a year earlier, pointing to better operating leverage.

Rubrik is also generating more cash. Operating cash flow increased to $76.8 million, from $64.7 million in Q2 2026, while FCF rose to $65.7 million. The company ended the quarter with $1.75 billion in cash, cash equivalents, and short-term investments.

Customer growth remains another bright spot. Rubrik had 3,084 customers with Subscription ARR of at least $100,000, up 23% YoY. And the company is leaning harder into AI, launching Rubrik AI, an agentic-first layer across Rubrik Security Cloud and Rubrik Agent Cloud that can operate autonomously, adapt to an organization's environment, and orchestrate recovery workflows.

It also launched Rubrik Agent Cloud for Anthropic's Claude Code and introduced Project Hourglass, a GSI alliance with Cognizant (CTSH), Deloitte, HCLTech, NTT DATA, and Wipro to deploy the technology across enterprises.

Looking ahead, management expects fiscal Q3 revenue between $429 million and $431 million, a non-GAAP Subscription ARR contribution margin of about 14%, and non-GAAP EPS is estimated to be between $0.07 and $0.09.

For fiscal 2027, management projects subscription ARR of $1.880 billion to $1.885 billion, revenue between $1.685 billion and $1.693 billion, a subscription ARR contribution margin of about 15.5%, non-GAAP EPS between $0.47 and $0.53, and FCF is anticipated to be between $323 million and $333 million.

Analysts monitoring the company anticipate losses for fiscal 2027 coming in at -$1.16 per share, narrowing by 31.4% YoY. Looking further ahead, fiscal 2028 loss per share is expected to shrink further by 31.6% annually to -$0.77.

Wedbush sees plenty of room for Rubrik to run. Along with initiating coverage on RBRK stock with an "Outperform" rating, Wedbush set a price target of $120, which implies upside potential of about 22% from the current price levels. The brokerage firm expects fiscal 2027 subscription ARR to grow about 29% YoY, backed by Rubrik's growing role in cyber resilience and recovery infrastructure.

Overall, RBRK stock carries a consensus "Strong Buy" rating. Among the 29 analysts in coverage, 28 suggest a "Strong Buy," and just one analyst recommends a "Hold."

The stock has a mean price target of $118.78, implying upside potential of 21% from the current price levels. The Street-high target of $135 suggests that RBRK stock could rise as much as 37%.

On the date of publication, Sristi Suman Jayaswal did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. This article was originally published on Barchart.com