Investing.com -- The cybersecurity sector continues to outperform broader IT spending, with Morgan Stanley projecting it will grow approximately 50% faster than overall software expenditures.
As the industry expands from its current $270 billion market size at a projected 12% CAGR through 2028, certain companies are positioning themselves as leaders in this increasingly fragmented marketplace.
With AI expanding attack surfaces and regulatory requirements tightening, these five cybersecurity stocks stand out according to Morgan Stanley’s latest analysis:
Zscaler (ZS): Upgraded to Overweight from Equal-weight, Zscaler is positioned to establish itself as a true security platform alongside Palo Alto Networks and CrowdStrike. The company is capitalizing on the $34 billion SASE (Secure Access Service Edge) market, which is growing at a 24% CAGR.
With SASE currently at 47% penetration and expected to reach 74% by 2027, Zscaler has significant growth runway. The Red Canary acquisition strengthens its AI capabilities and expands its reach beyond network security. Despite a 50% year-to-date increase, Morgan Stanley believes Zscaler’s valuation at 13.5x EV/26e Revenue remains attractive relative to peers.
SailPoint (SAIL): As a category leader with approximately 22% market share in Identity Governance and Administration (IGA), SailPoint is projecting a 28% ARR CAGR from FY23-FY26. Growth is driven by its ongoing SaaS transition, multi-billion dollar legacy replacement opportunities, and strong upsell/cross-sell capabilities.
The company is successfully expanding beyond its core IGA business into Machine Identity, Data Access Security, and Non-Employee Risk Management, with these newer modules more than doubling year-over-year ARR contribution. These early successes position SailPoint to maintain 20%+ ARR growth moving forward.
Palo Alto Networks (PANW): Designated as a Top Pick by Morgan Stanley, Palo Alto Networks has evolved from a next-generation firewall provider into a comprehensive cybersecurity platform spanning network security, cloud security, endpoint security, and security operations.
The pending CyberArk acquisition would add identity security to its portfolio. The company’s Prisma Platform addresses market fragmentation by providing customers with a "single pane of glass" for threat visibility. Channel checks indicate robust large deal activity and consistent market share gains, positioning Palo Alto Networks as one of the few leading platform vendors in the long term.
Okta (OKTA): Dominating the Identity Access Management ecosystem with 37% market share, Okta leads competitors like Microsoft (10%) and IBM (10%). The company is building a comprehensive identity platform, recently strengthened by the Axiom Security acquisition.
Okta’s expansion into Identity Governance (OIG) and Privileged Access Management (PAM) shows promise, with OIG becoming a $100+ million ACV business with 1,300 customers. With only 7% penetration in its existing customer base, OIG presents significant upsell opportunities. Okta’s upcoming Auth for GenAI solution will secure interactions between non-human identities, providing an entry into the less competitive CIAM market.
Varonis (VRNS): Currently transitioning to a SaaS model with 69% of total ARR now coming from SaaS subscriptions, Varonis expects to complete this shift by year-end with approximately 82% of ARR from SaaS.
The company specializes in data security posture management (DSPM), which is becoming increasingly critical for AI preparedness given the larger amounts of data being exposed. The SaaS transition has created temporary growth headwinds, but by 2026, Varonis should return to normalized growth and operating levels.
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