Companies, such as CrowdStrike Holdings, Inc. CRWD, Fortinet, Inc. FTNT, Okta, Inc. OKTA and Qualys, Inc. QLYS, are benefiting from these trends. However, the industry's short-term growth prospects may be hampered as organizations delay investments in large and costly technology products due to global economic slowdown concerns, macroeconomic challenges and geopolitical tensions. Increased operating expenses related to hiring new employees and implementing sales and marketing strategies to gain market share are expected to pressure profit margins in the near term.
Industry Description
The Zacks Security industry encompasses companies that provide both on-premise and cloud-based security solutions. These solutions cater to a variety of needs, such as identity access management, infrastructure protection, integrated risk management, malware analysis and Internet traffic management, among others. The industry offers a diverse range of security solutions, many of which can be used interchangeably. These solutions are broadly categorized into three types — Computer Security, Cybersecurity and Information Security. Computer Security focuses on safeguarding the software and hardware of computer systems from vulnerabilities. Cybersecurity encompasses areas like web security, network security, application security, container security and information security. Information Security deals with the protection of data in all forms, whether physical or digital.
Major Trends Shaping the Future of the Security Industry
Rising Cyber Threats Drive IT Security Demand: The increasing frequency of cyberattacks is escalating the need for robust security solutions. These threats not only adversely impact individual companies but also pose risks to national security in some countries. Companies in the security industry are actively addressing these issues as there is a growing need for protection against spear phishing, credential-based attacks, account takeovers and ransomware.
Accelerated Digital Transformation Fuels Growth: The shift toward digital transformation and cloud migration is driving the demand for cybersecurity solutions. Sectors ranging from education and entertainment to healthcare are increasingly relying on technology, making them vulnerable to cyberattacks. Public institutions and large companies, as well as smaller organizations with less stringent security measures, are at risk. The deployment of 5G has expanded the Internet of Things (IoT) and artificial intelligence (AI), which, while simplifying operations, will increase cybercrime rates due to greater technological reliance.
Macroeconomic Headwinds May Affect IT Spending: Uncertain macroeconomic conditions and geopolitical issues may lead enterprises to delay significant IT investments. Amid current economic challenges, organizations are likely to conserve cash and reduce spending, which could negatively impact the security market in the short term.
High Operating Expenses Could Hurt Profitability: To remain competitive in the IT security market, companies are continually investing in expanding their capabilities. This includes substantial investments in research and development to enhance product offerings and improve overall security solutions for clients. Additionally, firms are heavily investing in sales and marketing, particularly by increasing their sales workforce. These elevated operating expenses, aimed at gaining market share, may reduce profit margins in the near term.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Security industry is housed within the broader Zacks Computer and Technology sector. It carries a Zacks Industry Rank #84, which places it among the top 34% of nearly 250 Zacks industries.
The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates solid near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than two to one.
The industry’s positioning in the top 50% of the Zacks-ranked industries is a result of a positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are optimistic about this group’s earnings growth potential. The industry’s bottom-line estimates for 2026 have moved up to $1.83 from earnings of $1.80 expected a year ago.
Industry’s EPS Estimate Revision
Industry Underperforms S&P 500 and Sector
Over the past year, the Zacks Security industry has underperformed the broader Zacks Computer and Technology sector and the S&P 500 composite.
The industry has jumped 7.8% during this period, while the broader sector and the S&P 500 have soared 49.6% and 29.8%, respectively.
One-Year Price Return Performance
Industry's Current Valuation
On the basis of the forward 12-month price-to-sales ratio (P/S), which is a commonly used multiple for valuing Security stocks, the industry is currently trading at 13.68, higher than the S&P 500’s 5.33 and the sector’s 6.95.
Over the last five years, the industry has traded as high as 19.29X and as low as 6.81X, with a median of 11.35X, as the charts below show.
Price-to-Sales Ratio (Industry vs. S&P 500)
Price-to-Sales Ratio (Industry vs. Sector)
4 Security Stocks in Focus
Fortinet: It is a provider of network security appliances and Unified Threat Management (UTM) network security solutions to enterprises, service providers and government entities worldwide. Currently, Fortinet sports a Zacks Rank #1 (Strong Buy).
Fortinet's aggressive product roadmap positions it to capitalize on escalating cybersecurity demands throughout 2026. The rollout of FortiOS 8.0 with AI-driven security, next-generation SASE and quantum-safe capabilities, alongside FortiGate 3500G and 400G firewalls, addresses critical enterprise needs for unified security platforms. Management's strategic focus on expanding Unified SASE, Secure SD-WAN, FortiSASE and Security Fabric integration through a single FortiOS operating system creates compelling migration opportunities from legacy competitors.
Fortinet's ongoing investments in sales capacity, cloud infrastructure and AI capabilities are positioned to generate meaningful operating leverage improvements throughout 2026 and beyond. The company's strategic hiring initiatives completed over recent quarters create productivity advantages as field teams mature and reach full effectiveness. Investments in automation and cloud-native delivery models reduce incremental costs while improving customer experience and retention. The transition toward higher-margin subscription and service revenue streams enhances the profitability trajectory.
The Zacks Consensus Estimate for Fortinet’s 2026 earnings has been revised upward by 4 cents to $3.02 per share over the past seven days. FTNT shares have gained 16.5% over the past year.
Price and Consensus: FTNT
CrowdStrike Holdings: Founded in 2011, it is a leader in next-generation endpoint protection, threat intelligence and cyberattack response services. CrowdStrike benefits from the rising demand for cybersecurity solutions due to a slew of data breaches and the increasing need for secure networking products amid the growing hybrid work trend.
The continued adoption of digital transformation and cloud migration strategies by organizations is a key growth driver. Its portfolio strength, mainly the Falcon platform’s more than 30 cloud modules, boosts its competitive edge and helps add users. Buyouts, such as SGNL, Seraphic Security, Pangea and Onum, are expected to fuel growth.
CrowdStrike carries a Zacks Rank #3 (Hold) at present. The consensus mark for its fiscal 2027 earnings has remained unchanged at $4.85 per share over the past 60 days. Shares of CRWD have soared 31.8% over the past year.
Price and Consensus: CRWD
Okta’s strong portfolio includes new offerings such as Okta Identity Governance (OIG), Okta Privileged Access, Okta Device Access, Identity Security Posture Management, Identity Threat Protection with Okta AI, Fine-Grained Authorization, Auth0 for AI Agents and Okta for AI Agents. These new solutions are helping OKTA gain market share and drive top-line growth. The company is benefiting from OIG’s strong traction, which at the end of the fourth quarter of fiscal 2026 had 2000 customers.
Okta had more than 20,000 total customers at the end of fiscal 2026. Its customers with more than $1 million in annual contract value (ACV) increased 16% year over year to 545. Similarly, customers with more than $100,000 in ACV grew 6% to 5,100.
The consensus mark for its fiscal 2027 earnings has remained unchanged at $3.79 per share over the past 60 days. Shares of OKTA have plunged 36.4% over the past year.
Price and Consensus: OKTA
Qualys: It is one of the leading providers of information security solutions. Qualys' suite of IT, security and compliance solutions spans diverse applications, including asset management, IT security, cloud-native security, web application security and compliance. Qualys currently carries a Zacks Rank #3.
Qualys is benefiting from the increasing demand for cloud-based cybersecurity solutions amid growing cyber threats and digital transformation initiatives. With a diverse customer base that includes enterprises, SMBs and government entities, the company maintains a balanced customer mix, which keeps it resilient against fluctuations in IT spending.
Qualys' continuous innovation and focus on expanding product capabilities position it well to navigate market challenges and sustain long-term growth despite potential macroeconomic disruptions. The growing adoption of Vulnerability Management, Detection and Response solutions is an upside.
The consensus mark for its 2026 earnings has been revised upward by 3 cents to $7.57 per share over the past seven days. Shares of QLYS have fallen 36.7% over the past year.
Price and Consensus: QLYS
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See Stocks Now >>CrowdStrike (CRWD) : Free Stock Analysis Report
Fortinet, Inc. (FTNT) : Free Stock Analysis Report
Qualys, Inc. (QLYS) : Free Stock Analysis Report
Okta, Inc. (OKTA) : Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
