Jefferies' 2026 Cybersecurity Picks: Assessing Growth Trajectory and Scalability

The case for investing in cybersecurity is no longer about reacting to a single breach; it's about capturing a massive, secular expansion of the digital frontier. The total addressable market is projected to reach $500 billion by 2030, driven by two fundamental, irreversible shifts: the global migration to cloud infrastructure and the explosive integration of artificial intelligence. For a growth investor, this isn't just a trend-it's the foundational runway for the next decade of enterprise software.

The shift to the cloud is the single biggest growth driver. As companies move workloads and data to distributed environments, traditional, perimeter-based security models become obsolete. This creates a massive tailwind for cloud-native platforms that can secure data and users wherever they are. The rise of AI compounds this, introducing new attack surfaces and vulnerabilities that demand specialized protection. The market is responding with a wave of innovation, but the real opportunity lies with companies whose platforms are built from the ground up for this new world.

Jefferies' 2026 picks are a direct bet on leaders positioned to capture this expanding TAM. The firm identifies CrowdStrike, Palo Alto Networks, Zscaler, and AvePoint as the names best poised to scale. CrowdStrike's "pole position" in endpoint security is built on a cloud-native platform winning enterprise contracts. Palo Alto Networks is targeting the "most comprehensive cybersecurity platform" through strategic acquisitions, aiming to consolidate spending. Zscaler is the "best positioned" player in the secure-access service edge (SASE) space, where its zero-trust architecture is essential for cloud migration. AvePoint, while smaller, represents a consolidation play in the critical, often fragmented, data management and protection market.

The disconnect between the sector's critical importance and its recent stock performance creates a setup. While major cybersecurity ETFs have underperformed the broader tech sector over the past year, the underlying market opportunity is accelerating. For investors focused on scalability and market dominance, the Jefferies list highlights companies whose growth trajectories are directly tied to the $500 billion TAM. The question isn't if cybersecurity will grow, but which platforms will own the largest share of it.

CrowdStrike: Platform Scalability and Market Leadership

CrowdStrike's position as a pole-position player is built on a clear, scalable platform and robust growth metrics. The company's cloud-native Falcon platform continues to win enterprise contracts, driving record levels of new business. In its most recent quarter, CrowdStrike posted $1.23 billion in revenue, up 22% year-over-year, with annual recurring revenue climbing to $4.92 billion. More importantly, it generated a record $265.3 million in net new ARR, a key indicator of expansion within its installed base. This execution supports Jefferies' projection that the company will maintain its leadership with ARR expected to grow 23% or more in fiscal 2027.

The stock's recent price action reflects this underlying strength, despite some near-term volatility. Over the last year, the shares have surged 30.5%, significantly outpacing the broader market. However, that momentum has cooled recently, with the stock pulling back 9.4% over the last 20 days. This recent weakness creates a notable valuation gap: the stock trades at roughly 29.8% above its 52-week low of $298. The PEG ratio of 1.10 suggests the market is pricing in that high growth, leaving little room for error.

For a growth investor, the key question is scalability. CrowdStrike's model is inherently scalable, with cloud delivery minimizing incremental costs as it adds customers. The platform's stickiness, evidenced by high net retention rates, allows for consistent expansion. Yet, the recent stock pullback and the premium to its lows indicate the market is scrutinizing execution risks, such as potential customer concentration or competitive pressure. The company's ability to consistently deliver on its 23%+ ARR growth target will be the ultimate test of its pole position.

Palo Alto Networks and Zscaler: Diverging Growth Engines

While both Palo Alto Networks and Zscaler are positioned for long-term growth, their engines are fundamentally different. Palo Alto is building a sprawling, integrated platform, while Zscaler is a pure-play enabler of a specific architectural shift. This divergence shapes their scalability and current market positioning.

Palo Alto's strategy is one of consolidation. The company aims to become "the most comprehensive cybersecurity platform" through strategic acquisitions, a path that has already driven impressive growth in its core security business. In its latest quarter, the company's next-generation security annual recurring revenue (ARR) grew 40% year-over-year. This explosive growth in a key segment fuels the broader platform, allowing Palo Alto to lock in customers with a wide array of integrated products. Its model is capital-intensive but highly scalable once platforms are built, with a strong history of reinvesting profits into growth. The recent share price weakness is viewed by some as a buying opportunity ahead of the integrations that should expand its addressable market.

Zscaler, by contrast, is a focused growth engine riding a powerful secular wave. Its market capitalization of $28.3 billion reflects its status as a leader in cloud security and zero-trust architecture. The company's growth is directly tied to the global migration to the cloud, where its platform replaces legacy infrastructure. Its recent results show this dynamic: revenue grew 26% year-over-year to $628 million, and it boosted its full-year guidance. The company's offerings, including new AI-related security tools, are designed to secure the modern, distributed workforce. Its scalability is inherent in its cloud-native model, but its growth is more directly exposed to the pace of enterprise cloud adoption.

The broader market context highlights the tension between these two models. Despite the sector's critical importance, cybersecurity stocks have struggled, creating a valuation disconnect. The major cybersecurity ETF (BUG) is down 7.3% over the past year, while the broader tech sector ETF (VGT) is up 21.75%. This underperformance presents a challenge for both companies. Palo Alto's platform strategy may offer more resilience through diversified revenue streams, while Zscaler's pure-play focus makes its growth more visible but also more vulnerable to sector-wide sentiment swings. For a growth investor, the choice is between a consolidator betting on its own scale and a specialist betting on an architectural shift. Both are playing for market dominance, but their paths to capturing a share of the $500 billion TAM are distinct.

Valuation, Catalysts, and 2026 Outlook

The path to capturing a share of the $500 billion cybersecurity TAM hinges on execution in 2026. The key catalysts are clear: the continued expansion of cloud workloads and the integration of artificial intelligence into security platforms. These are not speculative trends but the fundamental drivers of demand for the Jefferies picks. For CrowdStrike, it's securing the endpoint in a distributed world. For Zscaler, it's enabling zero-trust access as the cloud becomes the default. For Palo Alto Networks, it's embedding security into every layer of its sprawling platform. The companies best positioned to ride these waves will see their growth trajectories accelerate.

Yet, the primary risk to that growth is execution. Specifically, it's the need to successfully cross-sell platform suites to maintain high growth rates. As these companies build comprehensive offerings, their ability to sell more products to existing customers becomes critical. This is where quarterly metrics like net new ARR and customer expansion become the most important monitoring points. A slowdown in cross-selling would directly pressure the high growth rates the market is currently pricing in. The recent volatility in Zscaler's stock, where shares fell despite beating earnings and raising guidance, highlights this sensitivity. The drop was linked to a slower-than-expected acceleration in billings, a key indicator of future revenue.

For investors, the outlook for 2026 is one of selective opportunity. The sector as a whole faces a recalibration, with cybersecurity stocks anticipated to see more moderate growth after a strong 2024. However, the resilience Jefferies sees in the first half of next year suggests the strongest platforms will weather the storm. The valuation disconnect remains, with major cybersecurity ETFs underperforming the broader tech sector. This creates a setup where disciplined investors can focus on the companies with the clearest path to scaling their platforms.

The bottom line is that growth potential is not uniform. It is concentrated in companies whose products are essential to the core architectural shifts of cloud and AI. Monitoring their quarterly ARR growth and customer expansion metrics will be the best way to gauge which of these platform builders can successfully convert their pole position into sustained, high-growth dominance.