Hardware stocks go down, software goes up. The rotation trade is back on, with cybersecurity stocks getting an extra boost from concerns about artificial-intelligence safety.
CrowdStrike and Palo Alto Networks were both surging Monday morning, up 11% and 9.4%, respectively. They were leading a software rally with ServiceNow, Okta, Salesforce and Adobe also on the rise. The much-watched iShares Expanded Tech-Software Sector exchange-traded fund was rising 2%.
It's not hard to see the pattern. The prospect of an AI slowdown-mooted by the heads of major developers Anthropic and OpenAI-is hitting the infrastructure trade while leaving investors more confident about software companies that have faced the threat of disruption from AI.
But there's an additional wrinkle, as investors appear to think CrowdStrike and Palo Alto might benefit further from an AI slowdown because of their roles in cybersecurity.
At first glance, that might seem counterintuitive. Arguably CrowdStrike and Palo Alto would lose business if there really was an AI pause as companies would have to spend less on securing their IT against the prospect of rogue programs.
But rather than an absolute halt to AI development, a more likely outcome is that companies like OpenAI and Anthropic will be pressured to make their products more open to outside scrutiny.
CrowdStrike and Palo Alto were among the companies previously invited to get exclusive previews of unreleased versions of Anthropic's Claude, and they could play even bigger roles going ahead.
Palo Alto was a Barron's stock pick in April, which was reiterated in June. It's a call that's looking good at the moment-AI safety fears are good for software, but they're even better for cybersecurity software.
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