Goldman Sachs’ 2025 outlook on cybersecurity stocks

Investing.com -- The cybersecurity sector is poised for stable to improving fundamentals in 2025, given consistent demand for platform-based solutions, according to a Goldman Sachs.

Companies like Fortinet Inc (NASDAQ:FTNT ), CrowdStrike Holdings Inc (NASDAQ:CRWD ), and Cloudflare Inc (NYSE:NET )saw substantial gains in 2024, with respective stock increases of 63%, 37%, and 31%.

These leaders were rewarded for their platform-driven approaches, which align CIO’s (information officer) increasing focus on total cost of ownership and vendor consolidation. Though, point-product companies like Okta Inc (NASDAQ:OKTA )and Zscaler (NASDAQ:ZS ) lagged, with stock declines of 12% and 17%, respectively.

Goldman Sachs upgraded Cloudflare Inc (NYSE:NET ) to a “buy” with price target of $140, given ongoing sales productivity improvements and its growing traction in AI-driven developer services. It projects a 28% upside for the stock, fueled by new monetization opportunities in edge computing and AI inferencing.

Whereas Check Point Software (NASDAQ:CHKP ) was downgraded to “neutral” due to anticipated EPS growth pressures in 2025. While the company is expected to benefit from a refresh cycle and incremental investments under new leadership, Goldman cautioned that meaningful revenue growth may not materialize until 2026.

Other notable calls include Fortinet, which maintains a “buy” rating with a 20% upside potential. The company is well-positioned to capitalize on an upturn in the firewall refresh cycle, with analysts highlighting Fortinet’s broad cross-sell opportunities in its networking portfolio.

The cybersecurity sector exited 2024 trading at a 25% premium to the broader software industry based on enterprise value-to-sales multiples. This valuation reflects the sector’s favorable long-term growth drivers, including heightened breach risks, increasing regulatory scrutiny, and the adoption of advanced AI technologies.

While the sector is expected to grow at 9% annually in 2025, down slightly from 2024, the report notes that deceleration trends are stabilizing. This is likely to set the stage for positive revenue inflections in the coming quarters.

GS flagged potential competitive pressures from hyperscalers like Microsoft (NASDAQ:MSFT ) and Google (NASDAQ:GOOGL ), which are expanding their security offerings. It also pointed to geopolitical and macroeconomic uncertainties, particularly in key markets like Europe.

Still, the broader industry outlook remains optimistic.

As cybersecurity companies navigate a volatile macro environment, those with robust platform strategies and diversified offerings appear best positioned to outperform in 2025 and beyond.

Source: Investing.com