Goldman Sachs Raises Price Targets on CrowdStrike, Palo Alto Networks on AI Security Outlook

Goldman Sachs has raised its price targets for cybersecurity leaders CrowdStrike (CRWD) and Palo Alto Networks (PANW), arguing that the firms are poised to capture a significant new stream of revenue as enterprise spending on artificial intelligence translates into higher security budgets.

In a note to clients on Tuesday, the investment bank expressed confidence that the two platform leaders can grow into their current valuations as the market for AI-related security matures.

The AI Security Thesis

Goldman Sachs analyst Gabriela Borges lifted the 12-month price target on CrowdStrike to $208 from a previous $182 and raised Palo Alto Networks' target to $371 from $330. The bank maintained its Buy ratings on both stocks.

The upgrades are based on a shift in market perception. "In the last four months, the Security category has shifted from being viewed as at risk from AI to being a clear beneficiary," Borges wrote. While Goldman agrees with the consensus that more AI spending will lead to more security spending, the note cautioned that the "quantification and timing will matter to realizing alpha from here."

Timing the Inflection Point

According to the bank, a meaningful change in security budgets for AI-related products has not yet occurred, as many corporate AI implementations remain in immature, isolated "sandbox" environments.

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Drawing a parallel to the cloud computing cycle, which took five years for security spending to inflect, Goldman estimates a similar turning point for AI security budgets "may happen” as soon as the fourth quarter or the first half of 2027. This implies a potential two-to-three-year lag from the beginning of the current AI adoption cycle.

Why Incumbents Stand to Win

Goldman Sachs argues that this new AI-related security budget is likely to disproportionately benefit incumbents rather than new entrants, a key difference from the broader software sector. This advantage is attributed to two factors:

• Security leaders' innovation roadmaps are already driven by machine learning, not just generative AI.
• They have been aggressively acquiring AI-native technology, with an estimated $2.3 billion spent on such assets over the past 18 months.

Under what Goldman termed a "blue sky" scenario, the bank estimates CrowdStrike and Palo Alto Networks could collectively capture about one-third of the emerging AI security market. This could lead to their 2028 free cash flow being revised upward by as much as 30% compared to current consensus estimates.