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The Cybersecurity Stocks Selloff Was Real. The Reason Was Not.

The Cybersecurity Stocks Selloff Was Real. The Reason Was Not.

February 26, 2026

The AI Investing Pulse

February 26th, 2026

In this Week’s Edition:

Analysis - The Cybersecurity Stocks Selloff Was Real. The Reason Was Not
Stock Ideas - SanDisk's 1,250% Rally: Is the AI Storage Play Overheated?
News - Jamie Dimon Flags AI Euphoria in Pre-Crisis Warning
Startups - AI Chip Startups Raise $1.1B in a Single Week
Trends - Goldman Sachs Challenge the AI-Props-the-Economy Narrative
Other News - Harvard Study: AI Predicts 71% of Active Fund Trades

The Cybersecurity Stocks Selloff Was Real. The Reason Was Not.

In five trading days, the cybersecurity sector shed tens of billions in market value. The trigger was not a data breach or a profit warning. It was a single tool release from an AI startup.

On 20 February 2026, Anthropic launched Claude Code Security, a reasoning-based vulnerability scanner embedded into its Claude Code developer platform. By 24 February, CrowdStrike had fallen as much as 18%, Zscaler was down 11.3%, Okta shed 9.2%, and the Global X Cybersecurity ETF hit its lowest level since November 2023. The question dividing Wall Street: was this a rational re-pricing of structural risk, or a panic that drove valuations to levels not seen in years, raising questions about whether the competitive threat was accurately priced in?

What the Tool Actually Does and What It Doesn't

Claude Code Security operates in the application security layer, scanning source code repositories for logic flaws using large language model reasoning rather than conventional pattern-matching rules. Powered by Claude Opus 4.6, it reportedly identified over 500 high-severity vulnerabilities in production open-source codebases during internal testing. All suggested patches still require human approval before implementation.

The tool competes most directly with specialist code scanning vendors, most of which are privately held. There are no liquid public stocks in pure-play code scanning to sell. So institutional investors with broad cybersecurity ETF exposure sold what they could, and endpoint, identity, and network security names absorbed the volatility despite sitting in entirely different segments of the security stack.

Bank of America noted that Claude Code Security poses a meaningful threat only to dedicated code scanning platforms. Morningstar argued it is not bad news for cybersecurity companies at all: established vendors hold petabytes of real-time threat telemetry that LLMs cannot replicate, and the long-term view is that cyber vendors will embed frontier AI models alongside their proprietary data to capture net-new security spending. There is a structural irony too: the same AI that finds vulnerabilities also makes attackers more capable, intensifying rather than reducing enterprise security demand. Wedbush called investor fears the "AI Ghost Trade."

Featured Stocks

The following analysis is for informational purposes only and does not constitute a recommendation to buy or sell any security.

Three companies appear most disconnected from the actual competitive threat in the selloff, based on AIIP's objective scoring and segment analysis. Each operates in a segment of the security stack that Claude Code Security does not touch, each has strong underlying fundamentals, and each carries a credible long-term thesis that the panic has obscured.

CrowdStrike Holdings $CRWD ( ▲ 3.73% )

1 Week: -13.90% | YTD: -22.50%
AI Stack: Stack 6 — AI-Powered Threat Detection
AIIP Ranking: Fundamental

Endpoint Detection Thesis
CrowdStrike was the poster child for the panic, falling as much as 18% and losing approximately $20 billion in market capitalisation. Its endpoint detection platform relies on proprietary, real-time threat telemetry that large language models simply cannot replicate. Claude Code Security operates in the application layer, a fundamentally different part of the security stack with no overlap with Falcon's core function. The stock closed broadly flat on Tuesday once the market digested the reality of the tool, suggesting the initial reaction was driven by sentiment rather than substance.

What Stands Out
The data presents an interesting contrast: analyst consensus remains firmly positive despite the sharp price decline. The consensus analyst price target implies roughly 40% upside from current levels, with 25 of 40 covering analysts rating it a Buy or Strong Buy and zero Sell ratings. Wedbush maintains CRWD on its IVES AI 30 preferred holdings list and describes the selloff as the wrong reaction for a "clear winner" in the AI security cycle.

Palo Alto Networks $PANW ( ▲ 2.24% )

1 Week: -4.10% | YTD: -21.40%
AI Stack: Stack 6 — AI in Cybersecurity, Threat Detection
AIIP Ranking: Fundamental

Platform Consolidation Thesis
Palo Alto declined around 9% initially before partially recovering. With the strongest fundamental score of the three at 93, the company is highly efficient and profitable. Wedbush and Morningstar both argue that established vendors like Palo Alto will embed frontier AI models alongside proprietary data pipelines to capture net-new security spending, suggesting the dip may reflect sentiment rather than a structural deterioration in the business. Its platform breadth distributes revenue across threat detection, network security, and cloud security in a way that insulates it from any single competitive pressure.

What Stands Out
The recently completed CyberArk acquisition strengthens Palo Alto's position in AI-driven identity security, adding a segment that sits well away from Claude Code Security's code-scanning focus. At a fundamental score of 93, this is the highest-quality business in the group on AIIP's metrics.

Okta $OKTA ( ▲ 2.62% )

1 Week: -10.80% | YTD: -15.60%
AI Stack: Stack 6 — AI in Identity and Access Management
AIIP Ranking: Fundamental

Identity Management Thesis
Okta shed 9.2% of its value during the initial panic despite operating in identity management, a segment wholly distinct from code vulnerability scanning. It recovered roughly 2% once Anthropic clarified that Claude is an orchestration layer rather than a direct replacement product. The selloff is a textbook case of sector contagion, where investors de-risk an entire theme before distinguishing between subsegments.

What Stands Out
The structural case for Okta may be the most interesting of the three. As AI agents proliferate across enterprise workflows, every agent requires identity verification and access governance. Okta's core market is arguably a beneficiary of the agentic AI wave rather than a casualty of it, which makes the market's reaction here particularly difficult to justify on fundamentals.

Final Take

The cybersecurity selloff was real, but the broad tarring of endpoint, identity, and network security names alongside code scanning tools reflects ETF mechanics and narrative contagion more than rational competitive analysis. Claude Code Security is a genuine capability. However, its competitive footprint is narrow. The names most directly threatened were pure-play code scanning vendors such as JFrog and GitLab, neither of which were the stocks that moved the headlines. The three companies above operate in segments that Claude Code Security does not address, and AIIP's objective scoring shows no change in their underlying business quality.

Whether this created a durable entry point or simply a temporary floor depends on what Anthropic and its rivals do next. OpenAI launched its Aardvark security agent in October 2025. Microsoft, Amazon, and Google all have AI-native security tools in development. Each new release is now a potential volatility event for the sector. Investors with cybersecurity exposure are best served by knowing precisely where in the security stack each company operates. That distinction has never mattered more.

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^{Not Investment Advice}^{: This content is provided by AI Investing Pulse for informational and educational purposes only. It does not constitute investment advice, a personal recommendation, or an invitation or inducement to engage in any investment activity.}^{Not Regulated}^{: AI Investing Pulse is not authorised or regulated by the Financial Conduct Authority (FCA) in the United Kingdom, is not registered with the Securities and Exchange Commission (SEC) or any state securities regulator in the United States, and is not registered with the Canadian Investment Regulatory Organization (CIRO) or any provincial securities commission in Canada.}^{Methodology Disclosure}^{: The AIIP Index scores and rankings mentioned in this article are generated by a proprietary quantitative methodology based on publicly available financial data. Our full methodology is explained in the "About AIIP" section below. These scores are objective system outputs, not recommendations or endorsements.}^{Risk Warning}^{: Investing in stocks involves risk, including the potential loss of principal. Past performance of stocks, scores, or rankings is not indicative of future results. Stock prices can decline as well as rise, and you may lose some or all of your invested capital.}^{Third-Party References}^{: References to analyst opinions, bank research, media publications, or the term "picks" refer to third-party selections, not AIIP recommendations. We aggregate this information for educational analysis only.}^{Seek Professional Advice}^{: Always consult a qualified, regulated financial professional who understands your personal circumstances before making any investment decisions. Consider your individual financial situation, risk tolerance, investment objectives, and time horizon.}

^{About AIIP -}^The^{AIIP Index}^{tracks 173 AI-focused public companies across the full AI stack, serving as our benchmark for sector performance. All scores are proprietary and calculated using data from}^{Finbox (powered by S&P Global Intelligence)}^.^{AIIP Total Score}^{(0–100) combines metrics for sales and EPS growth, financial quality, and valuation to assess overall business strength.}^{AIIP Relative Strength (RS) Score}^{measures a stock’s price performance relative to the AIIP 173 AI stocks.}^{Ranking Status}^{is based on score combinations:}^Fundamental^{: Total Score ≥ 70, RS < 80.}^Momentum^{: RS ≥ 80, Total Score < 70.}^Watchlist^{: Total Score ≥ 70 and RS ≥ 80}

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COMPANY	SECTOR	WEEKLY
Intelligent Solutions (CCC)	Technology	23.6%
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SanDisk's 1,250% Rally: Is the AI Storage Play Overheated? – The Motley Fool
Spun out of Western Digital in February 2025, SanDisk has surged on tight AI data centre storage supply, posting 51% gross margins and guiding Q3 revenue to $4.4–4.8B.

ServiceNow and UiPath Positioned for the Agentic AI Wave – The Globe and Mail
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Salesforce Sees $24.6M in Net Insider Buying Amid Agentic Push – The Motley Fool
Insider buying at Salesforce reached $24.6M over the past three months, including a $25M purchase by activist investor ValueAct and a $500K buy from director Kirk David Blair, formerly Nvidia's Chief Scientist.

AI STOCKS & ETFS NEWS

Jamie Dimon Flags AI Euphoria in Pre-Crisis Warning – CNN
JPMorgan CEO Jamie Dimon has cautioned that current market conditions, including elevated asset prices, AI euphoria, and risky behaviour in private credit, bear resemblance to the 2005–2007 period ahead of the financial crisis.

US Grid Under Strain as AI Data Centres Consume More Power – Reuters
AI data centers are projected to consume up to 12% of US electricity by 2028, up from 4.4% in 2023, with grid operator PJM Interconnection flagging a 6GW reliability shortfall by 2027.

WisdomTree Launches Europe's First Physical AI ETF – MoneyWeek
WisdomTree's new Physical AI, Humanoids and Drones UCITS ETF (LON:PAIG), launched February 19, offers European investors targeted exposure to humanoid robotics, autonomous vehicles, drones, and smart logistics.

Anthropic Partnership Wave Triggers Software Stock Rebound – CXO Today
A cluster of enterprise partnerships announced February 24, with Salesforce, DocuSign, Intuit, FactSet, and Thomson Reuters, eased fears that Anthropic's agentic AI tools would displace software incumbents.

Meta and AMD Ink $100B AI Chip Deal, Denting Nvidia's Dominance – Yahoo Finance
Meta has agreed to purchase up to six gigawatts of AMD Instinct GPUs in a multiyear deal valued at up to $100B, with AMD issuing Meta a performance-based warrant for 160 million shares. The agreement mirrors AMD's October deal with OpenAI and reinforces the push by hyperscalers to diversify compute supply away from Nvidia.

AI STARTUPS

AI Chip Startups Raise $1.1B in a Single Week – The Register
MatX, founded by ex-Google engineers, closed a $500M Series B targeting 10x better LLM training efficiency than Nvidia, while Dutch edge AI firm Axelera raised $250M+ in its own Series B.

Amodei: Miss AI Growth Forecasts by One Year and You Go Bankrupt – The Economic Times
Anthropic CEO Dario Amodei warned that the AI growth curve leaves companies almost no margin for timing errors, stating that being off by a year could prove fatal. Anthropic is tracking toward $10B in 2026 revenue, reportedly growing tenfold annually.

AI TRENDS

Goldman Sachs Researchers Challenge the AI-Props-the-Economy Narrative – Futurism
Goldman Sachs chief economist Jan Hatzius found that AI investment had "basically zero" measurable impact on US GDP growth in 2025, in part because most AI hardware is imported.

How Claude Killed One Marketing Startup and What Comes Next – Livemint
Ryze AI founder Ira Bodnar says a Claude update that added a Meta ads connector directly caused her deal close rate to collapse from 70% to 20%, effectively killing her startup's market position.

OTHERS

Harvard Study: AI Predicts 71% of Active Fund Trades – Investing Live
A Harvard study using neural networks trained on 1990–2023 data found that AI could predict nearly three quarters of active fund manager trades, with the unpredicted 29% associated with the bulk of outperformance.

Google's AI Career Certificate Targets India's 1M-Plus Skills Gap – Times of India
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