Key insights
- Cybersecurity firms are being re-evaluated as beneficiaries of AI, unlike other software sectors facing business model questions. Datadog's strong earnings, driven by AI observability, highlight the need to monitor AI agents, creating a new growth driver. This suggests potential upside for cybersecurity stocks like FTNT, PANW, DDOG, and CRWD as AI adoption increases.
Over the last few months, all of Software stocks took a beating across all domains. Some of those were discussed and mentioned frequently in this forum - CRM, NOW, IT and the most frequently mentioned ADBE. While there are still questions on the business model surrounding the per-seat model in the agentic world, we now have one group of software companies that have been re-rated as beneficiaries of agentic AI movement, the cyber security group.
DDOG's blockbuster May 7th earnings report, where revenue blew past $1 billion and surged 32%, explicitly proved this. Their CEO stated that AI observability has become a structural growth engine. Why? Because AI agents must be monitored just like human employees. When an enterprise runs thousands of agent workflows, it must pay platforms like DDOG to monitor their API latency, tokens, and errors. For cyber security, AI is a threat multiplier and completly decoupled from headcount business model obsolesce.
Full disclosure: I am long FTNT, PANW. Looking to find an attractive entry in DDOG and CRWD over the coming days.
What are your thoughts?