AI's New Threat Could Be a Boon for Cybersecurity Stocks
Last week, it was reported by OpenAI that, during an internal cybersecurity evaluation, hundreds of AI bots reportedly found ways to circumvent their restrictions, communicate with one another, access the Internet, and ultimately target and hack the AI platform Hugging Face's infrastructure.
For those of us who grew up watching The Jetsons in the 1960s, the idea of machines communicating and doing things on their own once seemed like a comical vision of the distant future. But what happened at Hugging Face was far less amusing, as bots reportedly worked together as a swarm, adapted their strategy, and even attempted to conceal what they had done. This makes the event particularly significant, and it raises an important question for investors: If AI can operate autonomously at machine speed, can traditional cybersecurity keep up?
Initially, the incident highlighted a critical security gap: enterprise systems have zero defenses built for machine-speed inferencing attacks.
Cybersecurity's Growing Role
This means that the growth of autonomous AI could create an entirely new layer of spending on cybersecurity. Enterprises won't just need protection from hackers using AI; they'll increasingly need protection from AI itself. This would include systems operating autonomously within their own organizations.
Software security companies such as CrowdStrike (CRWD), Palo Alto Networks (PANW), and Cloudflare (NET) are therefore operating in an industry that could see its addressable market expand as AI becomes increasingly autonomous.
Let’s review the characteristics of the leading cybersecurity company and its chart.
CrowdStrike's Bullish Bias
This would be CrowdStrike, which, following the breach, was brought in as a key external cybersecurity advisor. The company leveraged open-weight models to map out and contain the thousands of actions taken by the rogue agents. As a direct result of their response, CRWD is expected to experience significant growth.
CRWD’s chart has exhibited volatility over the past six weeks that mirrors the price action in the overall software group (using ETF IGV). The recent gap up in price in late August was due to the company’s release of very strong results, and the stock is exhibiting a bullish bias after closing above its key moving averages and posting a positive Relative Strength Index (RSI) and Moving Average Convergence/Divergence (MACD).
CrowdStrike was added to my MEM Edge Report’s Suggested Holdings List in early May, when it appeared as a leadership name as select Software stocks began to emerge. If you’d like to be alerted to similar setups, use this link here for immediate access to my twice-weekly report at no cost.
Palo Alto Networks and Cloudflare have charts that are not in a bullish position after pulling back below key support this week, despite reporting strong results.
While the Hugging Face incident offers an unsettling preview of the next phase of the AI revolution, it also highlights a potentially significant investment opportunity. Staying on top of developments within the AI infrastructure that can be capitalized upon is a key strategy for my MEM Edge Report. We’ve identified many of the top performers in AI as well as other areas of the market. Use this link here to participate!
Warmly,
Mary Ellen McGonagle
MEM Investment Research
