Morgan Stanley’s Top Cybersecurity Picks – Microsoft, Palo Alto, CrowdStrike Lead

TLDR

• Cybersecurity stocks fell sharply Friday after a report that Anthropic is testing a powerful new AI model called Mythos with advanced cyber capabilities
• The iShares Cybersecurity ETF (IHAK) lost 4.5% on the news
• CrowdStrike, Palo Alto Networks, and Zscaler each dropped around 6%; Tenable fell 9%
• Morgan Stanley had just named five cybersecurity stocks as top picks, citing AI security demand
• The sector has been under pressure all year from AI disruption fears and a previous Anthropic tool announcement

Cybersecurity stocks fell sharply on Friday after Fortune reported that Anthropic is testing a new AI model called Mythos. The report, citing a publicly accessible draft blog post, described Mythos as Anthropic’s most powerful model yet, with advanced cyber capabilities that raise potential security concerns.

Anthropic said it plans a slow rollout because of those concerns. The company did not immediately respond to CNBC’s request for comment.

The market reaction was swift. The iShares Cybersecurity ETF (IHAK) dropped 4.5% on the day. CrowdStrike (CRWD), Palo Alto Networks (PANW), and Zscaler (ZS) each fell around 6%. SentinelOne (S) tumbled 6%, while Okta and Netskope each dropped more than 7%. Tenable (TENB) led the declines, falling 9%.

This isn’t the first time the sector has taken a hit from Anthropic news. Last month, cyber stocks sold off after Anthropic added a code-scanning security tool to Claude. The concern in both cases is the same: AI tools that can be used offensively put pressure on defenders to keep up.

Anthropic disclosed in November that a state-sponsored group in China had used Claude to automate a cyberattack.

Stock-by-Stock Breakdown

CrowdStrike (CRWD) dropped around 6% on the day. Morgan Stanley had recently upgraded the company to a top pick, pointing to its proprietary telemetry and kernel-level visibility as competitive strengths. The firm launched the Charlotte AI AgentWorks Ecosystem in partnership with AWS and NVIDIA, and expanded its Intel collaboration to optimize the Falcon platform for AI PCs.

CrowdStrike Holdings, Inc., CRWD

Palo Alto Networks (PANW) also fell roughly 6%. Morgan Stanley views it as well-placed across the AI security shift. Its Prisma AIRS platform for securing AI agent lifecycles already has over 100 early customers, and its XSIAM product has more than 600 customers with net revenue retention above 120%. The company also announced a new Prisma Browser and a platform to automate digital certificate management.

Zscaler (ZS) dropped about 6%. The stock is part of the broader cybersecurity selloff but was not the subject of individual analyst comment in the Morgan Stanley note.

SentinelOne (S) fell 6%. Morgan Stanley holds an Equal-weight rating on the stock. Management flagged kernel-level telemetry as a key differentiator and pointed to improving pipeline trends as a sign of possible re-acceleration. FY27 guidance midpoint sits at roughly 20% revenue growth. The company recently announced an expanded multi-year deal with Google Cloud and named Barry Padgett as its new president and COO.

Okta (OKTA) declined more than 7%, one of the harder hits on the day. The identity security space is closely tied to concerns around AI-enabled credential attacks.

Tenable (TENB) led sector declines at 9%, with no immediate company-specific catalyst.

Morgan Stanley’s Picks — Just Before the Drop

Morgan Stanley had outlined its preferred cybersecurity picks following meetings with company leadership and observations from the RSA Conference. The firm highlighted Microsoft (MSFT) for its Security Copilot integration and roughly $20 billion security revenue run rate, and SailPoint for its identity security positioning around agentic AI.

The timing underlines how quickly sentiment can shift in the sector.

The iShares Cybersecurity ETF (IHAK) is down for the year, weighed down by recurring AI-disruption fears across the software space.

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