Bernstein expects a slowdown in cybersecurity investment. Is this sector overvalued?

Shares of companies in the cybersecurity sector are overvalued compared to their target, analysts at Bernstein said. About it they write in the report, devoted to reduction of estimation of securities of CrowdStrike to «neutral». According to the investment bank, investors had been buying the industry's stocks as the most reliable amid economic uncertainty caused by the imposition of trade duties. But now that the peak of uncertainty has passed, investments in the sector may slow down.

Bernstein pointed to the overvaluation of CrowdStrike shares compared to their target price - this, according to the investment bank, is typical for the entire cybersecurity segment. That's how the investment bank explained the downgrade of CrowdStrike's rating from «Outperform» (equivalent to a «buy» recommendation) to «Market Perform» on June 6. Two days earlier, Bernstein raised the developer's target share price from $347 to $371, still 20% below the closing price on June 5.

Analysts have suggested that investors are increasingly looking to cybersecurity stocks as a stable asset amid economic uncertainty. The area is perceived as a forced spending item, even as companies' IT budgets are under pressure overall, according to an investment bank report reported by Investing.com.

However, Bernstein expressed concern about the extent to which cybersecurity spending could see a marked increase in the future, as it remains part of the broader IT cost structure and is viewed by companies as a «non-revenue generating» (cost center) area. As confidence in the broader software market recovers, the cybersecurity sector could face a slowdown in growth, analysts said.

The company's shares reached $478.5 during trading on June 6, not far from the 52-week high of $491.2. YTD yield of the securities amounted to 37.5%.

Analysts at Bernstein noted that CrowdStrike remains a key company in the cybersecurity sector, showing strong growth and good prospects for both revenue and earnings in the coming year. In its quarterly report on June 3, the developer reported strong revenue ($4.14 billion) and a gross margin of 74.5%, Investing.com writes. However, Bernstein considers the securities oversold.

Other analysts remain optimistic about CrowdStrike. BMO Capital on June 6 raised its target price on the stock from $405 to $500 and maintained an Outperform rating on the stock, citing strong quarterly reporting and a wide range of security solutions.

Piper Sandler on June 4 raised CrowdStrike's target from $400 to $505, also maintaining an Overweight rating. The bank's decision reflects analysts' confidence in the company's growth prospects despite the fact that first-quarter results did not fully meet investors' expectations, Investing.com noted.

Cantor Fitzgerald on June 4 reserved an Overweight rating with a $475 target price. The bank noted that CrowdStrike presented strong first-quarter results, beating expectations on key metrics. The company raised its full-year guidance for operating income and earnings per share, although its revenue outlook was unchanged. Cantor Fitzgerald noted that CrowdStrike generated $1 billion in sales through its partnership with GuidePoint Security, making it the first cybersecurity company to reach that level with a single partner. That partnership played a key role in popularizing the Falcon platform, especially through the Falcon Flex program, the bank said in the report.

In total, according data from MarketWatch, CrowdStrike securities are tracked by 53 analysts, of which 37 recommend buying (Buy and Overweight ratings), 15 advise holding (Hold), and one suggests selling (Underweight). The Wall Street consensus price target is $474.1.