The Zacks Security industry is experiencing robust demand for cybersecurity products, driven by the increasing need for secure networks and cloud-based applications, especially with the rise of hybrid work environments. This surge in demand is largely due to a significant increase in data breaches, prompting companies to seek comprehensive IT security solutions. The growing need for privileged access security, fueled by digital transformation and cloud migration strategies, is boosting demand for cybersecurity solutions.

Companies such as Fortinet, Inc. (FTNT Quick QuoteFTNT - Free Report) , Zscaler, Inc. (ZS Quick QuoteZS - Free Report) and Qualys, Inc. (QLYS Quick QuoteQLYS - Free Report) are benefiting from these trends. However, the industry's short-term growth prospects may be hampered as organizations delay investments in large and costly technology products due to global economic slowdown concerns, macroeconomic challenges and geopolitical tensions. Increased operating expenses related to hiring new employees and implementing sales and marketing strategies to gain market share are expected to pressure profit margins in the near term.

Industry Description

The Zacks Security industry encompasses companies that provide both on-premise and cloud-based security solutions. These solutions cater to a variety of needs, such as identity access management, infrastructure protection, integrated risk management, malware analysis and Internet traffic management, among others. The industry offers a diverse range of security solutions, many of which can be used interchangeably. These solutions are broadly categorized into three types — Computer Security, Cybersecurity and Information Security. Computer Security focuses on safeguarding the software and hardware of computer systems from vulnerabilities. Cybersecurity encompasses areas like web security, network security, application security, container security and information security. Information Security deals with the protection of data in all forms, whether physical or digital.

Major Trends Shaping the Future of the Security Industry

Rising Cyber Threats Drive IT Security Demand: The increasing frequency of cyberattacks is escalating the need for robust security solutions. These threats not only adversely impact individual companies but also pose risks to national security in some countries. Companies in the security industry are actively addressing these issues as there is a growing need for protection against spear phishing, credential-based attacks, account takeovers and ransomware.

Accelerated Digital Transformation Fuels Growth: The shift toward digital transformation and cloud migration is driving the demand for cybersecurity solutions. Sectors ranging from education and entertainment to healthcare are increasingly relying on technology, making them vulnerable to cyberattacks. Public institutions and large companies, as well as smaller organizations with less stringent security measures, are at risk. The deployment of 5G has expanded the Internet of Things (IoT) and artificial intelligence (AI), which, while simplifying operations, will increase cybercrime rates due to greater technological reliance.

Macroeconomic Headwinds May Affect IT Spending: Uncertain macroeconomic conditions and geopolitical issues may lead enterprises to delay significant IT investments. Amid current economic challenges, organizations are likely to conserve cash and reduce spending, which could negatively impact the security market in the short term.

High Operating Expenses Could Hurt Profitability: To remain competitive in the IT security market, companies are continually investing in expanding their capabilities. This includes substantial investments in research and development to enhance product offerings and improve overall security solutions for clients. Firms are heavily investing in sales and marketing, particularly by increasing their sales workforce. These elevated operating expenses, aimed at gaining market share, may reduce profit margins in the near term.

Zacks Industry Rank Indicates Bright Prospects

The Zacks Security industry is housed within the broader Zacks Computer and Technology sector. It carries a Zacks Industry Rank #67, which places it among the top 27% of nearly 250 Zacks industries.

The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates solid near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than two to one.

The industry’s positioning in the top 50% of the Zacks-ranked industries is a result of a positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are optimistic about this group’s earnings growth potential. The industry’s bottom-line estimates for 2026 have moved up to $1.52 from earnings of $1.40 expected a year ago.

Industry’s 2026 EPS Estimate Revision Trend

Industry Outperforms S&P 500 and Sector

Over the past year, the Zacks Security industry has outpaced the broader Zacks Computer and Technology sector and the S&P 500 composite.

The industry has surged 60.4% during this period, while the broader sector and the S&P 500 have risen 6.9% and 10%, respectively.

One-Year Price Return Performance

Industry's Current Valuation

On the basis of the forward 12-month price-to-sales ratio (P/S), which is a commonly used multiple for valuing Security stocks, the industry is currently trading at 18.46, higher than the S&P 500’s 4.41 and the sector’s 5.17.

Over the last five years, the industry has traded as high as 20.16X and as low as 7.59X, with a median of 12.39X, as the charts below show.

Price-to-Sales Ratio (Industry vs. S&P 500)

Price-to-Sales Ratio (Industry vs. Sector)

3 Security Stocks to Bet on Now

Fortinet: It is a provider of network security appliances and Unified Threat Management (“UTM”) network security solutions to enterprises, service providers and government entities worldwide. Currently, Fortinet carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Fortinet's aggressive product roadmap positions it to capitalize on escalating cybersecurity demands throughout 2026. The rollout of FortiOS 8.0 with AI-driven security, next-generation SASE and quantum-safe capabilities, alongside FortiGate 3500G and 400G firewalls, addresses critical enterprise needs for unified security platforms. Management's strategic focus on expanding Unified SASE, Secure SD-WAN, FortiSASE and Security Fabric integration through a single FortiOS operating system creates compelling migration opportunities from legacy competitors.

Fortinet's ongoing investments in sales capacity, cloud infrastructure and AI capabilities are positioned to generate meaningful operating leverage improvements throughout 2026 and beyond. The company's strategic hiring initiatives completed over recent quarters create productivity advantages as field teams mature and reach full effectiveness. Investments in automation and cloud-native delivery models reduce incremental costs while improving customer experience and retention. The transition toward higher-margin subscription and service revenue streams enhances the profitability trajectory.

The Zacks Consensus Estimate for Fortinet’s 2026 earnings has been revised upward by 9 cents to $3.51 per share over the past seven days. FTNT shares have surged 55.5% over the past year.

Price and Consensus: FTNT

Zscaler: It offers a broad range of enterprise security services across web and Internet security, private access, data protection, cloud and workload security, branch security, browser security, digital experience monitoring, AI security and security operations.

Zscaler’s long-term story is becoming broader than its traditional user-based security business. AI security stands out as a particularly attractive opportunity. Security for AI bookings increased more than 50% sequentially in the fourth quarter of fiscal 2026, following strong growth in the previous quarter. Zscaler is also developing products such as Zero Trust Exchange for Agents and Endpoint AI Security, which are expected to scale in the second half of fiscal 2027.

The company is making similar progress with Zero Trust Everywhere. Enterprises using combinations of Zero Trust Users, Zero Trust Cloud and Zero Trust Branch increased to more than 950 at the end of the fourth quarter compared with more than 700 in the previous quarter and 350 a year-ago quarter. The Zacks Consensus Estimate for this Zacks Rank #2 company’s fiscal 2027 earnings has been revised upward by 7.9% to $4.91 per share over the past 60 days. ZS shares have fallen 29.3% over the past year.

Price and Consensus: ZS

Qualys: Its suite of IT, security and compliance solutions spans diverse applications, including asset management, IT security, cloud-native security, web application security and compliance. Qualys is benefiting from the increasing demand for cloud-based cybersecurity solutions amid growing cyber threats and digital transformation initiatives. With a diverse customer base that includes enterprises, SMBs and government entities, the company maintains a balanced customer mix, which keeps it resilient against fluctuations in IT spending.

QLYS is expanding beyond traditional vulnerability management with its AI-driven risk operations strategy, led by Enterprise TruRisk Management. Qualys is adding capabilities designed to help customers identify and address security risks more quickly. InstaScan supports rapid, scanless vulnerability detection following the disclosure of a new vulnerability, while TruConfirm and Agent Val help validate potential exploits. Agent Sara focuses on autonomous remediation, helping organizations address vulnerabilities with less manual effort. Together, these tools aim to connect vulnerability detection, validation, risk assessment and remediation in a more efficient process.

The growing adoption of its risk operations center framework will support Enterprise TruRisk Management penetration within the VMDR customer base and create larger upsell opportunities over time. Early adoption is encouraging. During second-quarter 2026 results, Qualys stated that the AI-native Risk Operations Center and Enterprise TruRisk Management solution contributed to its quarterly performance. AI could help this Zacks Rank #2 company increase platform adoption, expand its addressable market and support faster long-term growth.

The consensus mark for its 2026 earnings has been revised upward by 4 cents to $7.83 per share over the past seven days. Shares of QLYS have soared 79.1% over the past year.

Price and Consensus: QLYS