Why the global memory bottleneck may signal early innings in the cyber stock comeback

Here is a story making headlines in the economy: The comeback in the cybersecurity group has been nothing short of amazing. Over the course of just a few months, CrowdStrike and Palo Alto Networks have gone from being bucketed into the hated software trade to being anointed full-on artificial intelligence beneficiaries. From the outset of the selloff earlier this year, Jim Cramer was screaming from the rooftops that cyber should never have been lumped into run-of-the-mill enterprise software.

That's why we bought CrowdStrike so heavily in March, shortly after the Club stock hit a 52-week low of around $86 per share in late February. We favored pressing the issue on CrowdStrike, while lightening up on Palo Alto Networks with some trims in April, about $40 per share above its 52-week low of $139 in late February. Fast-forward to this week, and CrowdStrike and Palo Alto Networks hit intraday all-time highs Monday, before retreating a bit Tuesday.

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While we're glad to see the stocks rebounding and scaling new heights, we must be mindful of the speed of these moves. We may think CrowdStrike is an amazing company, and the stock has further upside from here, but that doesn't mean we let it run unattended to the point of having too much influence on the Club portfolio's overall risk/reward profile. On Monday, we right-sized CrowdStrike back to about a 4% weighting, and booked a healthy profit to boot .

Last week, we trimmed Palo Alto Networks, whose recent rally brought it back up to about a near 2% weighting. CrowdStrike is up 68% year to date, while Palo Alto Networks is up 88%. So, what has brought the market around to understand what we knew all along?

At a high level, the move may not be that different from what has played out in memory-chip stocks over the past few months. When you think about it, it's just the software expression of the memory trade that has driven much of the market's returns this year. Both are tied to AI and the insatiable demand to adopt and implement it.

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On the hardware side, memory stocks have been absolutely red hot. Sandisk is up over 625% year to date, while Micron Technology is up 250%. The realization: While the world may need more central processing units (CPUs) than thought to run agentic AI workloads in high volume, it's the availability of high-bandwidth memory that is proving to be the real bottleneck for the infrastructure buildout.

However, once the hardware is installed and the software applications are ready for adoption, enterprise organizations still need to be certain that they can implement AI safely, without compromising their own data, as well as that of their customers. In today's world, data is the new gold. That means that a data breach is the modern-day equivalent of a bank heist — except bad actors don't just get one shot; they can try, fail and keep trying.

Economists are analysing what the news means for the markets.