Jefferies upgrades Varonis, names top cybersecurity picks for amid AI tailwinds

Jefferies upgraded Varonis Systems (VRNS) to Buy and named Palo Alto Networks (PANW), Zscaler (ZS), CyberArk, and SailPoint as its top cybersecurity picks for the second half of 2025. This outlook is driven by resilient sector spending and growing demand tied to generative AI adoption, with cybersecurity budgets expected to hold steady at approximately 12% of overall software spending. While the firm sees continued tailwinds from rising threats and integrated platforms, it notes that elevated valuations after H1 2025 outperformance suggest a more measured second half for the sector.

Analysis

Jefferies has issued a bullish outlook for the cybersecurity sector for the second half of 2025, driven by resilient enterprise spending and secular tailwinds from generative AI adoption. The firm's research indicates that cybersecurity budgets are stable, expected to comprise approximately 12% of total software spending. While acknowledging that sector-wide growth may moderate from recent outperformance, Jefferies identifies rising security threats and demand for integrated platforms as key catalysts. The firm specifically upgraded Varonis Systems (VRNS) to Buy with a $65 price target, citing its leverage to AI-driven data governance and viewing its 2025 targets as "very achievable." Palo Alto Networks (PANW) is highlighted as a top pick for long-term investors due to its platform strength and free cash flow outlook, despite a noted slowdown in near-term billings. Other top selections include Zscaler (ZS), for its leadership in zero-trust security; CyberArk (CYBR), for anticipated margin upside; and SailPoint (SAIL), which is projected to see annual recurring revenue (ARR) growth exceeding 20% from FY26 to FY28. However, the report cautions that cybersecurity stocks have already outperformed in 2025, leading to elevated valuations and the expectation of a more measured performance in the second half of the year.

Key Decisions for Investors

• Investors should consider the cybersecurity sector's strong fundamentals, but remain cognizant of elevated valuations which may lead to a more moderate pace of returns in the second half of 2025.
• For growth-oriented portfolios, Varonis Systems (VRNS) presents a specific catalyst-driven opportunity following its upgrade, while SailPoint (SAIL) offers a compelling long-term growth narrative based on its strong ARR forecast.
• Long-term investors may find Palo Alto Networks (PANW) to be a core holding due to its market position and cash flow, but should monitor near-term billings data as a key performance indicator for potential volatility.