Claude, AI Fears & Cybersecurity Stocks: Are Investors Overreacting | Steve Cress

Steven Cress dives into the 2026 cybersecurity landscape to separate rational market shifts from the "AI Ghost Trade" panic currently dragging down industry leaders. This deep dive analyzes the fallout of the U.S. government's Anthropic blacklist, Fastly’s massive transformation into an edge-security powerhouse, and why Okta’s move into "AI-agent" identity is the next billion-dollar frontier.Follow Steven Cress on Seeking Alpha!Read Steven Cress' Article on Seeking Alpha!This video's transcript was generated by a third party. It is not curated or reviewed and is provided for convenience and information purposes only. The accuracy and completeness of the transcript are not guaranteed.Past performance is no guarantee of future results. Content is offered for information purposes only. Unless stated otherwise, any and all individuals participating in the video are third parties that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body. Unless stated otherwise, the views or opinions expressed may not reflect those of Seeking Alpha as a whole.The accuracy and completeness of content shared cannot be guaranteed. Seeking Alpha does not take account of your objectives or financial situation and does not offer any personalized investment advice. Seeking Alpha is not a licensed securities dealer, broker, US investment advisor, or investment bank.Nicole Benjamin: Hey, everyone. It's Nicole Benjamin, your host here at Seeking Alpha to bring to you another episode of our new series Portfolio Pulse, where, as the name suggests, we're keeping a pulse to all the big financial moves happening in the market. Now, for today's episode, I'm joined by none other than Seeking Alpha's very own Steven Cress, VP of Quantitative Strategy. So, Steve, thank you so much for joining us today.Steven Cress: Thank you so much for organizing it. I really appreciate it.NB: Absolutely. Now, I want to jump in. Tell us a little bit more about your background, all the cool things you've got going on, on Seeking Alpha. Let's hear it.SC: Well, I definitely have a long history in the world of finance. I've been in it for over 30 years. The bulk of my career was spent at Morgan Stanley, where I ran a trading desk in prop strategies. Also headed up International at Northern Trust Global Investments. And in more recent years before Seeking Alpha, where I've been for the last six years, I started and founded a hedge fund in Quantitative Strategies. And I also started a fintech company that, for lack of a better description, was a robo analyst.

And Seeking Alpha liked the company so much that they purchased it. So, that's what has brought me here today.And some of the cool tools and features that we have on the platform are our Quant tools, and that gives you the ability to look at many companies throughout the world, thousands and thousands of companies, and get a fresh recommendation on those companies every single day. So, what our Quant System does as opposed to a conventional analyst who will take a look at a company, they'll look at the balance sheet and income statement and they'll write up that company maybe 4x or 5x a year. In essence, what we do is, we look at that data every day and we write the stock up every day in terms of our recommendation because we, on a daily basis, look at a company's income statement, balance sheet, financial metrics, and we actually compare it to all the other companies in the same sector. So, we could basically write the strongest companies and just filter out who's strong and who's weak. And we do that through a Buy, Sell, or Hold recommendation.So, we got some cool tools, which allow you to look at all your ideas in a portfolio tool or if you're screening for ideas, you could take a look at companies if you're interested in companies that are growing fast. If you look at growth screens, if you're looking for companies that are technology oriented, you could just look at tech companies and bring it up instantaneously. So, we've got a lot of neat features on the platform.NB: Now, I want to jump in. In your most recent article, we're talking about all things AI and cybersecurity stocks. And I see here that you noted that the recent drop in cybersecurity stocks was sparked by these AI fears and just high inflation. So, with that in mind, how much of the recent sell-off of cybersecurity stocks is a rational response to just this AI disruption versus it being a AI ghost trade and just, it being fueled by panic? And with that in mind, do you also see this being a permanent shift in the space, or is this just people responding to what's going on?SC: Yeah. Great question. And, I'll start with the backend of that. I do not believe that this is permanent. I believe a lot of what we're seeing is being generated by fear and negative sentiment and that's impacting technology stock. It's impacting AI, cybersecurity. It's also impacting consumer discretionary companies as well and many industrial companies as well. So, what happens is, when you get into a period that's driven by fear and poor sentiment, there's a market rotation that occurs and people basically sell stocks where they've made money or they sell stocks that have good fundamentals and they tend to focus their investments on putting it into cash or safe haven assets or sectors that are traditionally very defensive like consumer staples or utilities or real estate.And they get out of the places where they've made money, which typically, in this day and hour happens to be tech or some great consumer discretionary companies. So, I believe this is short-term. And eventually what will get us out of it is, many of the stocks that we're looking at have actually had record revenues and record earnings. And when you're going through these periods of fear and sentiment, eventually sentiment fades and people do return to fundamentals.NB: You said that this isn't going to be a permanent response. So, with that temporary mindset, I also have seen that Anthropic is now being blacklisted by the U.S. government. So, does this create a permanent moat for OpenAI as their competitor, or what do you see happening there?SC: No, I think that's probably temporary as well. That, maybe at most it lasts like one administration, maybe two administrations, or it could even be shorter. If they bring forward technologies that the government really wants, the government may not be quite as stubborn. If they introduce new products that the government wants, they'll foresee the opportunities there. So, I just feel at this time, the company wasn't playing ball the way the current administration wanted them to play, so they blacklisted them. But there is a huge public audience for Claude and for the services that are offered.Many institutions and business enterprises will make up for any loss that they have on the government side. So, I do not see it really slowing it down too much. And even from a government side, it could be short lived.NB: Now, you highlight a few different companies within the article. And the first one that I see is, Fastly. It currently holds a Strong Buy rating on Seeking Alpha. So, I guess what was the most critical change in their business model that contributed to their performance and as a result, this rating?SC: If you look at the stock in the last six months, it's up a 191%. So, it had a major, major rally in the last six months. In the last four weeks, it's up 26%. But if we look at it in the last five days, it's down 14%. So, it's come off a little bit, but compared to that huge run up that we've seen year to date, which is 144%, this recent pullback is nothing. But I think what the marketplace really began to see is the company had a really strong EBITDA growth rate and very strong projected EPS growth rates. And they had been saying, but hadn't necessarily been able to demonstrate through their numbers that there was more of a focus within AI within their product lines. And then when the numbers started to hit, the marketplace and investors began to believe it and they're really starting to bid up the stock.So, it's really just recently that we've been able to see it in practice. The company had been saying it for a while, but it was only over the recent results that the stock really spiked and investors had said, hey, they're doing exactly what they say on the tin and it's happening. And the stock had a huge run-up.NB: Now, you also mentioned in your article Okta and it’s positioned as a leader in the identity security space, but the valuations remain a topic of debate. So, with that in mind, how is the market valuing their move into non-human AI agent IDs? And is this market essential for their business model?SC: When I look at a company, I look at it compared, in this case, it's a tech company. And I look at it compared to other IT companies and other internet services and infrastructure companies, and their growth rate has actually slowed down. So, six months ago, it had solid growth relative to the sector. Now, its growth is more in-line with the sector. The valuation framework is really just about the same as it was six months ago, but I have seen a bit of a slowdown in the growth.In terms of conventional valuation metrics that we would look at, P/E, we give it a D+. So that means it has a multiple 55x versus the sector about 30x. So, D+ means it's expensive. With that said, the revenue growth is pretty flat. It's in-line with the sector. Literally, forward revenue growth for the company is like 10% and the sector is at 10.7%. So, its top line growth is really nothing to write home about.They did have, like for a year-over-year period, there was some very, very strong growth, but that was, that's history. And the forward growth is now in-line with the sector. So, that's one of the reasons why the stock now has a Quant Hold recommendation is because it's really just in-line with the sector. And, the company's going to have to prove themselves. And they're talking up AI and how it's going to be meaningful, and we're going to have to see how that comes through in a forward earnings.NB: Now, you also mentioned CrowdStrike, and they're often praised for their fundamentals, but how should investors be looking at this company and weighing its operational excellence against its entry point price?SC: From the time that they bring in revenues to the time they get through their expenses, which they're known for being very efficient at, they have fairly solid EPS growth and even more so EBIT growth, compared to the rest of the sector. Their revenue growth is very strong versus the sector. Having said that, we have to go back to valuation. That's what really holds the stock back is that it's so darn expensive, compared to the rest of the sector. So, even though their growth might be a little bit stronger versus the sector, when we look at the valuation for the company, it is very, very expensive.And the Forward P/E on this company, it's like in the stratosphere. Its multiple is 985x, and P/E is when you take the price of the stock and you divide it by earnings. So, say if we looked at the sector median, if we took all the prices of the stocks and their earnings and we divided it price by earnings, the sector median multiple would only be 27x, compared to this company at 985x. That is really, really expensive. So, it's hard for me to wrap my head around paying that valuation level for a company that's, yeah, growth is just a little bit in excess of the sector. So, they have the operational efficiency, they are well known, but it's just extremely expensive versus other stocks in the sector.NB: Now, I have one more question for you, Steve, before we get out of here. Given this current climate that we're in, high inflation, there's geopolitical tension, what should investors be looking at? Like, what are those primary red flags that they should be looking for that would signal further pullback in this sector?SC: If we went back a year ago, it wasn't hostile events as much as tariffs, and the tariffs, there was a lot of uncertainty and that impacted geopolitical events on a worldwide basis because we had no idea where the tariffs would end up, but the market did quickly recover from that. And this is the reason why I'm bringing that up. So, we fast forward to today. Today might not be tariffs. Today, it's hostilities in the Middle East. But whether it's tariffs or hostilities, when there's more certainty around these events, the markets tend to normalize. It's the uncertainty of these events, whether it's the uncertainty of tariffs or the uncertainty of war that tends to throw markets off. So, this war has already started. We're into it. This is a good time to dip your toes in the water and start acquiring companies that you think have good fundamentals that are on the tech side or the AI side. And I feel, although I can't give any guarantees, if history proves itself, this is probably a fairly good period to start entering into some of these stocks.NB: Awesome. Well, I think we'll leave it right there. Thank you so much, Steve, for joining us today. And to everybody that's listening in, go ahead, click the link to Steve's profile, check out what he's talking about on there. See if Anthropic is right for your portfolio, and we'll see you here next time on another episode.Follow Steven Cress on Seeking Alpha!Read Steven Cress' Article on Seeking Alpha!