Callum Keown

Cybersecurity stocks could be a safe bet for investors in 2025 but one artificial-intelligence player in particular may be fraught with danger.

KeyBanc analysts upgraded Okta and Fortinet to Overweight from Sector Weight Thursday, noting that security will be a high priority next year and command a greater portion of IT budgets. But in amongst its largely bullish 2025 outlook on the security, data, and AI software sectors, there was a downgrade for C3.ai.

"In security, we are incrementally more positive on the outlook for identity and firewall in 2025, and as such we are upgrading shares of Okta and Fortinet to Overweight," analysts led by Eric Heath said in a note Thursday. They have the same price target of $115 on both stocks, implying a 41% upside for Okta and a 23% jump for Fortinet from Wednesday's closing prices.

They also like cloud-security company Zscaler, rating the stock Overweight with a price target of $250, a 35% rise from current levels. Heath cited the company's leadership in the Secure Access Service Edge (SASE) -- a one-stop-shop for security and network services. "We think the SASE market remains early and we expect Zscaler to have 20+% market share long term," he said.

They now have an Underweight rating on the enterprise AI software company C3.ai, down from Sector Weight. Their price target of $29 implies a 27% drop from Monday -- the shares were taking a hit early Thursday, down 3.3% ahead of the open.

The stock has surged 67% over the past three months and KeyBanc analysts said they now see "an unfavorable risk/reward," and are also concerned that consensus estimates are too high when factoring in subscription growth which has moderated in the last two quarters. They also cited uncertainty over the company's partnership with oil-services firm Baker Hughes, which expires in June.

C3.ai was also downgraded to Underweight by J.P. Morgan last week. "While we understand that C3.ai is going after a massive and rapidly evolving opportunity around Artificial Intelligence, we think its uneven and subpar growth-plus-margin performance leaves a lot to be desired," they wrote in a note.

Write to Callum Keown at callum.keown@dowjones.com

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December 19, 2024 07:35 ET (12:35 GMT)

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