Anthropic’s Mythos model offered a much-needed lifeline to cybersecurity firms in the age of artificial intelligence.

Yet, this week’s cybersecurity earnings offered a brutal reminder that even with tailwinds, sometimes good just isn’t good enough as shares of CrowdStrike and Palo Alto Networks lost 8% and 3%, respectively.

“People probably got a little over their skis,” said Joseph Gallo, a software analyst at Jefferies. “Both gave accelerating guides, but at the end of the day … a lot of these AI benefits take time, and this is a multi-year process.”

Cybersecurity stocks sold off early in the year as concerns that new AI tools, capable of building apps at lightning speed, would upend their business models and, by association, every software firm.

The introduction of Mythos, a model deemed too powerful to release because it could be easily used to exploit software vulnerabilities, renewed enthusiasm for the sector, boosting shares of CrowdStrike and Palo Alto Networks more than 70% each between April and the end of May.

Both companies were early partners in Anthropic’s exclusive Project Glasswing testing program, which the AI lab expanded to 150 additional partners this week, including Rubrik and Tenable.

This quarter’s earnings marked the first major test for that Mythos-driven rally, and upbeat results and aggressively optimistic AI commentary from both cyber giants weren’t enough for investors demanding immediate signs of an AI windfall.

The concept of good not being enough is no new phenomenon on Wall Street. Even AI darling Nvidia has succumbed to this phenomenon after failing to meet lofty estimates.

Investors headed into earnings with a similar sentiment and the hope that AI tailwinds would help cyber firms blow earnings out of the box.

Wall Street found much to cheer in those prints, but investors may be overlooking the notion that these tailwinds could take months to pay off, Gallo said.

Typical enterprise sales cycles last nine to 12 months, meaning most signs of an uptick from AI likely won’t show up until the 2027 calendar year. The fourth quarter of the calendar year, Gallo added, is typically the strongest buying season for customers as businesses reset their budgets for the new year.

If an enterprise “just launched an AI product in the last quarter or two, I don’t think it’s fair to expect this massive uptick already.”

CEOs at the world’s largest cyber companies made that point clear.

Palo Alto CEO Nikesh Arora told analysts this week that demand is off the charts in the Mythos era and over 1,200 companies had reached out to the cybersecurity firm to talk AI strategy. So far, the company has held 800 meetings over the last six weeks, close to 100 of which Arora said he conducted.

While demand patterns are showing positive signs, he said analysts shouldn’t expect an immediate “windfall” next quarter as businesses buy into cyber, but he anticipates “robust growth.”

“I wouldn’t get ahead of my skis and start throwing the kitchen sink and numbers for cybersecurity companies, because there is still a process, a mechanism, a cycle that people buy in, and there’s execution and deployment,” he said.

CrowdStrike CEO George Kurtz echoed a similar sentiment.

The company lifted its fiscal 2027 net new annual recurring revenue growth on AI tailwinds.

Kurtz told analysts in an earnings call that AI detection and response, or AIDR, is a huge new segment that could dwarf the endpoint security market but is only in the “early innings.” The company’s second-quarter pipeline has already surpassed $50 million, he added.

“Once it goes really mainstream and entire companies adopt it across all of their employee and workloads, I think you’re going to see just another increase in incremental opportunities,” he said.

CNBC’s Jim Cramer said next week could bring key answers for technology stocks after a blockbuster quarter from Dell Technologies added to the enthusiasm around the data center trade.

“When we look back, I wonder if we’ll say this was that moment when Dell simply took over the computer space” the “Mad Money” host said Friday, calling the company’s latest earnings one of the biggest “blowouts” he can recall.

Tech has dominated the market this year, particularly companies tied to artificial intelligence infrastructure. But he said that one notable laggard has emerged: Nvidia.

That could begin to change next week when CEO Jensen Huang delivers a keynote at Computex in Taiwan. Cramer said the event has historically been a “stake in the ground moment” for Nvidia and could include new announcements, particularly about PCs. Executives from other key tech players such as Arm Holdings, Marvell Technology, Intel and Qualcomm will also be at Computex.

Cramer then turned to the week ahead.

Dollar General reports after rival Dollar Tree posted stronger-than-expected results on Thursday. Cramer expects Dollar General shares could rebound.

After the bell, Palo Alto Networks, which is a holding in Cramer’s Charitable Trust, the portfolio run by the CNBC Investing Club, reports. While the stock often rallies into earnings before profit-taking sets in, Cramer said rising AI-driven cyber threats could support results.

Ulta also reports after a difficult year, with shares down sharply since its last earnings report in March. Deutsche Bank slashed its price target Friday ahead the results. “It was jarring,” Cramer warned.

Coinbase CEO Brian Armstrong said Tuesday that the company will cut roughly 14% of its workforce, citing a combination of market volatility and AI quickly changing how the company operates.

The move comes ahead of Coinbase’s first-quarter earnings, which the company is scheduled to report Thursday. Shares were up nearly 4% in premarket trading.

In a memo to employees, which he shared on X early Tuesday, Armstrong described the decision as necessary to position the firm for its “next phase of growth” while navigating the current downturn in the crypto market. He cited two “forces converging at the same time”: the current pullback in the crypto market and “AI changing how we work.”

Although crypto is “on the verge of the next wave of adoption,” he said, “our business is still volatile from quarter to quarter … we’re currently in a down market and need to adjust our cost structure now so that we emerge from this period leaner, faster, and more efficient for our next phase of growth.”

Furthermore, “the pace of what’s possible with a small, focused team has changed dramatically, and it’s accelerating every day,” he said about AI. “We are adjusting early and deliberately to rebuild Coinbase to be lean, fast, and AI-native. We need to return to the speed and focus of our startup founding, with AI at our core.”

Coinbase’s move comes amid a broader wave of tech industry layoffs tied to a ramp in AI investment. Earlier this year, Block announced a reduction of “nearly half” of its workforce, citing an “opportunity to move faster with smaller, highly talented teams using AI to automate more work.”

Other companies like Pinterest, CrowdStrike and Chegg have recently announced job cuts attributing the layoffs to AI reshaping their workforces.

Coinbase isn’t pivoting away from crypto, however. Armstrong reaffirmed his bullish outlook on crypto, pointing to stablecoins and tokenization, as well as prediction markets, as drivers of the “next wave of adoption.”

Across the crypto industry, exchanges are moving away from the hype-driven, returns-focused revenue streams that originally fueled their growth and are instead entering a more disciplined phase centered around steadier revenue, regulation, compliance, and institutional adoption.

This isn’t the first time Coinbase has carried out layoffs during a crypto downturn, it made significant cuts during the 2022 market decline.

All three top cloud infrastructure providers surpassed analyst estimates in earnings reports late Wednesday, but Google was the standout, generating its fastest growth rate on record.

Google is chasing Amazon Web Services and Microsoft Azure in the public cloud market, which is booming as demand soars for access to artificial intelligence models and services. All three vendors provide a suite of tools for building and running companies’ products, and they also offer an array of their own AI models and specialized hardware.

“Wow, that was some quarter,” Synergy Research analyst John Dinsdale said in an email after the results were released. His firm estimated that cloud infrastructure spending reached $129 billion in the period.

“Our forecasts point to sustained strong growth in the years ahead, with AI continuing to drive usage, unlock new use cases, and boost cloud provider revenues,” Dinsdale said in Synergy’s update.

Google Cloud, which includes infrastructure and corporate productivity apps, saw revenue shoot up 63% to $20.03 billion, surpassing StreetAccount’s consensus of $18.05 billion. That’s by far the strongest rate of growth for any period since Google started breaking out cloud results in 2020.

In addition to offering a full infrastructure suite for AI workloads, Google is firmly competing with OpenAI and Anthropic in the market for AI models, as Gemini continues to gain adoption. The company is also seeing accelerating growth from its homegrown tensor processing units, or TPUs, which are emerging as an alternative to Nvidia’s graphics processing units, or GPUs.

“Our enterprise AI solutions have become our primary growth driver for cloud for the first time,” Alphabet CEO Sundar Pichai said on that company’s Wednesday webcast with analysts. Revenue from products built with Google generative AI models grew 800%, Pichai said.

Shares of Google parent Alphabet jumped 9% on Thursday. Amazon gained 0.8%. Microsoft fell by about 4%.

AWS, which leads the cloud infrastructure market, increased revenue by 28% to $37.6 billion. The consensus among analysts polled by StreetAccount was nearly $1 billion lower.

AWS customer spending on the Bedrock service for building AI agents and applications jumped 170% from the fourth quarter, eating up more tokens in the first quarter than in its history dating to 2023, Amazon CEO Andy Jassy said on his company’s earnings call.

The results came a day after AWS said OpenAI models will come to Bedrock, and a new Bedrock service will enable clients to build sophisticated agents integrated with their existing infrastructure.

“OpenAI has said they’re already seeing unprecedented demand for this new product, and we’re seeing heavy customer interest as well,” Jassy said.

Microsoft, the second-largest cloud supplier, reported 40% growth in Azure and other cloud services, topping the 39.3% and 38.8% estimates from StreetAccount and CNBC, respectively. Management sees second-quarter Azure growth of 39% (40% at constant currency), above StreetAccount’s 37% consensus.

Microsoft CEO Satya Nadella said on the call that the number of customers that adopted Anthropic and OpenAI models through his company’s platform doubled from the prior quarter.

Expansion for all three companies is coming at a hefty price, as they told investors they collectively expect to shell out close to $600 billion this year on capital expenditures.

There’s also competition emerging from smaller so-called neocloud providers. That group, which includes companies like CoreWeave and Nebius, has obtained 5% of the cloud market, Dinsdale said.

WATCH: ‘Fast Money’ traders react to Alphabet’s earnings beat, strong cloud growth

Microsoft will offer voluntary buyouts to some U.S. employees, a first for the 51-year-old software giant, as the tech industry grapples with major changes sparked by the artificial intelligence boom.

About 7% of U.S. employees are eligible, according to a person familiar with the plans who asked not to be named because the number isn’t being made public. The one-time retirement program, announced in a memo on Thursday, will be available to U.S. workers at the senior director level and below whose years of employment and age add up to 70 or higher.

Eligible employees and their managers will receive details on May 7. Those with sales incentive plans cannot participate.

Microsoft has been ramping up capital spending on data centers to supply cloud clients with computing power that can handle generative AI models. Technology peers such as Alphabet and Amazon are doing the same. Meanwhile, software stocks are getting hammered as coding tools from Anthropic and others threaten to disrupt established companies.

Last year Microsoft removed some costs through multiple rounds of layoffs. As of June 2025, the company had 228,000 employees, with 125,000 in the U.S.

“Our hope is that this program gives those eligible the choice to take that next step on their own terms, with generous company support,” Amy Coleman, executive vice president and chief people officer at Microsoft, wrote in a memo viewed by CNBC.

Additionally, Microsoft is adjusting the way it doles out stock to employees for annual rewards. The company will no longer make managers tie stock directly to cash bonuses.

This way, “managers have more flexibility to meaningfully recognize high performance,” Coleman wrote.

Microsoft is also simplifying the review process for managers, so they can choose from five pay options for employees instead of nine.

WATCH: Microsoft and CrowdStrike are favorites in the software space, says Powers Advisory’s Matt Powers

Cybersecurity and enterprise software stocks have been market dogs in 2026, with fears that AI will wipe out a wide range of companies in the enterprise space dominating the narrative. But they snapped a brutal losing streak this past week, joining in the broader market rally that saw all losses from the U.S.-Iran war regained by the Dow Jones Industrial Average and S&P 500.

Cybersecurity has been “a victim of some of the AI-related headlines,” Christian Magoon, Amplify ETFs CEO, said on this week’s “ETF Edge.”

It wasn’t just niche cybersecurity names. Take Microsoft, for example, which was recently down close to 20% for the year. Its shares surged last week by 13%.

A big driver of the pummeling in software stocks was a rotation within tech by investors to AI infrastructure and semiconductors and some other names in large-cap tech, Magoon said, and since cybersecurity stocks and ETFs are heavily weighted towards software companies, they were left behind even as those businesses continue to grow on a fundamental basis.

But Wall Street now has become more bullish with the stocks at lower levels. Brent Thill, Jefferies tech analyst, said last week that the worst may be over for software stocks. “I think that this concept that software is dead, and then Anthropic and OpenAI are going to kill the entire industry, is just over-exaggerated,” he said on CNBC’s “Squawk Box” on Wednesday.

“Big Short” investor Michael Burry wrote in a Substack post on Wednesday that he is becoming bullish about software stocks after the recent selloff. “Software stocks remain interesting because of accelerated extreme declines last week arising from a reflexive positive feedback loop between falling software stocks and changes in the market for their bank debt,” he wrote.

The Global X Cybersecurity ETF (BUG), is down about 12% since the beginning of the year, with top holdings including Palo Alto Networks, Fortinet, Akamai Technologies and CrowdStrike. But BUG was up 12% last week. The First Trust NASDAQ Cybersecurity ETF (CIBR) is down 6% for the year, but up 9% in the past week.

Piper Sandler analyst Rob Owens reiterated an “overweight” rating on Palo Alto Networks which helped the stock pop 7% — it is now down roughly 6% on the year. Its peers saw similar moves, including CrowdStrike.

Magoon said expectations may have become too high in cybersecurity, and with a crowding effect among investors, solid results were not enough to to push stocks higher. But the down-and-then-back-up 2026 for the sector is also a reminder that when stocks fall sharply in a short period of time, opportunity may knock.

“Once you’re down over 10% in some of these subsectors, you start to see the contrarians start to say, ‘well, maybe I’ll take a look at this,'” Magoon said.

He said AI does add both opportunity and uncertainty to the cybersecurity equation, increasing demand but also introducing new competition. But he added, “I think the dip is good to buy in an AI-driven world,” specifically because the risks to companies may lead to more M&A in cyber names that benefits the stocks.

For now, investors may look for opportunity on the margins rather than rush back into beaten-up tech names. “I think investors are still going to remain underweight software,” Thill said.

But Magoon advises investors to at least take the reminder to keep an eye on niches in the market during pronounced downturns. “The best-performing are often the least bought and do the best over the next 12 months versus late-in-the-game piling on,” he said.

While that may have been a mindset that worked against the last investors into cybersecurity and enterprise software in mid-2025 when the negative sentiment started building, at least for now, it’s started working for the stocks in the sector again.

Meanwhile, this year’s biggest winner is also a good example of what can be an extended trade in either a bullish or bearish direction. Last year, institutional ownership of energy was at multi-year lows, Magoon said, referencing Bank of America data. “Reverse sentiment can be a great indicator,” he said. 

But he cautioned that any selective buying of stocks that have dipped does have to contend with the risk that there is a potentially bigger drawdown in the market yet to come in 2026. That is because midterm election years historically have been marked by large drawdowns. “If you think it is bad right now, it could get a lot worse,” Magoon said. But he added that there’s a silver-lining in that data, too, for the patient investor. The market has posted very strong 12-month returns after midterm election drawdowns end. So, for investors with a longer-term time horizon and no need for short-term liquidity, Magoon said, “stick in there.” 

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