Baird downgraded major cybersecurity stocks, Cloudflare Inc (NYSE:NET), CrowdStrike Holdings Inc (NASDAQ:CRWD), and Fortinet Inc (NASDAQ:FTNT), to “Neutral” given their stretched valuations.

Large-cap internet security stocks significantly outperformed in 2024, benefiting from strong growth and expanding profit margins, but recent sharp gains leave limited upside, Baird analysts wrote in a note.

“We now recognize that the relatively full valuations of larger/platform security stocks imply a more balanced risk/reward,” analyst at Baird said.

With preliminary 2025 guidance likely to be prudent, initial expectations could reset lower, posing near-term risk to high-multiple names. The brokerage highlighted concerns over macroeconomic uncertainty in Europe, trade risks, and foreign exchange volatility.

Cloudflare surged 29% year-to-date, trading at 22.5 times estimated 2025 sales, while CrowdStrike has rebounded 88% from its August low, nearing pre-incident valuation highs. Fortinet, up 61% in 2024, continues to outperform, but its price-to-free-cash-flow multiple is well above historical averages.

Baird said it prefers to wait for more attractive entry points in the cybersecurity sector.