(Bloomberg) — Fears that artificial intelligence will force companies to spend more on security software are helping to drive demand for Netskope Inc.’s initial public offering.
Early Tuesday, Netskope raised its marketing range to seek as much as $908.2 million, not a surprise given the similar progression of many software IPOs in the recent past, and a move that points to a robust outcome when the offering prices as scheduled late Wednesday. The deal is about 20 times oversubscribed, Bloomberg News reported earlier Tuesday.
The firm’s annual recurring revenue as of July 31 increased 33% year-over-year to $707 million. With analysts predicting that spending on cybersecurity will outpace that of enterprise software as a whole, investors are set to seize on Netskope’s outsize growth.
Led by former Juniper Networks executive Sanjay Beri, the company has developed a cloud-based platform called Netskope One, which uses AI models to detect and control sensitive data, improving a company’s security without a performance trade-off, according to the company’s IPO filing. The platform can determine, for example, if an employee is entering sensitive corporate data into a personal version of ChatGPT and redirect them to a corporate version in real-time.
Netskope is coming to market as software IPO volume remains much lower than peak levels seen in 2021. The sector has struggled to reclaim the lofty valuation multiples of that era — Figma Inc.’s impressive July debut notwithstanding.
However, Netskope’s niche should give it a leg up. Security-focused software stocks have outperformed the overall sector over the past few years, according to a Monday report from Morgan Stanley analysts. The average software stock is down 10% this year versus a 5% gain in the average security-focused name, they said. Morgan Stanley is leading the Netskope IPO alongside JPMorgan Chase & Co. and other banks.
“Investors continue to favor security as a safe haven in software,” the analysts wrote.
Morgan Stanley expects security software spending to grab a greater share of IT budgets due to a growing volume of cyberattacks driven by AI. A recent survey conducted by the bank indicated that, moving forward, the growth rate of corporate spending on cybersecurity would significantly outpace that of overall software investments.
The last cybersecurity offering of note was Rubrik Inc. in April 2024, and its shares have surged 130% since. Meanwhile, recent M&A activity, including Palo Alto Networks Inc.’s $25 billion acquisition of CyberArk Software Ltd. announced in late July, underscored the industry’s focus on AI security.