Shares of CrowdStrike, Palo Alto Networks and Zscaler dropped as much as 11% in days after Anthropic released an AI tool capable of scanning entire codebases for vulnerabilities, a launch that analysts are already calling a panic-driven selloff disconnected from real competitive threat.
Market shock follows AI launch
The turbulence began on Feb. 20, when Anthropic released Claude Code Security, an AI-powered vulnerability detection tool, in a limited research preview.
Within days, shares of several leading cybersecurity companies including CrowdStrike, Palo Alto Networks, Fortinet and Zscaler, fell sharply as investors reassessed the sector’s future competitiveness.
According to market data reported by Reuters, stocks such as CrowdStrike, Datadog and Zscaler dropped roughly 11%, while Fortinet and Okta declined about 6%, reflecting widespread investor anxiety about AI’s growing capabilities.
Claude Code Security analyzes entire software codebases, identifies vulnerabilities and proposes fixes for developers to review, functions previously performed by teams of engineers or specialized scanning tools.
What Claude Code Security actually does
Anthropic describes the new system as capable of reasoning through software like a skilled security researcher, tracing data flows and identifying complex vulnerabilities that rule-based scanners often miss.
The company says its latest AI model has already uncovered more than 500 high-severity vulnerabilities in open-source projects that had previously undergone extensive audits.
Unlike traditional cybersecurity platforms, however, the tool focuses primarily on code analysis before deployment, rather than defending live systems from attacks.
“Claude Code Security scans codebases for vulnerabilities and offers patch suggestions.”
Reuters reported, noting that the tool targets software development workflows rather than operational cyber defense.
This distinction has become central to the debate over whether markets reacted rationally.
Analysts warn of “panic-driven” selloff
Several industry analysts argue that investors may have overestimated the immediate threat posed by AI tools.
“What you’re seeing today is really the continuation of a panic-driven, narrative-led selloff.”
Shrenik Kothari, Director and Security Infrastructure Analyst, Robert W. Baird, told Reuters.
Kothari stated that AI code-review systems do not replace core cybersecurity functions such as detecting live intrusions, managing network defenses, or responding to ongoing cyber attacks.
Similarly, analysts cited by Barron’s and Reuters noted that enterprise cybersecurity relies on layered defenses, meaning automated code analysis tools may complement rather than replace existing platforms.
CrowdStrike CEO George Kurtz echoed that view, emphasizing that AI advancements could actually increase demand for security services rather than eliminate them.
The company pointed out that AI systems themselves introduce new risks that require monitoring and protection.
Financial analysts at Wedbush described the market reaction as driven partly by so-called AI ghost trade fears, where investors rapidly sell incumbents on expectations of disruption before real business impacts materialize.
A wider AI disruption wave hits tech
The cybersecurity selloff did not occur in isolation. The same wave of AI anxiety also hit other technology firms tied to legacy software services.
IBM shares, for example, dropped more than 13% after Anthropic announced separate AI capabilities capable of modernizing legacy COBOL code, an area historically dominated by IBM’s enterprise services business.
Market observers say these reactions reflect a deeper shift: AI is moving beyond chatbots into specialized professional domains such as coding, legal analysis and cybersecurity.
Even critics of the selloff acknowledge that AI is likely to reshape parts of the cybersecurity value chain, particularly tools focused on static application security testing and manual vulnerability review.
What comes next for cybersecurity
Despite the sharp market reaction, many experts believe the long-term outcome will be integration rather than replacement.
AI-driven tools may accelerate vulnerability discovery and reduce routine security workloads, but organizations still require real-time monitoring, incident response and infrastructure protection.
The research-preview product erased billions in market value within days, underscoring both the promise and uncertainty surrounding AI’s role in the future of technology.
As companies race to integrate artificial intelligence into every layer of software development, the cybersecurity industry now faces a pivotal question: whether AI will become its greatest competitive threat.
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