We Picked this ASX Sector to Beat AI in 2026

While global markets spent much of the past year focused on artificial intelligence, one technology theme quietly outperformed it: cybersecurity.

In this week's Australian Stock Market Show, Janine Cox is joined by Senior Analyst Filip Tortevski and Zoran Kresovic to revisit their late-2025 view that cybersecurity could outperform AI in 2026. They also examine whether the cybersecurity sector still has further to run.

Since the December 2025 comparison, the Global X Cybersecurity ETF (ASX: BUGG) has risen around 29 per cent, compared with roughly 12 per cent for the global AI ETF. Going back to the April-May 2025 lows, the gap is even wider, with cybersecurity up around 87 per cent compared with approximately 35 per cent for AI.

But the bigger question now is not what has already happened. It is whether AI itself is creating the next wave of demand for cybersecurity.

Is AI creating a new cybersecurity spending cycle?

Recent events have pushed that question into focus.

An OpenAI research agent gained unauthorised access to infrastructure behind Australia’s public-facing Medicare Statistics Reporting Service portal after it couldn't retrieve information through the normal route. No personal Medicare information was accessed, and the government described the impact as minor, but the behaviour matters because the agent continued pursuing its objective after hitting a barrier.

That changes the cybersecurity discussion. AI can be used by attackers, by defenders and, increasingly, can itself become something organisations need to secure.

The investment response is already visible. Gartner forecasts Australian information-security spending will exceed $7.5 billion in 2026, up 9.5 per cent, with security-software spending forecast to rise 12.3 per cent. Gartner also points to expanding AI use by both attackers and defenders as a growth driver.

That does not mean every cybersecurity stock will benefit equally. It means the sector has a structural tailwind, and the next job is separating the businesses and charts showing strength from those where the story is still ahead of the price.

archTIS: Early signs, but it still needs to mature

archTIS (ASX: AR9) sits directly in government and defence cybersecurity, providing data-centric security and zero-trust access controls for sensitive information. In September, the company announced FIPS 140-3 validation for its cryptographic module, an important standard for US government security requirements.

The chart, however, remains speculative.

One encouraging feature is the substantial increase in volume since June 2025. The stock has also found buying around 5 cents several times, showing an area where buyers have been prepared to respond.

What we do not want to see is a repeat of the erratic price behaviour that has characterised previous runs. Stronger trends generally develop through more orderly bases rather than repeated surges followed by sharp reversals.

The next test is whether selling weakens and the stock can push through the 10 to 11-cent region while forming a more stable structure. Until then, AR9 remains an interesting early-stage opportunity rather than an established trend.

Senetas: The story is stronger than the chart

Senetas Corporation (ASX: SEN) operates in high-grade encryption, with exposure to government, defence and critical infrastructure. It is also positioned around post-quantum security as organisations prepare for future computing threats.

There are some positive market signs. The longer-term chart has started to produce higher highs and higher lows after a prolonged decline, while volume has improved.

The difficulty is liquidity and price behaviour. On the weekly chart, gaps and uneven trading make the stock more challenging.

Zooming out helps. On a monthly chart, some short-term noise becomes less important and the broader structure is easier to assess. That matters particularly in smaller companies, where attempting to trade every short-term movement can expose traders to volatility without giving the underlying story enough time to develop.

The lesson from Senetas is to match the timeframe and strategy to the stock's behaviour.

Prophecy International: Fundamentals alone are not enough

Prophecy International Holdings (ASX: PRO) provides enterprise software, including its Snare security and compliance products used across government, defence and regulated industries.

That gives it exposure to the same broad cybersecurity theme, but the chart is sending a different message.

The monthly trend remains weak and the stock has broken below levels that previously offered support. Volume is also not yet showing the improvement we would want to see around a meaningful bottom.

This is where traders can get caught by the story. A company can operate in the right industry and still remain in a falling trend. Before the technical picture becomes more interesting, we would want evidence that the decline is stabilising, a base is forming, and volume is beginning to support the change.

Zscaler: A more developed cybersecurity trend

The Australian cybersecurity market is relatively small, so looking offshore provides another perspective.

Zscaler (NASDAQ: ZS) operates a zero-trust security platform and in 2026 expanded its products specifically to secure AI agents, including how they access data, interact with systems and operate across enterprise environments.

Unlike some of the smaller Australian names, Zscaler already shows a more developed trend. After a strong advance, the stock sold off and then found support around an important area.

The level around US$220 now matters. If the stock can work through that region, the show’s analysis points to the possibility of another strong move, with the previous area around US$309 becoming relevant.

Volume is one of the more interesting clues. Some of the strongest volume seen in the stock has appeared around the recent major low, while price has begun printing higher bases.

That combination does not guarantee continuation, but it gives us something tangible to monitor: improving structure supported by meaningful participation.

BUGG: A broader way to read the sector

The Global X Cybersecurity ETF (ASX: BUGG) gives us a broader view of the theme rather than relying on one company. The ETF tracks the Cybersecurity Index and is designed to provide exposure to companies benefiting from increased adoption of cybersecurity technology.

Its rise since the April 2026 low has been powerful, but the move has begun developing a more measured two-steps-forward, one-step-back structure rather than remaining vertical.

The area around $13 to $14 is important if the ETF pulls back further, while weakening volume on the latest rise deserves attention. A retest and successful hold around that region would tell us more about whether the broader trend remains intact.

The bigger point is that cybersecurity has already delivered a major move. From here, disciplined analysis matters more than chasing what has already risen.

Trending topic: Can higher rates favour consumer staples?

This week’s trending topic shifts to the Reserve Bank of Australia’s latest rate decision.

The RBA raised the cash rate target by 25 basis points to 4.60 per cent, citing persistent inflation pressures and stronger-than-expected domestic conditions.

For traders, the question is what a higher-rate environment may mean for sector rotation.

Consumer staples are traditionally viewed as more defensive because demand for essential goods tends to be less sensitive to economic cycles. The Australian consumer staples sector is now testing an important area after spending much of the past few years without producing the strongest opportunities.

The show focuses on whether the sector can hold above the 12,800 region and eventually challenge the 13,600 area. Recent buying and improving volume make the sector more interesting than it has been for some time.

Bega Cheese (ASX: BGA) is one stock within that theme. Historically, it has shown periods when it rose while long-term bond prices fell, suggesting it has sometimes handled rising-rate conditions better than many growth-oriented businesses.

The chart is also building higher bases. The $7 region remains a meaningful obstacle, while a move through that area with stronger buying would make the picture more constructive.

Hot stock tip: Megaport

This week’s Hot Stock Tip is Megaport (ASX: MP1), following a major update to its AI infrastructure business.

Megaport announced almost $1 billion in new AI infrastructure contracts, taking the total strategic contract value announced since April to approximately $2.3 billion. The company also upgraded FY27 revenue and EBITDA margin guidance, although the expansion comes with a substantial increase in capital expenditure.

The chart reflects that stronger growth story. Megaport has already risen significantly from earlier lows and is now consolidating near the upper end of its range.

The area around $17 is an important support level, with the all-time-high region around $23 the next major test.

What we want to see is the consolidation remain orderly, volume improve as buyers return, and price eventually prove it can move through the previous high. If support fails, the market is telling us the recent run needs more time.

The bigger lesson: Follow the theme, but trade the evidence

Cybersecurity is a strong example of why identifying a major investment theme is only the beginning.

The sector has benefited from rising security spending, increasing AI adoption and the growing complexity of protecting data and systems. Yet the stocks we analysed are behaving very differently.

AR9 is showing early speculative strength. Senetas has an improving longer-term structure but difficult short-term liquidity. Prophecy still has work to do before its chart confirms the fundamental story. Zscaler is further advanced technically, while BUGG gives a diversified view of the sector.

A strong theme helps identify where to look. Price, volume, trend, liquidity and market structure help determine whether the opportunity is actually developing.

Building the skills to separate story from opportunity

This episode brings together several skills traders need when assessing emerging themes: recognising sector rotation, comparing price behaviour across companies, understanding liquidity, reading volume, identifying important levels and using different chart timeframes to place short-term moves in context.

Wealth Within teaches these disciplined skills through its trading courses, including Australia's only government-accredited Diploma of Share Trading and Investment. This allows traders to move beyond simply finding an exciting story and develop a structured process for assessing whether price, pattern and time are actually confirming it.

Final thoughts

Cybersecurity has already justified the attention it received at the start of 2026, but the next phase may be more selective.

AI is not simply competing with cybersecurity. Its rapid adoption may also be expanding the security problem that governments and businesses need to solve. That creates a potentially powerful long-term spending backdrop.

For traders, however, the opportunity still has to show up in the chart.

Some cybersecurity stocks are beginning to build stronger structures, others remain highly speculative, and some are still falling despite the strength of the broader theme. The sector may have further to run, but the evidence will come from how individual stocks and the broader BUGG ETF behave from here.