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Corporate capital allocation debates are intensifying as enterprise spending on artificial intelligence accelerates. A March 22, 2026 Investing.com report found that a plurality of security leaders — 58% — expect greater AI spend to augment rather than cannibalize cybersecurity budgets (Investing.com, Mar 22, 2026). This dynamic matters because independent forecasts point to a faster expansion of AI infrastructure and software spend than of traditional security line items: one market tracker projects AI-related spend to expand by roughly 40% from 2024 to 2026, while cybersecurity budgets are expected to grow in the mid-single digits over the same period (Gartner, Nov 2025; Statista, Mar 2026). For institutional investors, the allocation choices IT leadership makes will affect technology vendors, managed security service providers, and the M&A backdrop across security and AI toolchains. This article draws on primary reporting, market forecasts, and Fazen Capital analysis to map where budgets are moving and what that means for risk and vendor selection.
Context
The conversation about AI displacing other IT priorities has shifted in tone over the last 18 months. Early stage discussions in 2024 posited that AI pilots would draw scarce project funding away from cyber programs; by late 2025 and into early 2026 those fears moderated as boards and CIOs saw security as foundational to safe AI deployments. Investing.com’s March 22, 2026 coverage quoted multiple CISOs who said their organizations were increasing both AI and cyber allocations in parallel rather than shifting dollars wholesale (Investing.com, Mar 22, 2026). That repositioning reflects recognition that AI models and generative agents increase the attack surface: data training sets, model inference endpoints, and orchestration tooling all require governance and protection.
Macro budget trends reinforce the qualitative shift. According to a November 2025 Gartner briefing, global spending on AI infrastructure and software is projected to rise from approximately $150 billion in 2024 to about $210 billion in 2026 — a compound growth near 40% over two years (Gartner, Nov 2025). By contrast, published market aggregates for cybersecurity show a steadier trajectory: Statista’s March 2026 update forecasts cybersecurity market revenue rising from roughly $175 billion in 2025 to $190 billion in 2026, an increase near 8% YoY (Statista, Mar 2026). These diverging growth rates inform both vendor strategy and investor expectations.
Geography and company size create important heterogeneity. Large enterprises with material AI initiatives (top-quartile R&D budgets and multi-cloud footprints) typically increase both AI and cyber line items simultaneously — often adding controls and observability for model risk. Small and mid-market firms, by contrast, may prioritize packaged AI services and cloud-native security bundles, leading to an outsized role for managed security service providers (MSSPs) in their budgets. For active allocators, that means a bifurcated market where vendor performance will depend on channel strategy and enterprise penetration.
Data Deep Dive
The Investing.com piece (Mar 22, 2026) functions as a market-sentiment anchor: its survey of enterprise security leaders found that 58% expected AI spending to boost, not reduce, cyber budgets. While the sample was not disclosed in detail in the article, matching signals appear in vendor earnings and procurement surveys: multiple Big Tech cloud providers reported year-over-year security product uptake exceeding 20% in Q4 2025, while AI platform revenues grew faster — in some cases >30% YoY (company Q4 2025 earnings releases). These concurrent upticks suggest not displacement but expansion of total IT wallet share.
Quantitative comparisons sharpen the picture. If AI infrastructure expands by ~40% from 2024 to 2026 (Gartner, Nov 2025) and cybersecurity expands by ~8% YoY into 2026 (Statista, Mar 2026), the delta implies a reweighting of growth exposure for vendors: AI tooling and compute providers capture a larger share of incremental spend while security vendors rely on recurring compliance and resiliency budgets. From an investor standpoint, revenue growth multiples will increasingly reflect exposure to AI-led projects versus base security maintenance contracts.
Another measurable shift is within security spend composition. Procurement surveys through 2025 indicated that roughly 35–45% of incremental security budgets were being rerouted toward detection & response, identity, and cloud security — the subsegments most relevant to protecting AI workloads. This compares with a longer-term historical bias toward network perimeter spend. Year-over-year comparisons to 2023 show a rotation: identity and cloud posture management grew faster than firewall and VPN categories, reflecting the move to cloud-native AI deployments and zero-trust architectures.
Sector Implications
Vendor strategy is adapting quickly. Pure-play security vendors that embed AI-native protections (model monitoring, data lineage, prompt sanitization) in their offerings are seeing stronger procurement interest from enterprise AI teams. Conversely, legacy appliance vendors report slower expansion. The differential is evident in leading vendor RFP wins during 2025: deals that required model governance and runtime protection favored standalone security vendors with MLOps integrations, while simpler cloud-native configurations leaned toward hyperscaler-native security services.
M&A patterns are already responding. Strategic acquirers have shown willingness to pay premia for security startups with demonstrable AI-protection capabilities; transaction multiples for security firms that can plug into AI toolchains ran 10–20% higher in Q4 2025 compared with non-AI-aligned peers (industry M&A reports, 2025). For institutional investors tracking consolidation, the thesis that AI spend will “kill” cyber budgets underestimates the need for defensive capabilities integrated into AI stacks.
Channel partners and MSSPs stand to gain share in the SMB segment. As smaller firms adopt AI functionality via SaaS and hyperscaler marketplaces, demand for outsourced security and compliance services increases because in-house expertise is often lacking. Providers that can bundle AI governance with 24/7 SOC services will compete effectively for that recurring revenue pool.
Risk Assessment
Risks to the baseline outlook include a macro slowdown, regulatory shocks, and high-profile AI incidents that change boardroom calculus. A sharp enterprise capex pullback could compress both AI and security spend, keeping relative allocations similar but reducing absolute dollars. Regulatory developments — for example, new EU AI Act enforcement guidance or U.S. federal model safety rules in late 2026 — could force rapid, unplanned security investments and temporarily distort procurement patterns.
Operational risks also matter: if attackers weaponize model poisoning or data exfiltration at scale, firms may prioritize emergency detection and incident response over longer-term AI projects. That re-prioritization would be visible in monthly procurement pulses and could create short-term winners among IR and EDR vendors at the expense of AI feature rollouts. Investors should watch forward-looking metrics such as backlog composition, RFP pipelines, and professional services bookings as leading indicators.
Finally, vendor execution risk is non-trivial. Companies promising turnkey AI safety may underdeliver on integration complexity, creating customer churn that affects recurring revenue. In a market where many vendors rebrand existing controls as "AI-ready," diligence on product integration and client referenceability will be essential.
Outlook
Through 2027, the base case is parallel expansion: AI infrastructure and software will outpace cybersecurity in absolute growth but will not displace the latter; instead, security budgets will reallocate internally toward AI-relevant controls. If current forecast differentials hold — ~40% AI growth vs ~8% cyber growth into 2026 — vendor revenue mixes will diverge, producing distinct return profiles for AI platform providers, security specialists, and channel partners. For investors, that implies sector rotation rather than market contraction.
Look for three leading indicators in 2026–27: (1) growth in security-related line items within AI project budgets reported in vendor earnings, (2) RFP language that explicitly requires model governance or runtime protection, and (3) an uptick in managed services contracts bundled with AI offerings. Each provides a near-term signal about where procurement is actually landing in corporate IT wallets.
Geopolitical risk — export controls on AI compute or sanctions affecting talent — could accelerate onshore security procurement and favor regional vendors with compliance guarantees. This localization trend would increase addressable market sizes for domestic MSSPs and security software companies in priority jurisdictions.
Fazen Capital Perspective
Fazen Capital assesses the market as one of reconfiguration rather than displacement. Our contrarian view is that AI spend will increase total IT wallet sizes materially for firms with strategic AI initiatives, creating an opportunity set for security vendors that can integrate at the model and data layer. In other words, AI is a demand amplifier for certain security capabilities rather than a budget competitor. That thesis is supported by bid-ask spreads in M&A where AI-aligned security firms command premium multiples, and by procurement data showing incremental dollars earmarked for identity, data loss prevention, and model observability.
We also note a potential mispricing in some segments: vendors emphasizing point-product AI features without deep data protection credentials are at higher risk of churn when enterprise buyers demand auditable governance. Institutional investors should therefore differentiate between incumbents with broad enterprise footprints and niche players that lack the integration muscle to scale. For portfolio managers, monitoring customer concentration, renewal rates, and professional services demand provides better visibility into secular adoption than headline ARR growth alone.
Finally, we believe short-term volatility should be seen as an opportunity to upgrade holdings to companies with clear AI-security roadmaps. The secular shift toward embedding security into AI toolchains creates durable demand for certain classes of providers, especially those that can demonstrate low false-positive rates in model monitoring and proven cloud-native integrations. See our related research on platform exposures and cyber risk management techniques at [Fazen Capital Insights](https://fazencapital.com/insights/en) and [topic](https://fazencapital.com/insights/en).
FAQ
Q: Will regulatory action on AI increase cybersecurity spend immediately?
A: Regulatory enforcement creates conditional shocks. If regulators issue binding model audit requirements or minimum safety controls in 2026–27, affected firms will likely front-load security spending to meet compliance deadlines. Historical precedent: the introduction of GDPR in 2018 produced a two-year uplift in privacy and security projects across Europe, with measurable increases in professional services bookings in vendor reports.
Q: Which cybersecurity subsegments will see the largest incremental budgets?
A: Expect identity and access management, model governance/observability, and cloud workload protection to grow faster than legacy perimeter categories. Early procurement data from 2025–26 shows incremental spend concentrations of 35–45% toward those areas among enterprises with active AI programs.
Bottom Line
Rising AI investment is expanding the overall IT wallet and re-shaping security allocations rather than eliminating cybersecurity budgets; investors should pivot to security vendors that embed AI governance and cloud-native protections. Disclaimer: This article is for informational purposes only and does not constitute investment advice.
