Palo Alto Networks stays MS's top security stock as survey highlights 'durable' demand – Seeking Alpha

Palo Alto Networks headquarters in Silicon Valley

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Palo Alto Networks (NASDAQ:PANW) is still Morgan Stanley’s top cyber security stock after the investment firm finished its latest AlphaWise survey, which highlighted “durable” firewall demand as enterprises continue to see more distributed and hybrid IT networks.

A group of analysts, led by Hamza Fodderwala, noted that Palo Alto Networks (PANW) is likely to keep benefiting as it is in the “early innings” of an enterprise refresh cycle, according to the latest survey.

Palo Alto Networks (PANW) shares fell slightly less than 0.5% to $490.57 in early trading on Wednesday.

The survey showed that the durability for firewall demand is still “under-appreciated” by investors as network security is still the top of the list for the vast majority of CIOs this year, and spending is likely to increase this year compared to last year.

The analysts think this is due to a number of reasons, including:

  1. An increasingly distributed workforce, digital connectivity and hybrid IT networks” that have resulted in higher traffic and latency.
  2. A “strong” appliance refresh, as the average refresh cycle is still between three and four years and “far more frequent” than other areas of networking.
  3. The latest enterprise appliance refresh happened between 2018 and 2019, which suggests that the sector is still in the “early innings” of the current cycle, which is expected to last at least 12-18 months.
  4. Lastly, there are an increasing number of use cases for firewalls, including micro-segmentation, SD-WAN and more OT security to help secure connectivity.

In addition to the continued surge being beneficial for Palo Alto Networks (PANW), the analysts also note it’s likely to benefit Fortinet (FTNT) as well, which they believe will continue to gain share in firewalls and “broader platform aiming to consolidate security & networking spend.”

Earlier this month, investment firm Wedbush Securities said investors should focus on “secular winners” such as Palo Alto Networks (PANW) as valuations come down and the rise of continued geopolitical threats around the world.


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