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PANW, ZS, NET: Cybersecurity Stocks Threatened by Microsoft
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PANW, ZS, NET: Cybersecurity Stocks Threatened by Microsoft

Story Highlights

Cybersecurity stocks are feeling threatened by the entry of a major player like Microsoft in the network security sector. The stocks of major players collapsed on July 12 following the news.

Cybersecurity companies feel the heat as Microsoft (NASDAQ:MSFT) has announced a line of products aimed at the cybersecurity market. The tech giant could pose a major challenge in this space. Following the news, shares of popular cybersecurity companies fell yesterday. Palo Alto Networks (NASDAQ:PANW) plunged 7%, Zscaler (NASDAQ:ZS) lost 6.6%, and Cloudflare (NYSE:NET) fell 5.5% on July 12.

Microsoft stated that two of its products, which are in the testing phase, could soon be launched in the network edge security sector. The Edge security products aim to protect against the hacking or entry of malware into a network or system, thus protecting the privacy and security of your network and apps.

The Microsoft Entra Internet Access product acts as a secure gateway that protects the “internet, software as a service, and Microsoft 365 apps and resources” from malicious threats and potentially harmful visitors. Meanwhile, Entra Private Access acts as a barrier to anyone trying to access private apps and resources. Microsoft did not comment on both products’ pricing or the time of launch.

What Analysts are Saying About MSFT’s Threat

Following the news, Morgan Stanley analyst Keith Weiss noted that Microsoft’s entry into the Secure Service Edge (SSE) space is “potentially the largest and last major cybersecurity market that Microsoft has yet to enter.” Even so, Weiss believes that MSFT will take time to capture a larger share of the SSE market as its existing business is “less synergistic” with the sector. But existing players like PANW, ZS, and NET will surely feel the heat from Microsoft’s entry into SSE.

Similarly, BTIG analyst Gray Powell maintained that Microsoft’s entry into the SSE market represents a longer-term threat to the existing players. As per Powell, MSFT will take time to disrupt the market as buyers may question its ability to protect applications across multiple clouds outside of its Azure cloud network.

Also, KeyBanc analyst Michael Turits shares the same view as the others. Turits sees Microsoft’s entry into the market as less competitive compared to other areas of security where it has a proven track record. Microsoft could be a long-term threat but a less intense one, the analyst added.

TipRanks’ Stock Comparison Tool

We compared the five major cybersecurity players on TipRanks’ Stock Comparison tool to see which player is most preferred currently. Based on TipRanks’ unique tool sets, Palo Alto Network is the best player in the sector currently.

PANW stock has a Strong Buy consensus rating, a decent upside to the 12-month price target, a positive hedge fund signal, and a Bullish Blogger consensus. Finally, PANW scores a “Perfect 10” on the TipRanks Smart Score system, implying the stock has full potential to outperform market expectations. PANW stock has gained 68% so far this year.

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