The security, infrastructure software stocks to own in 2024, according to Piper

Looking ahead to 2024, Piper Sandler said security will remain a top spending priority following major breaches and ransomware attacks in 2023 and increased breach disclosure requirements. For the upcoming year, the firm named top ideas for security and infrastructure as Datadog (DDOG), Zscaler (ZS), CyberArk (CYBR), GitLab (GTLB) and Crowdstrike (CRWD).

SECURITY AND INFRASTRUCTURE SOFTWARE SPACE: In its 2024 Security & Infrastructure outlook, Piper said it expects security to top spending charts again as 89% of CIOs see spending increasing in the area, with none expecting to decrease spend. The firm also expects GenAI tools to start to provide a real business impact in 2024 along with monetization for key vendors, underpinning a “strong backdrop” for security and infrastructure companies in the sector.

Piper also said it believes the space is “past the worst” of cloud optimization headwinds as many cloud-related consumption models saw stabilization or accelerating growth in Q3, adding its CIO survey called for increasing spending intentions for cloud over the coming years The industry has many cycles potentially at play, the firm said. While 2024 could offer a rising-tide scenario for spending across the sector, Piper believes there are attractive refresh opportunities across categories such as SIEM, data protection and firewall paired with organic opportunities in IoT and SASE that could lead to outsized growth for leading vendors.

TOP IDEAS: For 2024, the firm’s top ideas are Datadog, Zscaler, CyberArk, GitLab and Crowdstrike. Piper is optimistic about the year ahead for Datadog as it sees multiple drivers that could help shares continue to move higher. With comps getting easier and cloud optimization pressures decreasing, the firm sees further upside to expectations. Piper noted the company’s valuation is high at current levels, but believes a premium is warranted due to leadership in cloud observability and multiple growth vectors lying ahead. The firm reiterated an Overweight rating on shares and raised its price target to $145 from $134.

Piper also said it remains optimistic about forward trends for Zscaler’s business in 2024. citing secular tailwinds underpinning the SASE opportunity, which is still in “very early innings”. The firm added the product set beyond SASE also offers an attractive narrative and it sees Zscaler as an important player in the modernization of the DLP/data security market. Other products like Risk360 and workload protection offer the company potential to grow, Piper said. The firm reiterated an Overweight rating on the name and raised its price target to $255 from $236.

Piper remains bullish on CyberArk’s prospects in 2024 as tailwinds give the company a favorable position to continue demonstrating strong performance. Strong PAM demand is expected to continue in 2024, the firm said, and CyberArk “remains the clear leader” in the space. Piper also believes the opportunity around a cohesive identity platform is underappreciated and 2024 will be the year of FCF for the company with transition dynamics largely in the past. The firm reiterated an Overweight rating on the shares and raised its price target to $250 from $235.

Piper also expects a prosperous year for GitLab as the company is poised to benefit from multiple catalysts along with potential for additional upside through macro improvements. The premium price increase is the largest catalyst for GitLab and should help revenue remain stable or accelerate in the near term, the firm said. GitLab Duo, GitLab Dedicated and the new enterprise agile planning SKU will also serve as further growth drivers, Piper said. The firm reiterated an Overweight rating on the name and raised its price target to $75 from $72.

Crowdstrike was the top performing stock in Piper’s coverage universe in 2023 and the firm sees a myriad of positive catalysts on the horizon. The company has one of the more captivating opportunities around GenAI with its Charlotte AI solution, the firm said. Additionally, Piper sees several areas of growth as cloud and identity security continue to gain traction and believes next generation SIEM and Falcon for IT remain meaningful opportunities. The firm reiterated an Overweight rating on the shares and raised its price target to $300 from $280.

TARGET CHANGES: The firm raised price targets to reflect its latest views heading into 2024. Piper raised the targets for Neutral-rated Check Point (CHKP) to $144 from $138, Neutral-rated DocSign (DOCU) to $55 from $50, Neutral-rated JFrog (FROG) to $33 from $31, Neutral-rated Fortinet (FTNT) to $60 from $53 and Overweight-rated ServiceNow (NOW) to $750 from $747. The firm also raised price targets for Neutral-rated Okta (OKTA) to $85 from $75, Overweight-rated Palo Alto Networks (PANW) to $350 from $343, Underweight-rated Qualys (QLYS) to $120 from $117, Neutral-rated Atlassian (TEAM) to $220 from $201 and Neutral-rated Varonis (VRNS) to $40 from $35.