Cybersecurity stocks failed to sustain their gains amid a Microsoft outage

Shares of cybersecurity companies jumped by several percent immediately after the market opened on Friday, November 13, amid a major outage at Microsoft. However, most of these stocks subsequently lost their gains and began to decline. Analysts believe that these companies are not only becoming increasingly important in the age of AI but could also offer investors an alternative to Nvidia shares, which have found themselves in a difficult situation following the resignation of CEO Jensen Huang.

Palo Alto Networks shares rose 2.9% at the opening bell, but the trend then shifted sharply, and the stock began to fall by nearly 1%. CrowdStrike, after jumping 2.7%, began to fall by roughly the same amount. At the time of this report, Rubrik was down 1.5%, Fortinet was down 0.7%, and SentinelOne was down 0.5%.

The stock market volatility coincided with a massive outage of Microsoft services: it began on Thursday and, given its scale and duration, became one of the largest in history, according to Bloomberg. The outage disrupted the operations of other online services, as well as government agencies, traders, and businesses around the world.

The AI lab OpenAI reported that ChatGPT also experienced outages due to an issue with Microsoft 365. Anthropic reported a similar issue that affected Claude's integration with Outlook and other services.

However, there is no evidence that the outage was the result of “malicious or cyber activity,” said Microsoft Executive Vice President Charles Lamanna.

Palo Alto shares have fallen by about 20% over the past month. However, companies are increasing their cybersecurity budgets, so the stock is likely to recover its losses, according to analysts at KeyBanc. They say that following this decline, an “attractive entry point” has emerged for investors.

The bank raised its recommendation on the company's stock from "Sector Weight" (in line with the sector, equivalent to a "hold" recommendation) to "Overweight" (above the market, meaning a "buy" recommendation) and set a price target of $380, according to CNBC. This is nearly 18% higher than the closing price on Thursday, November 12.

"We expect growth in cybersecurity budgets to accelerate through 2027. Palo Alto will be one of the main beneficiaries of the consolidation trend thanks to its strong products in key areas: AI protection and countering AI threats, which are becoming increasingly prevalent,” wrote analyst Eric Heath. In addition, he noted that Palo Alto operates more efficiently than many of its competitors in the cybersecurity sector.

Hitt also noted that there is a trend toward consolidation in the industry: companies are consolidating their cybersecurity services with a smaller number of providers. According to him, Palo Alto will be one of the main beneficiaries of this shift.

"Given the positive results of our reviews for the [first fiscal] quarter and the decline in the stock price over the past month, we see an attractive entry point," Heath wrote.

"The scale of the business and the ability to handle large volumes of data are crucial," said YieldMax strategist Mike Howe earlier. That is why he considers companies such as Palo Alto Networks and CrowdStrike attractive for long-term investments.

“I would [consider] stocks of cybersecurity companies such as Palo Alto Networks and CrowdStrike, and perhaps even Palantir. It’s not that they’re necessarily cheap,” noted Paul Mix, head of technology research at Freedom Capital Markets. “Their business doesn’t necessarily depend on the construction of new data centers.”

On November 2, Deutsche Bank analyst Brad Zelnik upgraded his recommendation on CrowdStrike shares from “hold” to “buy.” The bank believes that CrowdStrike could reach $10 billion in annual recurring revenue (ARR) before fiscal year 2030.

On October 29, Morgan Stanley initiated coverage of Rubrik shares with an “outperform” rating and a price target of $155. This target implies a 41% increase in the stock price relative to the most recent closing price. The bank expects the company’s security-focused cloud platform to replace traditional backup solutions. Entering the data protection space will allow Rubrik to compete not only for clients’ IT budgets but also for their security budgets.

This article was AI-translated and verified by a human editor