Morgan Stanley names three stocks poised for growth in the cyber threat defense software market

Morgan Stanley analysts have named three companies in the U.S. market whose shares, in their opinion, should grow in the coming year. All three are distinguished by the fact that they are actively investing in comprehensive cyber threat defense platforms.

Morgan Stanley, one of Wall Street's largest investment banks, believes that Palo Alto Networks, CrowdStrike and Zscaler are better prepared than others for a large-scale wave of cybersecurity "platformization" - the transition to integrated and simplified protection architectures. Business Insider writes about it with reference to the bank's September survey. Each of these companies offers solutions that cover several key elements of security: device, cloud, application and network protection, BI reported, citing the bank.

Morgan Stanley expects the market of cybersecurity solutions to grow at an average annual rate of 12% over the next few years. Under these conditions, the bank considers revenue growth (as an indicator of long-term prospects) and free cash flow margin (on a short-term horizon) to be the key drivers of future returns for software stocks. Its median forecast of revenue growth on the watch list of 15 software securities is 11.8%, median forecast FCF margin is 26.6%. Morgan Stanley's expectations for the financials of Palo Alto Networks, CrowdStrike and Zscaler are above median.

- Palo Alto Networks. The next-generation firewall developer's projected revenue growth for 2026 is 13.6%, and its projected free-cash flow margins are 38.3%. Morgan Stanley gave the stock an "above market" rating (Overweight, consistent with a buy recommendation). "In our view, Palo Alto Networks should be one of the few leading security platform providers in the long term, especially as the platformization strategy continues to gain momentum and consolidation occurs in the market," Business Insider quoted the bank's review as saying.

- CrowdStrike. The developer of cloud platform Falcon, which combines several functions of protection from cyber threats, received from Morgan Stanley neutral rating (Equalweight, corresponds to recommendation to hold shares at the current price level). At the same time, the bank sees the potential growth of CrowdStrike securities by 9% in the base scenario and by 30% in the optimistic scenario. The projected growth of the company's revenue is 21.5%, and the free cash flow margin is 31%.

- Zscaler. In early September, Morgan Stanley upgraded the shares of the developer of a secure cloud gateway for corporate Internet access from Equalweight to Overweight. Its "bullish" scenario assumes growth of securities by 44%, writes BI. The companies forecast revenue growth of 18.3% and a free cash flow margin of 27.3%. "We believe Zscaler can establish itself as the next full-fledged platform [in cybersecurity] alongside Palo Alto Networks and CrowdStrike," the bank concluded.

Wall Street analysts on average recommend shares of Palo Alto Networks, CrowdStrike and Zscaler to buy: the consensus rating for all three securities is Overweight. Average target prices calculated by FactSet suggest an 8.9% increase in Palo Alto Networks, 11.9% increase in CrowdStrike, and 15.3% increase in Zscaler over the next 12 months.

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