Palo Alto Networks Shares Shake 'Spending Fatigue' Claims As Investors Remain Bullish On Cybersecurity

Shares in Palo Alto Networks Inc PANW are bouncing back this week following a steep drop last week after it reported weaker-than-expected earnings guidance.

The shares fell 28% after CEO Nikesh Arora noted in a conference call following the results, that clients were beginning to show signs of “spending fatigue” — even as online cybersecurity threats increased.

Shares in Palo Alto’s sector rivals fell in sympathy, with CrowdStrike Holdings Inc CRWD down around 10% on the day and Zscaler Inc ZS falling nearly 15%.

Of course, customers are getting spending fatigue. Cybersecurity costs rise in tandem with the growing risk of attack and complexity of threat. It’s simply one rising annual cost chief technology officers will have to get used to.

Pricing should remain competitive as more players enter what is currently not regarded as an overcrowded market.

Also Read: Nvidia, Eli Lilly, AMD Enjoy High Equity Valuations: Do Higher Rates Put Them In Peril?

Regulations Could Help

And new regulatory rules on cybersecurity will ensure listed companies keep their systems up to date.

Last year the Securities and Exchange Commission (SEC) adopted new rule stating that if a company experiences a material cybersecurity incident, it must report it and the measures it took to the regulator.

SEC chair Gary Gensler said then: “Through helping to ensure that companies disclose material cybersecurity information, today's rules will benefit investors, companies, and the markets connecting them.”

Thus, cybersecurity just got more transparent and potential investors and shareholders will certainly react if they spot a flaw in a company’s response to the rising threats.

And as hackers and other cyber criminals increasingly use artificial intelligence in their attacks, it becomes incumbent upon companies to adopt similar technology to counter these threats.

Some Analysts Remain Bullish

This is where companies such as Palo Alto Networks come in, and where it’s appreciated most by the analysts who remained bullish on the stock following last week’s 2024 guidance write down.

"While we fully acknowledge a messier near-term story, we remain bullish on PANW’s improving mix shift toward higher-growth recurring revenue,” said Greg Moskowitz at Mizuho Securities.

Meanwhile, Dan Ives, technology analyst at Wedbush said “now is not the time to go negative on Palo Alto Networks.”

He added: “It’s a reset, with brighter days ahead as cybersecurity remains a top priority.”

Jim Cramer on CNBC was bullish, too. The “Mad Money” host recommended an “aggressive long” position on Palo Alto, citing rising demand for cybersecurity systems to counter escalating threats.

And it’s not just analysts who remained bullish on the stock. Congresswoman Nancy Pelosi and her venture capitalist husband Paul recently disclosed call options purchased this month.

Broad measures of cybersecurity investment are trending higher. Despite a fall on the day of Palo Alto Network’s results last week, the First Trust NASDAQ Cybersecurity ETF CIBR, an exchange-traded fund that holds all the above stocks, is up nearly 50% since the start of 2023 and remains 6% higher so far in 2024.

Now Read: These 4 AI-Related Stocks Outside Magnificent 7 Are Already Outperforming In 2024

Image: Shutterstock