by Microsoft (MSFT) continues to pressure cybersecurity stocks with new products aimed at companies such as Zscaler (ZS), Palo Alto Networks (PANW), Cloud Flame (NET), CrowdStrike Holdings (CRWD) and others. MSFT shares continue to shine, rising 38% this year amid an AI-driven rally in the technology sector.
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Shares of cybersecurity firm Zscaler fell 3.1% in the stock market today to 142.84. ZS shares also took a hit from Microsoft’s security announcement on Tuesday, falling 4.5%. MSFT shares rose 2.3% to 340 on Wednesday.
Microsoft’s entry into the Secure Service Edge computer security market, known as SSE, is also expected to impact other cybersecurity stocks, such as Palo Alto Networks, Cloudflare and startup Netskope, analysts say.
Microsoft expands cybersecurity offerings
“While the offerings will be competitive for the SSE vendors, we consider Microsoft’s competitive position in SSE to be less strong than in other security areas where it has long had capabilities (endpoint, identity) and likely to be less competitive in the enterprise segment .” KeyBanc Capital analyst Michael Turits said in a note to clients.
At UBS, analyst Roger Boyd said in his note, “The reaction to ZS stock seems overblown, especially given ZS’s near-exclusive focus on the corporate segment.”
“It is expected that the initial Microsoft Security Edge solution will be primarily aimed at small and medium-sized businesses,” Boyd added. “Instead, we see this as a greater risk for vendors with SMB exposure, including Cloudflare and potentially Fortinet (FTNT).”
Microsoft has squeezed some stocks in the cybersecurity sector by selling multiple products at a discount to large companies.
In addition, Microsoft rolled out a new automated cybersecurity product in early 2023 using generative AI technology. The platform, called Microsoft Security Copilot, uses a new AI assistant to manage threat detection.
Security revenues are rising for MSFT stock
The software giant has told analysts that its security business now brings in $20 billion in annual revenue and is growing at 33% each year. Microsoft bundles products across its Azure cloud computing business and Office 365 platform.
In a report released Wednesday, Goldman Sachs analyst Gabriela Borges said Microsoft’s annual security research and development spending now exceeds $4 billion, up from $1 billion three years ago.
But Borges said cybersecurity vendors can weather the storm.
“Many enterprises and small businesses rely on Microsoft to provide a basic level of security and then overlay the best providers,” said Borges. “We see cloud security as a good example of a fully addressable market where both Microsoft and third parties such as Palo Alto Networks, Zscaler and (startup) Wiz are capturing growth.”
Meanwhile, Microsoft has not disclosed when the new SSE offering for computer networking will be available. Nor has Microsoft announced pricing.
At research firm Dell’Oro, MSFT equity analyst Mauricio Sanchez said in a blog post: “For me, the most significant announcement today was Microsoft’s introduction of its new SSE solution that is anchored in two new products, Microsoft Entra Internet Access and Microsoft Entra Private Access. , and an existing one, Microsoft Defender for Cloud Apps.”
Zscaler, San Jose, California, sells cloud-based computer security services through 150 data centers worldwide. Customers then direct their business workloads and app traffic to the data centers where Zscaler’s security software checks the data traffic for malware.
The company derives most of its revenue from Zscaler Internet Access, or ZIA. It is a cloud-based replacement for on-premises web security gateways.
IBD recently named Zscaler Stock of the Day.
Microsoft targets CrowdStrike, Okta
Most of Microsoft’s security revenue comes from email and endpoint security. While basic Office 365 subscriptions provide anti-spam and malware protection, Microsoft sells advanced anti-phishing and threat prevention tools.
In the endpoint market, Microsoft competes with CrowdStrike and many others. Endpoint security tools detect malware on laptops, mobile phones, and other devices that access corporate networks.
In addition, MSFT stock analysts say Microsoft has also gained traction in Identity and Access Management, or IAM, vs. Okay (OKTA) and others.
IAM software verifies the identity of computer network users. Furthermore, the tools manage the usernames, passwords and access policies of employees, customers and partners.
Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on 5G wireless, artificial intelligence, cybersecurity and cloud computing.
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