Palo Alto rallies on M&S hacks, but earnings fail to woo investors
A spate of high profile cyber incidents on British retailers, including Co-op, Harrods, and most notably, Marks and Spencer, has placed cybersecurity spend back in the limelight – and Palo Alto is reaping the costs.
Yet, investors are digesting a mix set of quarterly results revealed on Thursday.
Ben Barringer, global tech analyst at Quilter Cheviot, called the recent retail breaches representative of the cyber security sector as a burgeoning necessity, rather than an option.
He said: “AI is now central to both defence and offence in cyber security. As a result, demand for trusted cyber security is only set to rise, and Palo Alto is in a strong position to capitalise. This is shown clearly by the recent M&S hacks”.
AI arms race
Palo Alto’s recent results for its third quarter revealed revenue growth of 15 per cent year-on-year to $2.29bn, only just beating analyst expectations.
Meanwhile, adjusted earnings came in at 80 cents per share, ahead of estimates, though margins disappointed investors. Gross margin slipped to 76 per cent, despite expectations of 77.2 per cent.
Still, the cyber giant lifted its full year guidance, showing confidence in its near term demand.
More broadly, retailers and financial services firms alike are ramping up their cyber defences as generative AI makes attacks cheaper, faster, and more intelligent.
“Tools like AI-driven attack simulation are powerful for protecting systems but AI can also be used by bad actors to create more sophisticated threats”, Barringer said.
Palo Alto has benefited from the scale and end to end visibility across on premise, as well as cloud environments.
As more firms and sectors pivot to the cloud, especially to unlock AI capabilities, the demand for robust cyber platforms is only deepening.
Spending priorities shift to cyber
The outlook for general IT spending has remained moderately muted, with many chief information officers facing flat, or in some cases shrinking, budgets.
Yet, cyber security is proving resilient.
Analysts have predicted an eight to 10 per cent growth in cyber budgets this year alone, far outpacing the three to four percent growth expected in overall tech spend.
This divergence is guiding sentiment for names like Palo Alto, even as stock volatility continues.
Shares dipped following its margin miss on Thursday, and analyst price target cuts. Yet, a raised earnings outlook helped mitigate some of the downside.
Cybersecurity remains a top priority. “In that context”, Barringer added, “having exposure to quality operators like Palo Alto makes a lot of sense”.