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International Business Machines warned last week that its clients were focusing on cybersecurity as more-powerful artificial-intelligence models hit the market and now Wall Street is backing up IBM’s claim.
William Blair analyst Jonathan Ho on Monday wrote that Palo Alto Networks is the firm’s top pick in the cybersecurity sector on widespread concern that AI hacking is a real threat to companies.
Palo Alto stock fell 3% to $338.19 on Tuesday after ending Monday down 2.8%. Shares of the cybersecurity software company have gained 83% this year and have closed higher in four consecutive months.
Palo Alto was a Barron’s stock pick in April. Barron’s reiterated the pick in June.
The overarching thesis is that AI is creating more work, not less, for cybersecurity firms.
“We are seeing a dramatic shift in prioritization as customers rush to purchase firewalls ahead of expected price increases and as supply chain challenges loom in the background,” Ho wrote.
The firm added that cybersecurity has become a key issue for many companies due to the release of AI startup Anthropic’s powerful Mythos model and Nvidia’s next-generation Blackwell AI architecture.
William Blair wrote that overall spending on cybersecurity has been strong in the second quarter and that the environment is “robust,” particularly for companies that offer firewalls and vulnerability management.
“We believe the strong near-term performance in security stocks following last quarter’s declines suggests that cybersecurity is now perceived as a beneficiary of AI,” Ho wrote.
Palo Alto is one company that is certainly benefiting, according to the firm.
“We believe Palo Alto continues to take share in the market and benefits from customers deciding to pull the trigger early as the perception is that price increases are coming and backlog/lead times are building,” the analyst added.
This should allow Palo Alto to sustain growth and the firm sees upside to both the company’s annual recurring revenue and product revenue. However, Ho added that Palo Alto could see some pressure on margins from rising hardware firewall component pricing.
“AI offers a significant opportunity longer term, as platform vendors appear best positioned from a trust perspective to bring security for AI to customers,” Ho wrote. He added that it was “unlikely” that frontier model vendors will displace traditional cybersecurity solutions.
Despite all the AI disruption concerns, it certainly looks like Wall Street believes AI brings some security to Palo Alto, and the stock.
Write to Kit Norton at [email protected]
