Morningstar

We See Buying Opportunities in Cybersecurity Stocks

We maintain our fair value estimates for these stocks.

Building with logo for ZScaler in the Silicon Valley, Santa Clara, California
Smith Collection/Gado via Getty
Securities in This Article
Fortinet Inc
(FTNT)
Palo Alto Networks Inc
(PANW)
Zscaler Inc
(ZS)

After a spectacular market rout stemming from the imposition of tariffs by the new US administration, cybersecurity stocks have come under immense pressure, with our cybersecurity coverage’s average week-to-date return being negative 11%.

Why it matters: As investors grapple with an increasingly adverse macroeconomic outlook their immediate reaction has been to engage in broad-based selling. In our view, this behavior, when done at scale, continues to open up buying opportunities for long-term investors.

  • While investors may sell tech stocks as they expect enterprise spending on tech to materially decrease owing to the tough macro environment, cybersecurity spending tends to be sticky and is often one of the last areas of cost-cutting in the tech stack.
  • Instead of directly cutting costs and dropping security solutions, we believe firms will lean more into the trend of vendor consolidation as they seek to maintain best-in-class security while reducing the complexity and cost of security infrastructure.

The bottom line: We believe wide-moat Palo Alto PANW (fair value estimate: $210), wide-moat Fortinet FTNT (fair value estimate: $108), and narrow-moat Zscaler ZS (fair value estimate: $213) are all attractively priced for investors seeking to gain cybersecurity exposure at a discount.

  • Alongside offering sticky security products that are unlikely to face the axe, all three companies are platform vendors that stand to benefit from increased vendor consolidation as customers seek to rationalize costs across their tech stacks.

Between the lines: There have been some investor concerns around tariffs hitting Palo Alto and Fortinet’s hardware firewall business. We view firewalls, much like other security solutions, as price-inelastic goods, with firewall vendors likely passing increased costs on to end consumers.

  • Further, most of Palo Alto and Fortinet’s sales are made up of selling software and services with no tariffs, either independent of or in addition to hardware firewalls.

Editor’s Note: This analysis was originally published as a stock note by Morningstar Equity Research.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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