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Cybersecurity stocks fell Wednesday after Microsoft Corp. announced an expansion into network security, and rebranded its Azure Active Directory to reflect that move, which could haunt pure-play security vendors in the long term.
In a blog post Tuesday, Microsoft
MSFT,
announced that Azure AD will now become “Microsoft Entra ID,” as the service focuses on zero-trust ID with Entra Private Access, and an identity-centric secure web gateway with Entra Internet Access, both of which are in preview.
Jefferies analyst Brent Thill followed that with a note stating that Microsoft “has now clearly entered the network space with potential longer-term ramifications to vendors” such as Cloudflare Inc.
NET,
Fortinet Inc.
FTNT,
Check Point Software Technologies Ltd.
CHKP,
Palo Alto Networks Inc.
PANW,
and Zscaler Inc.
ZS,
Read: Microsoft is cutting more jobs, after laying off 10,000 earlier this year
While shares of Microsoft finished Wednesday’s session up 1.4% at $337.20, shares of Cloudflare dropped 5.5% to finish at $64.23, Fortinet shares fell 2% to $76.72, Check Point shares fell 1.3% to close at $126.19,Palo Alto Networks shares dropped 7% to close at $232.64 and Zscaler shares fell 6.6% to close at $137.68.
While not cited in Thill’s note, CrowdStrike Holdings Inc.
CRWD,
shares fell 3.1% to close Wednesday at $146.13, and the ETFMG Prime Cyber Security ETF
HACK,
finished down 1.4%.
Meanwhile, the S&P 500 index
SPX,
rose 0.7%, the tech-heavy Nasdaq Composite
COMP,
gained 1.2%, and the Dow Jones Industrials Average
DJIA,
of which Microsoft is a component, closed up 0.3%.
By entering the space, Microsoft expanded its cybersecurity total addressable market to upwards of $20 billion in 2022 from upwards of $15 billion in 2021, Thill said.
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