Microsoft Pushes into Network Edge Security Sector

Security software stocks faced downward pressure on Wednesday following Microsoft’s announcement of its entry into the $20 billion network edge security sector.

Introducing Microsoft Entra Line

In a recent blog post, Microsoft (ticker: MSFT) introduced two products that make up its Entra line of identity and network access software. The first product, Microsoft Entra Internet Access, functions as a “secure web gateway” designed to safeguard internet connectivity, software as a service, and Microsoft 365 apps and resources against malicious internet traffic and other potential threats. The second product, Entra Private Access, provides a secure means of accessing private apps and resources.

Edge Security to Keep Threats at Bay

Microsoft’s Leap into Network Security

According to BTIG analyst Gray Powell’s research note, the announcement signifies Microsoft’s entry into its final and most substantial security category: network security. Powell estimates that this segment constitutes a market worth over $20 billion. With the addition of network security, Microsoft’s platform now covers all major pillars, including email, identity, endpoint, security analytics, and network security.

Industry Leaders in Microsoft’s Sights

Leading the “secure service edge” sector that Microsoft is now targeting are Palo Alto Networks (PANW) and Zscaler (ZS). Analyst Powell suggests that these companies have the most to lose from Microsoft’s incremental growth. Other players in the sector, namely Fortinet (FTNT), Cloudflare (NET), and Check Point Software Technologies (CHKP), are expected to view the news with caution.

In summary, Microsoft’s venture into the network edge security sector has generated notable market reactions among security software stocks. While Palo Alto Networks and Zscaler appear to be the primary contenders affected by Microsoft’s move, other industry players are keeping a watchful eye on developments in this space.

Tech Stocks Experience Decline as Microsoft Enters the Market

Several tech stocks have experienced a decline in trading on Wednesday. Palo Alto Networks has seen a 6.5% slide, Zscaler is down approximately 6%, Cloudflare has dropped 5.9%, Fortinet is down 2.5%, and Check Point has seen a decline of 1.8%. In contrast, Microsoft stock has recently risen by 1.2%.

While Microsoft’s entry into this new market poses a long-term risk to existing vendors, analysts suggest that it may take longer for the company to become a disruptive player compared to other security software categories. Buyers are expected to question Microsoft’s ability to protect applications across multiple clouds other than its own Azure cloud network.

Despite this, Powell, an analyst, maintains his Buy rating on Palo Alto Networks. He also maintains his Neutral ratings on Zscaler, Cloudflare, Fortinet, and Check Point.

Michael Turits, an analyst from KeyBanc, also acknowledges the impact of Microsoft’s announcement. He believes that while the new offering poses a long-term threat to current players, it may not be as strong as other parts of Microsoft’s security software portfolio.

“We view Microsoft’s competitive position…as less strong than other areas of security where it has long had capabilities and likely to be less competitive in the enterprise segment,” Turits stated in a research note.