Microsoft Corporation’s recent expansion into network security has caused a decline in cybersecurity stocks. As part of this move, Microsoft has rebranded its Azure Active Directory to “Microsoft Entra ID,” signifying its focus on zero-trust ID with Entra Private Access and an identity-centric secure web gateway with Entra Internet Access. Jefferies analyst Brent Thill emphasized the potential long-term implications of Microsoft’s entry into the network space for vendors such as Cloudflare Inc., Fortinet Inc., Check Point Software Technologies Ltd., Palo Alto Networks Inc., and Zscaler Inc.
Despite Microsoft’s stock finishing 1.4% higher at $337.20, the stocks of other companies mentioned experienced significant decreases. Cloudflare saw a 5.5% drop, closing at $64.23, while Fortinet fell 2% to $76.72. Check Point and Zscaler both witnessed declines, with drops of 1.3% and 6.6%, respectively. Palo Alto Networks saw the most substantial decrease, with shares falling 7% to $232.64. CrowdStrike Holdings Inc., not mentioned in Thill’s note, also experienced a decline of 3.1%, closing at $146.13. Additionally, the ETFMG Prime Cyber Security ETF finished 1.4% lower.
In contrast, the S&P 500 index rose by 0.7%, the Nasdaq Composite gained 1.2%, and the Dow Jones Industrial Average, in which Microsoft is included, closed up by 0.3%.
With this expansion, Microsoft has increased its total addressable market for cybersecurity to over $20 billion in 2022 from over $15 billion in 2021, according to Thill.
Why the Market Reacted
The announcement of Microsoft’s expansion into network security has raised concerns among cybersecurity vendors who may face competition from the tech giant. Investors are closely monitoring the situation, as Microsoft’s move could have lasting repercussions on the industry.