Securities in This Article
Over the last few months, investors have become increasingly worried about the future of software economic moats as fears of software disintermediation driven by artificial intelligence have grown.
Why it matters: We don’t paint the entire software industry with one brush when it comes to AI. We believe cybersecurity spending will likely benefit from increased AI deployments, as AI deployments increase the attack surface area.
Further, we think the adversarial dynamic of AI, with AI-led improvements in security also enabling more complex threats to emerge, further supports our view that AI is a net-positive for security.We have conducted an in-depth review of the software and services firms covered throughout Morningstar and are changing moat ratings, fair value estimates, and increasing uncertainty ratings for a variety of companies.
The bottom line: We upgrade our moat ratings from narrow to wide for CrowdStrike and Cloudflare. We downgrade our moat rating for Tenable from narrow to none. We have not changed the moat ratings for the rest of our cybersecurity coverage.
The changes to our fair value estimates are as follows: CrowdStrike from $410 per share to $460, Cloudflare from $200 to $235, and Tenable from $29 to $23.We raise our Uncertainty Ratings for the following names from High to Very High: Palo Alto, Fortinet, Zscaler, CrowdStrike, and Gen Digital.
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.
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