We recently published a list of 7 Best Software Infrastructure Stocks To Invest In Now. In this article, we are going to take a look at where Palo Alto Networks Inc (NASDAQ:PANW) stands against the other best software infrastructure stocks to invest in now.
Technology drives nearly every facet of modern businesses, from individual tasks to overall operations, goods, and services. When integrated effectively, it enhances communication, boosts efficiency, and increases productivity. Both tech and non-tech companies rely on software infrastructure and solutions to keep their operations running smoothly. To that end, these companies invest heavily in servers, cloud migration, network monitoring and management, and communication tools—all crucial components of software infrastructure.
One of the largest segments of the software infrastructure market is the cloud infrastructure industry. As businesses increasingly adopt cloud solutions to reduce costs and enhance efficiency, the demand for these services continues to grow. According to Synergy Research Group, global enterprise spending on cloud infrastructure services reached $79 billion in the second quarter, marking a $14.1 billion or 22% increase from the same period in 2023. This represents the third consecutive quarter of substantial growth, with year-over-year increases exceeding 20%.
Specifically, Software-as-a-Service (SaaS) emerged as a rapidly growing segment within the cloud infrastructure industry. Leading companies like Salesforce offer powerful functionalities through subscription-based models delivered over the web. This approach provides lower upfront costs, easy deployment, and ongoing updates, making advanced tools accessible to businesses of all sizes. In the SaaS model, providers grant customers access to application software and databases via the cloud. In 2023, the global SaaS market generated around $197 billion in revenue, representing nearly two-thirds of the total public cloud services market. Although SaaS revenue is projected to keep growing, its share of the overall cloud services market may decrease as cloud platform and infrastructure services expand.
Meanwhile, IT leaders are turning to tech consolidation in response to global economic challenges like inflation, recession, and supply chain disruptions, as well as the need to reduce costs while modernizing IT infrastructure. Gartner predicted that global IT spending would reach around $5.26 trillion in 2024, an increase of 7.5% from 2023. However, rapid expansion in technology investments can lead to tech sprawl, with new tools often lacking compatibility. According to a report from Zylo, organizations have wasted an average of $18 million this year alone due to inefficient SaaS management.
On another front, cybersecurity emerged as a critical component of software infrastructure, with spending surging since the onset of the COVID-19 pandemic. As cloud computing and remote work have become integral to business operations, organizations have encountered new security challenges. According to the Identity Theft Resource Center, the number of data breaches reached an all-time high in 2023, increasing by 71% from the previous record set in 2021 and up 78% from a slight dip in 2022. Given these trends, it’s no surprise that global cybersecurity spending was expected to surpass $200 billion in 2023—an increase of approximately 12% from 2022.
Our Methodology
In this article, we used a stock screener to identify tech companies that provide various forms of software infrastructure and/or are actively engaged in the industry. From that list, we selected the top 7 companies with the highest number of hedge fund investors, according to Insider Monkey’s database of 912 hedge funds as of the end of Q2 2024.
Why do we care about what hedge funds do? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A cutting-edge computer lab full of IT experts monitoring the security of multiple systems.
Palo Alto Networks Inc (NASDAQ:PANW)
Number of Hedge Fund Holders: 66
Palo Alto Networks, Inc. (NASDAQ:PANW) is a leading cybersecurity firm offering a range of solutions, including firewalls, malware protection, and cloud security.
TD Cowen recently reiterated its Buy rating on Palo Alto Networks, Inc. (NASDAQ:PANW) shares, setting a price target of $400. This endorsement came after discussions with Walter Pritchard, the company’s Senior Vice President of Investor Relations and Corporate Development. The firm believes that demand for cybersecurity remains strong and that Palo Alto Networks’ focus on its platform strategy will drive significant revenue growth. Simplifying the purchasing process is expected to accelerate the company’s ambitious goal of achieving $15 billion in Next-Generation Security (NGS) Annual Recurring Revenue (ARR) by 2030.
In a strategic move to enhance its cybersecurity offerings, Palo Alto Networks recently acquired IBM’s QRadar SaaS assets. This acquisition will allow QRadar customers to transition to Palo Alto Networks’ Cortex XSIAM platform, which leverages Precision AI to bolster security capabilities.
At the end of the second quarter, 66 hedge funds in Insider Monkey’s database held positions in Palo Alto Networks, Inc. (NASDAQ:PANW). Citadel Investment Group was the largest shareholder, owning 2.84 million shares in the company.
TimesSquare Capital Management U.S. Focus Growth Strategy stated the following regarding Palo Alto Networks, Inc. (NASDAQ:PANW) in its Q2 2024 investor letter:
“Our cybersecurity holdings were also beneficial to the strategy this quarter. The global provider of network and cloud-based cybersecurity systems, Palo Alto Networks, Inc. (NASDAQ:PANW), chipped in with a 19% return. Its revenues and earnings were higher than anticipated as Palo Alto shifted its marketing strategy to emphasize larger platform contracts.”
Overall PANW ranks 4th on our list of best software infrastructure stocks to invest in now. While we acknowledge the potential of PANW as an investment, we believe that certain AI stocks hold promise for delivering high returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than PANW but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: $30 Trillion Opportunity: 15 Best Humanoid Robot Stocks to Buy According to Morgan Stanley and Jim Cramer Says NVIDIA ‘Has Become A Wasteland’.
Disclosure: None. This article is originally published at Insider Monkey.
