The continued migration of data workloads to the cloud will allow hyperscalers, such as Microsoft (MSFT), to grow their share of the cybersecurity market, according to Morgan Stanley.
Platform vendors, such as Palo Alto Networks (PANW) and CrowdStrike (CRWD), have the best chance to compete, while smaller vendors, such as Okta (OKTA) and Varonis Systems (VRNS), will undergo pressure.
This prompted the financial firm to downgrade Varonis to Equal-weight from Overweight.
“At ~14% of the overall cybersecurity software market (~11% with MSFT alone), with a combined business that has more than tripled in the last 5 years, the hyperscalers combined are the largest cyber vendors in the market today,” said Morgan Stanley analysts, led by Meta Marshall, in a Monday investor report.
Morgan Stanley noted that 47% of workloads are now in the cloud versus 25% three years ago.
“With hyperscalers benefitting from the move of infrastructure further towards the cloud, AI being a catalyst for more workloads to move, and the hunt for more cost-effective solutions within cyber, we would expect the influence of these vendors to continue to grow,” Marshall added. “We do not see the hyperscalers as being best-of-breed vendors by customers, but resellers do note that when CISO organizations report to the CFO, the ‘included’ value proposition is hard to forego.”
The larger cybersecurity platforms, such as Palo Alto, CrowdStrike and Zscaler (ZS) are best positioned against the hyperscalers offering cybersecurity offerings, as they can also appeal to cost efficiency and rank as top names in the industry.
“A combination of more spend moving towards the cloud, cybersecurity remaining a top 3 IT spend market, and a $270bn TAM has made cybersecurity an increasing focus of at least some of the hyperscalers,” Marshall said.
In addition to Microsoft, Google’s (GOOG)(GOOGL) recent acquisition of Wiz, which is expected to close this year, will also allow it to make inroads in the cybersecurity realm. Google also acquired the cybersecurity firm Mandiant in 2022.
“Resellers of Wiz are seeing the pending acquisition impact sales more negatively, particularly if not large GCP customers, but we have heard from existing customers a strong desire to stay with Wiz post the acquisition,” Marshall noted. “Amazon remains the quietest of the three in cybersecurity, largely just offering security products with AWS (AMZN) workloads, but nothing external facing.”