3 reasons why investors keep sending cybersecurity giant Palo Alto Networks to record high after record high

Published Tue, Jan 16 20244:52 PM ESTUpdated Tue, Jan 16 20244:57 PM EST

Palo Alto Networks CEO Nikesh Arora said Tuesday that cybersecurity demand will only intensify in 2024. He cited three reasons that highlight why investors keep pushing the Club stock to record highs. During a CNBC interview at the World Economic Forum's annual meeting in Davos, Switzerland, Arora said that Palo Alto Networks stands to benefit from helping companies securely adopt artificial intelligence and combat the growing threat from emboldened hackers. He also talked about what sets Palo Alto apart from so many other cybersecurity firms. Palo Alto Networks was riding a six-session winning streak, including Tuesday's all-time high above $333 per share. The stock closed above a $100 billion market value for the first time last week. After it became the first cybersecurity stock to breach that threshold intraday late last year, Jim Cramer declared Palo Alto Networks as the "winner and new champion of cybersecurity." PANW YTD mountain Palo Alto Networks (PANW) year-to-date performance When Arora took over as CEO of Palo Alto in June 2018, the stock was around $70 per share. The former Softbank and Google executive has driven tremendous value for Palo Alto shareholders in the 5½ years he's been at the helm. Just a couple of weeks ago, Arora became a billionaire, which is rare for CEOs who are not founders. AI adoption In Davos, Arora told CNBC the AI frenzy presents a big opportunity for Palo Alto. "This is the fastest any technology trend has taken off," he said. "[CEOs] all want to figure out a way of leveraging AI in their business." Palo Alto could see a surge in demand for its offerings because integrating the nascent tech typically opens businesses up to more security vulnerabilities. "I think just about 98% of the CEOs out there are aware of generative AI and would like to see it deployed in some way, shape, or form in their enterprises," Arora said after attending OpenAI co-founder Sam Altman's talk in Davos. "And, guess what? The moment everyone starts to deploy, then they have to make sure that nobody's data is getting stolen." Hacks and breaches Arora also said that increased hacks and cybersecurity threats facing businesses are bound to attract new customers. He said another rise in ransomware payments in 2023 will also bring in new business. "Every year there's about 2,000 companies that get funded in the cybersecurity space. So it's an amazing innovation [pocket]," Arora said, adding that "cybersecurity will be a theme for a while" as society becomes more "technologically dependent." Regardless of the macroeconomic environment, companies still need cybersecurity to protect sensitive data. Among the big companies breached last year were Club cosmetics giant Estee Lauder , consumer products stalwart Clorox , identity management company Okta , MGM Resorts , and Caesars Entertainment . The X factor Arora describes the so-called X factor at Palo Alto as a combination of its massive balance sheet, diverse products and services, a more robust client base, and less cyclical revenue channels. In addition to innovation, Arora said Palo Alto also differentiates itself by purchasing companies to fill in the gaps in its offerings in its pursuit to become a one-stop cybersecurity platform. Late last year, Palo Alto announced plans to buy enterprise browser startup Talon Cyber Security and cloud data specialist Dig Security. "In this industry, we've never had a cybersecurity company that has persisted or been evergreen," Arora said. "So, the strategy we took on five years ago was that we want to be there where every trend shows up. We'll be there early. If we can't build it, we will buy it." Wall Street's go-to cybersecurity stock seems to be Palo Alto as well. Morgan Stanley recently named the firm its top cybersecurity stock, highlighting "multiple growth drivers" for the company. "PANW remains our top security pick, given our confidence in the durability of growth, broader platform adoption, and low expectations with valuation increasingly attractive," the analysts wrote in a research note. (Jim Cramer's Charitable Trust is long PANW, EL. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust's portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

Arora Nikesh, Palo Alto Networks CEO & Chairman at the WEF in Davos, Switzerland on May 23rd, 2022.

Adam Galica | CNBC