Palo Alto Networks was on course for its worst day on record after an earnings disappointment.
PANW – Daily Chart
PANW was one of the big gainers in tech with a 115% rise over the last year, but the stock erased its 2024 gains with a near 30% drop on Wednesday. As we noted in the earnings preview, further selling could follow as retail money panics to get out.
Cybersecurity provider Palo Alto has seen demand soar with the growth of the cloud. However, analysts have been placing lofty growth targets on the stock.
Dan Ives at Wedbush was one analyst who upped his price target ahead of the latest earnings release.
“We are raising our price target on PANW to $425 reflecting our solid field checks in the cyber security landscape for the PANW machine and increasing cloud deal momentum heading into 2024. The golden age of cyber security is on the doorstep with PANW front and centre.”
After the company downgraded its forward guidance, the stock dropped to almost half that target.
Analysts like Ives have projected a new “golden age” of AI and cybersecurity. However, as investor Jeremy Grantham said this week, an extended bull market from similar market valuations has never happened.
Ives was scrambling to protect his bullish thesis on Wednesday, saying:
“Last night will go down as a brutal night to forget for the bulls (and us). And while we recognize this stock is in the penalty box, PANW is a core name in the cybersecurity sector to play the emerging cloud and AI trends we see on the horizon”.
“We fully expect many peers to throw in the white towel on Palo Alto this morning as after a Cinderella story the last few years the company now faces some near-term growth challenges”.
This has been the problem with a tech bubble driven by a handful of names or the extended “magnificent seven” stocks. Tesla first showed weakness with slowing demand for EVs, and Palo Alto may be the first of a larger crack in the market. This week’s big story will be the Nvidia earnings, which could create a bigger problem for the tech sector if there is any sign of slower demand at the world’s dominant chipmaker.
