$PANW: Cyber-Security Benefits Off Russian Hacks

Investment Analysis Clubs Destiny Solutions Corporation
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Barron’s Headline: Russian Cyberattack Risks Are Growing. This Stock Will Benefit.
By Jack Hough
Updated March 22, 2022 / Original March 18, 2022

As the Russian economy crumbles, state-linked hackers are likely to shift from ransomware crimes to attacks meant to maximize destruction and societal upheaval, the CEO of a top cybersecurity company tells me. Yes, that’s a bit like an umbrella salesman saying it’s getting cloudy. But in this case, the clouds really are dark gray rumblers, and more to the point for investors, umbrella sales are shooting higher.

This was already happening, of course. The rise of cloud computing ballooned the number of devices linked to company and government networks—the “attack surface,” as cybercops call it. The pandemic turned homes into millions of new worksites. Not all workers were the picture of digital hygiene—if mine were bodily hygiene, I fear I’d have been the guy who gets his own car on the train. I’m working on it, and meanwhile, cybersecurity spending will rise to $172 billion this year from $155 billion last year and $137 billion the year before, according to tech researcher Gartner.

Palo Alto Networks (ticker: PANW) is growing much faster than that: Revenue increased 30% in its most recent quarter. Four years ago, the company was best known for its advanced firewall—a system that monitors and controls data traffic. It hired Nikesh Arora as CEO, who brought business and deal-making savvy from his past work at Google and SoftBank Group , but not much cybersecurity experience. His assessment was that the industry had too many companies selling too many tools, and that analysts at customers’ security operations centers, or SOCs, were spending too much time handling routine alerts.

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As for the Russia threat, Arora says that in the past few weeks he has seen companies that have spoken out about the war in Ukraine face significant DDoS or distributed denial-of-service attacks. Those are designed to overwhelm networks with a flood of traffic. “My fear is that [it] expands as things become desperate for some people,” he says.

Even before the Ukraine invasion, at an investor meeting last September, Palo Alto said that cyber incidents from nation states had doubled in a year, to an average of more than 10 attacks a month. Russian intelligence was linked to a 2016 hack of Democratic National Committee emails; to a 2018 attack on key U.S. infrastructure; and to the SolarWinds breach in 2020. Russia has denied involvement.

That last one was what’s known as a supply-chain attack, which targets a network’s trusted third parties, in this case, a software tool made by SolarWinds. Palo Alto says it caught the attack early, but not everyone did. The hackers infiltrated key government agencies, including Homeland Security and Treasury. Asked for an example of future threats, Arora points to the Colonial Pipeline ransomware shutdown last year, and says to think about the “repercussions if a financial organization was not able to settle trades for three days or more.”