By Sam Boughedda
Goldman Sachs analysts initiated coverage of various security software stocks on Tuesday, with Buy ratings on Crowdstrike Holdings Inc (NASDAQ:CRWD), Check Point Software Technologies (NASDAQ:CHKP), Fortinet (NASDAQ:FTNT) and Palo Alto Networks (NASDAQ:PANW), Neutral ratings on SentinelOne (NYSE:S), Zscaler (NASDAQ:ZS), and AvePoint (NASDAQ:AVPT), and Sell ratings on Cloudflare (NYSE:NET) and Okta (NASDAQ:OKTA).
Analysts told investors in a research note that Goldman Sachs sees several industry dynamics that are favorable for long-term investors, including multi-product platforms gaining momentum, the industry being less cyclical, natural extensions for growth for industry incumbents, machine learning applications likely maturing further, and unit economics outperforming broader software.
"Multi-product platforms have gained momentum and are closer to solving the challenge of staying innovative in subsegments historically defined by boom and bust product cycles," wrote analysts.
"There are natural extensions for growth for industry incumbents (that would otherwise be facing TAM saturation), including secure access service edge (SASE) for network security leaders, and cloud workload protection platforms (CWPP) for endpoint leaders," the analysts added. "These TAM expansion opportunities lead to a more benign competitive environment, as a rising tide lifts many boats."
Analysts concluded that against these longer-term positives, Goldman Sachs expects to see a more muted demand environment in 2023, with their analysis suggesting the security sector is later cycle.