Microsoft's hacking revelation could pose a challenge to its $20 billion cybersecurity business, but it's optimistic news for portfolio peer and rival Palo Alto Networks. A Russian intelligence group called Nobelium targeted the email accounts of Microsoft employees, including top executives, starting in November 2023. Microsoft said the attack did not have a significant impact on operations, but the company is continuing to investigate to mitigate any potential risks. Microsoft disclosed the breach to Wall Street in a securities filing late Friday. MSFT 1Y Mountain Microsoft 1 year “The attack was not the result of a vulnerability in any Microsoft products or services,” the tech giant said in a blog post. “So far, there is no evidence that the threat actor had access to customer environments, production systems, source code or AI systems.” Nobelium was the same group that breached state-owned provider SolarWinds in 2020, with all sorts of consequences led. At that time, Microsoft was hacked in connection with the attack. While hacks and security breaches are bitter pills to swallow, Jim Cramer said Monday that Microsoft shares will only be impacted “for a few days between now and then.” [people] Forget it.” Jim acknowledged, however, that the outlook for Microsoft's growing cybersecurity business was not good. Microsoft shares traded slightly lower on Monday, but are up more than 5% since the start of 2024 after rising 56% last year. Microsoft's Cybersecurity The incident doesn't make us any less optimistic about the mega-cap name. The company has strong growth prospects due to its leadership in generative artificial intelligence and its Azure cloud, which more than offset the negative headlines. While its cybersecurity business brings in around $20 billion in annual revenue, Microsoft's revenue rose 7% in 2023 to nearly $212 billion. PANW 1Y Mountain Palo Alto Networks 1 Year But bad news for Microsoft could be good news for Palo Alto Networks — our cybersecurity stock of choice that keeps breaking records one high after another. The market value is well over $100 billion. That's a big deal compared to its peers, but a small deal compared to companies like Microsoft or Apple, whose market caps are close to $3 trillion. In a Sunday note to clients, JPMorgan said the breach “could lead to greater caution about relying too heavily on Microsoft for security.” The analysts said cybersecurity software providers that “Competing with Microsoft in their core markets will benefit,” including Palo Alto Networks. “[Microsoft] has been recognized for improving the effectiveness of its security platform and is benefiting from consolidation as more customers look to control costs and reduce the number of vendors to manage,” analysts explained Risk and we could see that this latest breach at “Raising concerns from customers and partners about the risk associated with Microsoft's own security posture, the effectiveness of its own security technology, and the scale of attacks the company must manage as a highly targeted platform.” During Monday's morning meeting, Jim reiterated that Views of the Street. “Palo Alto was sensational,” he said. “This stock is clearly not finished yet,” rising. After more than doubling in 2023, Palo Alto is on the rise again in 2024. Shares are up about 17% year-to-date. The Securities and Exchange Commission's (SEC) new disclosure rules on cybersecurity attacks could be another catalyst for Palo Alto, Jim added. Companies are required to provide investors with more information about cybersecurity breaches and the measures taken to address them. There could be increased cyber spending in the industry – and resulting demand for Palo Alto's offerings – as companies become even more cautious about protecting their data and systems. During a CNBC interview at the recent World Economic Forum annual meeting in Davos, Switzerland, CEO Nikesh Arora said Palo Alto Networks will benefit by helping companies safely adopt artificial intelligence and combat the growing threat of emboldened hackers. Last year saw breaches involving a who's who of major publicly traded companies, from club name Estee Lauder to Clorox and identity management company Okta to MGM Resorts and Caesars Entertainment. (Jim Cramer's Charitable Trust consists of long positions in MSFT, PANW, AAPL, EL. A full list of stocks can be found here.) As a subscriber to 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 foundation's portfolio. If Jim discussed a stock on CNBC television, he waits 72 hours after the trade alert is issued before executing the trade. THE INVESTING CLUB INFORMATION SET FORTH ABOVE IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY, ALONG WITH OUR DISCLAIMER. THERE ARE NO fiduciary duty or duty IN RECEIVING YOUR INFORMATION PROVIDED IN CONNECTION WITH THE INVESTMENT CLUB. NO SPECIFIC RESULTS OR PROFITS ARE GUARANTEED.
Microsoft CEO Satya Nadella speaks during the OpenAI DevDay event on November 6, 2023 in San Francisco.
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Microsoft's hacking revelation could pose a challenge to its $20 billion cybersecurity business, but it's optimistic news for portfolio peer and competitor Palo Alto Networks.