Google buys Wiz for $32bn – what it means for investors

Alphabet’s move to buy Wiz follows a failed attempt last year, likely held back by a tough US regulatory environment.

Under the previous administration, large tech deals often struggled to gain approval. With new leadership now in place, this marks the first major test of whether regulators are becoming more open to big acquisitions.

Wiz is a fast-growing cybersecurity company that helps businesses keep their cloud systems safe. It was founded in 2020 by former Microsoft executives and has quickly attracted some of the biggest companies in the world to use its products.

Wiz’s platform scans cloud systems for potential risks like security gaps or weak spots, helping companies fix issues before they become problems.

The software doesn’t need to be installed, making it easy for large organisations to adopt, and it works across different cloud providers.

For Alphabet, bringing Wiz into the fold would strengthen the security tools it offers through Google Cloud. That’s important because many businesses are moving more of their operations online and need stronger protection against growing cyber threats.

Adding Wiz’s technology could help Google Cloud stand out from its bigger rivals and give customers more reasons to stay and spend. It’s a move that supports Alphabet’s wider push in its growing cloud services arm.

Wiz is expected to generate around $1bn of annual recurring revenue (ARR) next year, which puts the price tag at roughly 30 times ARR. Part of that can be justified by its rapid growth, but it’s a premium valuation compared to its peers which increases risk.

We think the deal makes a lot of sense and will help strengthen Alphabet’s position in the cloud market.

That said, there’s still a significant risk that the deal gets blocked, especially given Alphabet is already under the regulator’s microscope for its Google Search monopoly among other things.

Palo Alto Networks is a leading company in the cybersecurity space, helping businesses protect themselves from online threats.

It offers a platform with a wide range of tools, including protecting company networks, securing data in the cloud, and helping IT teams detect and respond to attacks.

As more companies move their systems online and face more frequent and complex cyberattacks, we think there’s growing demand for easy-to-use, all-in-one security platforms like those Palo Alto provides.

The proof’s in the pudding, with customers in pretty much every large US company you can think of.

Given the importance of security, Palo Alto has a decent amount of pricing power and switching costs are high. The decision to change security provider is not one that’s taken lightly, and that’s an advantage that the large, entrenched, names have.

Selling additional products to existing clients is key, and an area we think Palo Alto can continue to squeeze. Having built out the platform, the next challenge is driving more scale. This involves offering part of the platform for free, while customers transition from legacy providers. This should help drive market share gains, but there will be a short-term revenue hit.

Looking at the numbers, profits are expected to grow at some of the fastest rates in the sector, and earnings are high quality, backed up by plenty of cash. We see scope for double-digit revenue growth and expanding margins over the coming years – of course, there are no guarantees though.

We believe Palo Alto’s reputation, wide range of products, and ability to keep customers coming back puts the company in a good position.

A key risk to keep an eye on is competition.

As we’ve seen with the Alphabet deal, large cloud providers are expanding their own security tools and have deep enough pockets to challenge for market share.