According to a recent research report from Wall Street financial giant Morgan Stanley, the continued migration of enterprise-level, hyper-scale data workloads to the cloud will further increase the market share of hyperscale cloud service providers like Microsoft (MSFT.US) in the cybersecurity market. This signifies that cloud giants such as Microsoft not only continue to benefit from the unprecedented wave of AI applications and public cloud growth trends but also from the robust demand for "AI + cloud-based cybersecurity service systems" driven by the AI surge. Furthermore, the Morgan Stanley analyst team pointed out that large-scale platform-based cybersecurity vendors like Palo Alto Networks (PANW.US) and CrowdStrike (CRWD.US) are best positioned to engage in intense competition, while smaller-scale cybersecurity service providers such as Okta (OKTA.US) and Varonis Systems (VRNS.US) will face greater pressure, potentially seeing their market shares eroded further. This prompted the Morgan Stanley analyst team to significantly downgrade Varonis's (VRNS.US) stock rating from "Overweight" to "Equal-weight."

Microsoft is not a traditional "pure-play cybersecurity technology leader" like Palo Alto Networks or CrowdStrike. However, the Morgan Stanley analyst team stated that as workloads move to the cloud, security control points naturally reside closer to the cloud computing platform and the operating system/identity platform itself. Consequently, cloud computing giants (i.e., hyperscalers—Microsoft, Google, Amazon) find it easier to "embed and bundle" security capabilities into their cloud and productivity suites, leading to a passive increase in their market share. In this research report, Morgan Stanley directly identifies cloud computing hyperscalers as the "largest group of cybersecurity suppliers in the current market," providing a new statistic: they collectively account for approximately 14% of the cybersecurity software platform market (with Microsoft alone holding about 11%), and their combined cybersecurity business scale has expanded significantly over the past five years. The report also notes that the proportion of cloud workloads has increased from about 25% three years ago to approximately 47%.

The super boom of the AI trend—cybersecurity remains a top priority. As the world enters a new AI era led by ChatGPT, the cybersecurity market maintains strong growth momentum. Global enterprises, especially US tech giants, are steadily increasing their investments in the cybersecurity domain, driven by multiple factors. Cybersecurity services empowered by new generative AI technology offer unparalleled convenience due to low technical barriers and exponential efficiency improvements brought by AI. These two aspects are highly attractive to enterprises deploying AI software applications. Developing AI software applications relies on two core technologies: large AI models and enterprise-level big data. "AI + cybersecurity services," focusing on low technical barriers and high efficiency, will undoubtedly provide stronger security protection for these two technologies. The Morgan Stanley analyst team stated that "AI + cybersecurity" has become a new main investment theme in the cybersecurity industry, with AI profoundly impacting the cybersecurity landscape: on one hand, AI expands risks and threats, and on the other, it spawns new cybersecurity technology demands and cutting-edge, low-barrier cybersecurity solutions that integrate AI. As more cybersecurity leaders focus on the "AI + cybersecurity" model, it is expected to further elevate the status of cybersecurity options in enterprise IT spending and reshape the investment logic for tech stocks.

In an investor report released on Monday, a team of senior Morgan Stanley analysts led by Meta Marshall stated: "Hyperscale cloud service providers collectively already account for approximately 14% of the overall cybersecurity software market share (with Microsoft alone representing about 11%); moreover, the scale of their combined cybersecurity business lines has more than tripled over the past five years, making hyperscale cloud service providers collectively the largest group of cybersecurity suppliers in the market today." Larger cybersecurity platform vendors, such as Palo Alto, CrowdStrike, and Zscaler (ZS.US), are in the best position to compete against the cybersecurity products offered by hyperscale cloud providers because they can also leverage cost efficiency and convenient, low technical barriers, and their reputations rank highly within the industry. Citing the latest enterprise survey data, Marshall and other Morgan Stanley analysts said: "The larger-scale shift of spending towards AI technology-based platforms in the cloud, cybersecurity remaining one of the top three IT spending markets globally, and a vast Total Addressable Market (TAM) of $270 billion make the cybersecurity domain an area of increasing focus for the vast majority of hyperscale cloud service providers. Deep collaboration with large cybersecurity platforms is not ruled out, making it a crucial technological field under the AI trend."

Beyond Microsoft, another cloud computing leader, Google (GOOGL.US), recently initiated a large-scale acquisition of Wiz—expected to be completed this year—which will also give it a breakthrough in the cybersecurity field. Google had previously acquired cybersecurity firm Mandiant in 2022. Analysts including Marshall noted: "Some of Wiz's channel resellers believe the pending acquisition has a more negative impact on sales, especially for clients who are not large Google GCP customers; however, we also hear very strong intent from existing customers who are eager to continue using Wiz post-acquisition." The Morgan Stanley analyst team also stated: "In terms of cybersecurity, Amazon is arguably the most low-profile among the three 'cloud computing super giants,' primarily offering security products focused on workloads on its massive Amazon AWS cloud platform, but without external product deployments."

Microsoft continues to lead the global AI wave and cybersecurity surge. Morgan Stanley pointed out that 47% of workloads are now in the cloud, compared to just 25% three years ago. The Marshall analyst team added: "As hyperscalers benefit from the further migration of infrastructure to the cloud, AI acts as a catalyst for moving more workloads to the cloud, and the cybersecurity domain seeks more cost-effective 'AI+ solutions,' we expect the influence of these platform providers to continue growing. We don't believe large customers view hyperscale cloud providers as 'best-in-breed' suppliers, but channel resellers do mention that when the CISO organization reports to the CFO, the 'included' cloud value proposition is hard to pass up." Morgan Stanley stated that the "'embedded, included' budget advantage" is one of the biggest advantages for cloud giants like Microsoft and Google compared to platform-based cybersecurity vendors. For example, enterprises migrating to the cloud or adopting M365 are often already purchasing licenses or cloud services; Microsoft bundles identity, endpoint, email, cloud security, SIEM, etc., into suites (or with deep discounts). In organizations where the "CISO reports to the CFO," the "already included/lower marginal cost" value proposition is difficult to refuse—this is one of the advantageous mechanisms emphasized in Morgan Stanley's report. Furthermore, for large customers of the Microsoft cloud platform, the concentration of both control plane and data plane within the Microsoft cloud ecosystem means that after migrating to Azure/M365, identity (Entra), endpoint (Defender), logs, and detection/response (Sentinel/Defender portal) are easier to achieve with "default access, unified governance, and automated orchestration," resulting in lower deployment, operational friction, or one-click deployment costs.

Microsoft will also continue to dominate the global AI application superwave and public cloud trend. A recent research report from BNP Paribas shows that as the AI application wave continues to make waves among global enterprises, the world's core super cloud computing giants, including Microsoft and Google, will continue to dominate the software market in the field of AI applications. Analysts from BNP Paribas reiterated an "Outperform" rating on Microsoft stock and maintained a target price of $632. As of the close of trading last Friday, Microsoft's stock price was $465.90. As super cloud computing giants are poised to dominate the AI era, BNP Paribas favors Microsoft over traditional cloud software leaders, believing that AI application and public cloud spending will increasingly tilt towards large-scale cloud service providers. The latest enterprise surveys indicate that companies are generally more cautious regarding IT spending related to traditional cloud software companies. The enterprise survey report cited by BNP Paribas pointed out that platforms like Microsoft, Amazon AWS, and Google GCP, as primary enablers of AI applications and cloud infrastructure, still score highly in enterprise software spending surveys, indicating more resilient spending by enterprise customers on these platforms and a more optimistic order growth intention. The report accurately describes that ServiceNow and SAP have relatively solid fundamentals and improving demand. However, BNP Paribas's wording regarding their future outlook is not as positively growth-oriented as it is for the cloud giants. Furthermore, a significant downward revision of ServiceNow's target price shows more cautious pricing for risk assets, with some cloud-native/monitoring companies even showing weak trends.