S&P 500 software stocks have been hammered recently. It seems investors are worried that new AI tools from the likes of Anthropic and OpenAI are going to crush a lot of businesses.
What’s interesting is that late last month, the CEO of a well-known S&P 500 software company put his hand in his pocket and bought $10m worth of shares in his own company. This suggests that the insider believes AI fears are overblown and that his company’s stock – which is around 30% off its highs – is currently offering significant value.
A massive insider purchase
The company I’m talking about is Palo Alto Networks (NASDAQ: PANW). It’s one of the largest cybersecurity businesses in the world.
Founded in 2005, it’s led by Nikesh Arora today. He joined the business in 2018 and since then, has overseen significant top-line growth and a five-fold increase in the share price (despite a recent pullback from $220 to $160).
Now, when cybersecurity stocks plummeted in late March amid news that Anthropic is developing an extremely powerful new model called ‘Claude Mythos’, Arora stepped up to buy Palo Alto Network shares. And he didn’t just dabble – he purchased 68,085 shares for around $147 apiece in a trade worth about $10m.
This insider transaction activity is notable, in my view. Not only is Arora a top-tier insider (few people are likely to have a better understanding of the industry and Palo Alto’s growth prospects than him) but he’s backed the truck up and bought a ton of shares.
A one-stop shop for cybersecurity
Under Arora, Palo Alto is shifting to what it calls a ‘plaformisation’ model. This approach integrates a range of different cybersecurity solutions into a unified, scalable platform so that customers can obtain comprehensive protection via one provider.
So far, the company is having a lot of success with this model. Last quarter, for example, annual recurring revenue (ARR) in its ‘next generation security’ segment was up 33% year on year to $6.3bn.
Note that to enhance its offering, Palo Alto is currently buying up companies that specialise in providing protection from sophisticated AI threats. For instance, it recently announced the purchase of Koi, which helps companies depend against nefarious AI agents.
Other recent acquisitions include CyberArk and Chronosphere. Buying these kinds of companies should enhance its offering significantly.
An opportunity?
Investors should note that while this business model sounds robust, artificial intelligence is a risk. yet I’m not convinced that large-scale businesses will try to build cybersecurity solutions themselves using AI as the risks are too high.
Where AI could potentially hurt the company is the complexity of threats, however. For example, Claude’s new model could lead to higher attack complexity and higher costs to defend against them (and therefore lower profitability).
The fact that the CEO has purchased $10m worth of stock is a statement of confidence from management though. He clearly believes that the company can continue to have success in the AI era.
Given the size of the buy, I think this stock is worth a closer look. After all, insiders only buy company shares for one reason – they expect them to go up in value.
