Not just AI! Microsoft's business "hides" a trillion-dollar opportunity

According to Zhītōng Finance, investors' attention on Microsoft (MSFT.US) is currently mainly focused on its cloud computing prospects and generative artificial intelligence products. However, according to investment firm KeyBanc Capital Markets, while this tech giant has other growth drivers such as devices, video games, etc., cybersecurity is an increasingly important area of focus.

Analyst Jackson Ader from the firm wrote in a report to clients that all of Microsoft's cybersecurity products combined are worth $100 billion. Ader stated that by 2027, their security business could contribute 1% to 1.5% of growth, but if Microsoft can "maintain market share" (as it has been doing in recent years), in some years during the same period, growth contributions could exceed 2%.

If market share continues to grow, cybersecurity revenue could double between 2023 and 2027. Research and analytics company Gartner estimates that Microsoft's cybersecurity market share grew by 0.9% in two years. Ader wrote: "If this pace continues over the next two years and then starts to slightly decline (which is our bullish case), we estimate that Microsoft's security-based revenue will exceed $39 billion in 2027, more than double the $19 billion in 2023."

Microsoft Cloud Business Layout: Six Products, Three Key Areas

Microsoft categorizes its security products into six product series and three key areas. The six products are: Defender, Sentinel, Entra, Purview, Priva, and Intune, each offering different functionalities and solutions, from physical firewalls to new products like secure access services. The three key areas are: identity security, endpoint security, and cloud security.

The current products generate over $20 billion in revenue annually. However, Ader suggests that there is an expected growth of around 15% in the coming years, potentially bringing an additional $10 billion in sales by 2027. While some security products are included in Office 365 subscriptions (depending on the license level or adjustments), there are additional opportunities to upsell advanced features like Defender and XDR.

Ader notes that among these six areas, Entra (formerly known as Active Directory) and Defender are two key strategic areas due to their installation base scale and the issues customers face in their daily usage.

Entra is the product group for all identity and network access solutions, including user authentication, permissions, access control, etc.; it has been widely adopted as its protocols require multi-factor authentication and identity governance solutions, adding another layer of security on top of Entra ID. Microsoft Defender has many features, including Defender for XDR (integrated protection product suite), Defender for Cloud (cloud protection), DevOps security operations solutions, etc Ader wrote in an investor report: "Visiting management has been a highlight of the past ten years in response to the disruption from Okta (OKTA.US); and thanks to Defender, we believe Microsoft will lead in endpoint security management, especially in AI capabilities for detection and response."

Next is Microsoft's Purview, a data management solution that helps companies with data security, data governance, risk, and compliance. Microsoft Priva is the next area, allowing companies to manage their data environment. Features include automatic privacy assessments, privacy risk management, company website tracking scans, consent management, and subject rights requests, making it easier for companies to respond to and meet individuals' requests for personal data collected from them.

Microsoft Intune is a cloud-based endpoint management solution responsible for managing user access to organizational resources and device management (mobile, desktop, virtual endpoints).

Equally important is AI security. As security threats become increasingly complex, response measures need to keep pace, and the role of AI in cybersecurity is growing. In April of this year, Microsoft launched the "Copilot for Security" solution, allowing enterprises to ask questions about incident response, threat hunting, intelligence, and more