The stock market has given back a bit of ground in August, as investors have taken a pause from the huge bullish bounce that carried major benchmarks sharply higher in the first half of the year. Plenty of worries remain to weigh on investor sentiment, but in general, people seem to have a more upbeat view of what the future will bring in the long run, and that has thus far prevented the August pullback from being more than just a normal correction.
Moreover, some positive news helped stock markets open the new week higher on Monday morning. Gains were modest, but a pair of tech stocks helped to make investors more optimistic. Here's a look at why Palo Alto Networks (PANW 6.73%) and VMware (VMW +0.00%) are contributing to the market's gains early Monday.
Palo Alto finishes off the week on a high note
Palo Alto Networks stock climbed 12% just after the open on Monday morning. Most companies don't release their financial reports on a Friday afternoon, but Palo Alto did, and its results had investors talking about the cybersecurity company throughout the weekend.
Palo Alto's fiscal fourth-quarter financial results for the period ended July 31 showed strong sales growth and a stellar commitment to profitability. The tech company's revenue in the quarter came in at $1.95 billion, up 26% year over year. That closed a year of 25% growth in fiscal 2023. Adjusted net income came close to doubling from year-ago levels, and adjusted earnings of $1.44 per share were better than most investors had anticipated seeing.
NASDAQ: PANW
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CEO Nikesh Arora pointed to several factors supporting Palo Alto's strong results. Remaining performance obligations climbed sharply, showing that clients continue to have high demand for cybersecurity solutions even as they look to pull back on IT spending in other areas. Moreover, Palo Alto has recently come out with an artificial intelligence (AI)-based security automation platform called XSIAM, and Arora said that customers have responded favorably to its release, helping to boost recurring revenue from subscription sales.
Palo Alto's guidance suggested slower growth ahead, with fiscal 2024 projections for between $8.15 billion and $8.2 billion in revenue representing gains of just 18% to 19%. Earnings of $5.27 to $5.40 per share would imply a similar retreat to a roughly 20% growth rate, but investors seem comfortable that Palo Alto might be underplaying its strong hand even in what has been a challenging environment for many tech companies.
Broadcom hopes to get VMware deal done
Elsewhere in tech, shares of VMware were up 5% early Monday. The virtual hardware specialist got good news from regulators evaluating its potential acquisition by Broadcom (AVGO +4.69%), and it looks as though some of the last obstacles to the deal going through are finally starting to disappear.
Early Monday, Broadcom released a report on the status of its VMware acquisition, saying that it had received final approval of the deal from the U.K. Competition and Markets Authority. That added to the growing list of jurisdictions that have approved the merger, including the European Union. As a result, Broadcom believes that the deal will close on Oct. 30 as previously expected.
NYSE: VMW
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However, the deal isn't done yet. Although the pre-merger waiting period for U.S. consideration under the Hart-Scott-Rodino Act has expired, some still believe that regulators could make some kind of aggressive push similar to what they've done with other tech companies recently. Also, China could have problems with the $61 billion deal, particularly if the Chinese government wants to make it part of the political wrangling it has had with the U.S. recently.
Investors have seen the acquisition of VMware as a huge potential positive for Broadcom. Given the need to keep growing as AI and other initiatives gain momentum, shareholders in both companies are hopeful that the deal will go through on schedule.
