>> From the Cube Studios in Palo Alto in Boston bringing you data-driven insights from the Cube and ETR. This is Breaking Analysis with Dave Vellante. >> The unraveling of market enthusiasm continued in Q4 of 2022 with the earnings reports from the US hyperscalers, the big three now all in. As we said earlier this year, even the cloud is an immune from the macro headwinds and the cracks in the armor that we saw from the data that we shared last summer, they're playing out into 2023. For the most part actuals are disappointing beyond expectations including our own. It turns out that our estimates for the big three hyperscaler's revenue missed by 1.2 billion or 2.7% lower than we had forecast from even our most recent November estimates. And we expect continued decelerating growth rates for the hyperscalers through the summer of 2023 and we don't think that's going to abate until comparisons get easier. Hello and welcome to this week's Wikibon Cube Insights powered by ETR. In this Breaking Analysis, we share our view of what's happening in cloud markets not just for the hyperscalers but other firms that have hitched a ride on the cloud. And we'll share new ETR data that shows why these trends are playing out tactics that customers are employing to deal with their cost challenges and how long the pain is likely to last. You know, riding the cloud wave, it's a two-edged sword. Let's look at the players that have gone all in on or are exposed to both the positive and negative trends of cloud. Look the cloud has been a huge tailwind for so many companies like Snowflake and Databricks, Workday, Salesforce, Mongo's move with Atlas, Red Hats Cloud strategy with OpenShift and so forth. And you know, the flip side is because cloud is elastic what comes up can also go down very easily. Here's an XY graphic from ETR that shows spending momentum or net score on the vertical axis and market presence in the dataset on the horizontal axis provision or called overlap. This is data from the January 2023 survey and that the red dotted lines show the positions of several companies that we've highlighted going back to January 2021. So let's unpack this for a bit starting with the big three hyperscalers. The first point is AWS and Azure continue to solidify their moat relative to Google Cloud platform. And we're going to get into this in a moment, but Azure and AWS revenues are five to six times that of GCP for IaaS. And at those deltas, Google should be gaining ground much faster than the big two. The second point on Google is notice the red line on GCP relative to its starting point. While it appears to be gaining ground on the horizontal axis, its net score is now below that of AWS and Azure in the survey. So despite its significantly smaller size it's just not keeping pace with the leaders in terms of market momentum. Now looking at AWS and Microsoft, what we see is basically AWS is holding serve. As we know both Google and Microsoft benefit from including SaaS in their cloud numbers. So the fact that AWS hasn't seen a huge downward momentum relative to a January 2021 position is one positive in the data. And both companies are well above that magic 40% line on the Y-axis, anything above 40% we consider to be highly elevated. But the fact remains that they're down as are most of the names on this chart. So let's take a closer look. I want to start with Snowflake and Databricks. Snowflake, as we reported from several quarters back came down to Earth, it was up in the 80% range in the Y-axis here. And it's still highly elevated in the 60% range and it continues to move to the right, which is positive but as we'll address in a moment it's customers can dial down consumption just as in any cloud. Now, Databricks is really interesting. It's not a public company, it never made it to IPO during the sort of tech bubble. So we don't have the same level of transparency that we do with other companies that did make it through. But look at how much more prominent it is on the X-axis relative to January 2021. And it's net score is basically held up over that period of time. So that's a real positive for Databricks. Next, look at Workday and Salesforce. They've held up relatively well, both inching to the right and generally holding their net scores. Same from Mongo, which is the brown dot above its name that says Elastic, it says a little gets a little crowded which Elastic's actually the blue dot above it. But generally, SaaS is harder to dial down, Workday, Salesforce, Oracles, SaaS and others. So it's harder to dial down because commitments have been made in advance, they're kind of locked in. Now, one of the discussions from last summer was as Mongo, less discretionary than analytics i.e. Snowflake. And it's an interesting debate but maybe Snowflake customers, you know, they're also generally committed to a dollar amount. So over time the spending is going to be there. But in the short term, yeah maybe Snowflake customers can dial down. Now that highlighted dotted red line, that bolded one is Datadog and you can see it's made major strides on the X-axis but its net score has decelerated quite dramatically. Openshift's momentum in the survey has dropped although IBM just announced that OpenShift has a a billion dollar ARR and I suspect what's happening there is IBM consulting is bundling OpenShift into its modernization projects. It's got a, that sort of captive base if you will. And as such it's probably not as top of mind to the respondents but I'll bet you the developers are certainly aware of it. Now the other really notable call out here is CloudFlare, We've reported on them earlier. Cloudflare's net score has held up really well since January of 2021. It really hasn't seen the downdraft of some of these others, but it's making major major moves to the right gaining market presence. We really like how CloudFlare is performing. And the last comment is on Oracle which as you can see, despite its much, much lower net score continues to gain ground in the market and thrive from a profitability standpoint. But the data pretty clearly shows that there's a downdraft in the market. Okay, so what's happening here? Let's dig deeper into this data. Here's a graphic from the most recent ETR drill down asking customers that said they were going to cut spending what technique they're using to do so. Now, as we've previously reported, consolidating redundant vendors is by far the most cited approach but there's two key points we want to make here. One is reducing excess cloud resources. As you can see in the bars is the second most cited technique and it's up from the previous polling period. The second we're not showing, you know directly but we've got some red call outs there. Reducing cloud costs jumps to 29% and 28% respectively in financial services and tech telco. And it's much closer to second. It's basically neck and neck with consolidating redundant vendors in those two industries. So they're being really aggressive about optimizing cloud cost. Okay, so as we said, cloud is great 'cause you can dial it up but it's just as easy to dial down. We've identified six factors that customers tell us are affecting their cloud consumption and there are probably more, if you got more we'd love to hear them but these are the ones that are fairly prominent that have hit our radar. First, rising mortgage rates mean banks are processing fewer loans means less cloud. The crypto crash means less trading activity and that means less cloud resources. Third lower ad spend has led companies to reduce not only you know, their ad buying but also their frequency of running their analytics and their calculations. And they're also often using less data, maybe compressing the timeframe of the corpus down to a shorter time period. Also very prominent is down to the bottom left, using lower cost compute instances. For example, Graviton from AWS or AMD chips and tiering storage to cheaper S3 or deep archived tiers. And finally, optimizing based on better pricing plans. So customers are moving from, you know, smaller companies in particular moving maybe from on demand or other larger companies that are experimenting using on demand or they're moving to spot pricing or reserved instances or optimized savings plans. That all lowers cost and that means less cloud resource consumption and less cloud revenue. Now in the days when everything was on prem CFOs, what would they do? They would freeze CapEx and IT Pros would have to try to do more with less and often that meant a lot of manual tasks. With the cloud it's much easier to move things around. It still takes some thinking and some effort but it's dramatically simpler to do so. So you can get those savings a lot faster. Now of course the other huge factor is you can cut or you can freeze. And this graphic shows data from a recent ETR survey with 159 respondents and you can see the meaningful uptick in hiring freezes, freezing new IT deployments and layoffs. And as we've been reporting, this has been trending up since earlier last year. And note the call out, this is especially prominent in retail sectors, all three of these techniques jump up in retail and that's a bit of a concern because oftentimes consumer spending helps the economy make a softer landing out of a pullback. But this is a potential canary in the coal mine. If retail firms are pulling back it's because consumers aren't spending as much. And so we're keeping a close eye on that. So let's boil this down to the market data and what this all means. So in this graphic we show our estimates for Q4 IaaS revenues compared to the "actual" IaaS revenues. And we say quote because AWS is the only one that reports, you know clean revenue and IaaS, Azure and GCP don't report actuals. Why would they? Because it would make them look even, you know smaller relative to AWS. Rather, they bury the figures in overall cloud which includes their, you know G-Suite for Google and all the Microsoft SaaS. And then they give us little tidbits about in Microsoft's case, Azure, they give growth rates. Google gives kind of relative growth of GCP. So, and we use survey data and you know, other data to try to really pinpoint and we've been covering this for, I don't know, five or six years ever since the cloud really became a thing. But looking at the data, we had AWS growing at 25% this quarter and it came in at 20%. So a significant decline relative to our expectations. AWS announced that it exited December, actually, sorry it's January data showed about a 15% mid-teens growth rate. So that's, you know, something we're watching. Azure was two points off our forecast coming in at 38% growth. It said it exited December in the 35% growth range and it said that it's expecting five points of deceleration off of that. So think 30% for Azure. GCP came in three points off our expectation coming in 35% and Alibaba has yet to report but we've shaved a bid off that forecast based on some survey data and you know what maybe 9% is even still not enough. Now for the year, the big four hyperscalers generated almost 160 billion of revenue, but that was 7 billion lower than what what we expected coming into 2022. For 2023, we're expecting 21% growth for a total of 193.3 billion. And while it's, you know, lower, you know, significantly lower than historical expectations it's still four to five times the overall spending forecast that we just shared with you in our predictions post of between 4 and 5% for the overall market. We think AWS is going to come in in around 93 billion this year with Azure closing in at over 71 billion. This is, again, we're talking IaaS here. Now, despite Amazon focusing investors on the fact that AWS's absolute dollar growth is still larger than its competitors. By our estimates Azure will come in at more than 75% of AWS's forecasted revenue. That's a significant milestone. AWS is operating margins by the way declined significantly this past quarter, dropping from 30% of revenue to 24%, 30% the year earlier to 24%. Now that's still extremely healthy and we've seen wild fluctuations like this before so I don't get too freaked out about that. But I'll say this, Microsoft has a marginal cost advantage relative to AWS because one, it has a captive cloud on which to run its massive software estate. So it can just throw software at its own cloud and two software marginal costs. Marginal economics despite AWS's awesomeness in high degrees of automation, software is just a better business. Now the upshot for AWS is the ecosystem. AWS is essentially in our view positioning very smartly as a platform for data partners like Snowflake and Databricks, security partners like CrowdStrike and Okta and Palo Alto and many others and SaaS companies. You know, Microsoft is more competitive even though AWS does have competitive products. Now of course Amazon's competitive to retail companies so that's another factor but generally speaking for tech players, Amazon is a really thriving ecosystem that is a secret weapon in our view. AWS happy to spin the meter with its partners even though it sells competitive products, you know, more so in our view than other cloud players. Microsoft, of course is, don't forget is hyping now, we're hearing a lot OpenAI and ChatGPT we reported last week in our predictions post. How OpenAI is shot up in terms of market sentiment in ETR's emerging technology company surveys and people are moving to Azure to get OpenAI and get ChatGPT that is a an interesting lever. Amazon in our view has to have a response. They have lots of AI and they're going to have to make some moves there. Meanwhile, Google is emphasizing itself as an AI first company. In fact, Google spent at least five minutes of continuous dialogue, nonstop on its AI chops during its latest earnings call. So that's an area that we're watching very closely as the buzz around large language models continues. All right, let's wrap up with some assumptions for 2023. We think SaaS players are going to continue to be sticky. They're going to be somewhat insulated from all these downdrafts because they're so tied in and customers, you know they make the commitment up front, you've got the lock in. Now having said that, we do expect some backlash over time on the onerous and generally customer unfriendly pricing models of most large SaaS companies. But that's going to play out over a longer period of time. Now for cloud generally and the hyperscalers specifically we do expect accelerating growth rates into Q3 but the amplitude of the demand swings from this rubber band economy, we expect to continue to compress and become more predictable throughout the year. Estimates are coming down, CEOs we think are going to be more cautious when the market snaps back more cautious about hiring and spending and as such a perhaps we expect a more orderly return to growth which we think will slightly accelerate in Q4 as comps get easier. Now of course the big risk to these scenarios is of course the economy, the FED, consumer spending, inflation, supply chain, energy prices, wars, geopolitics, China relations, you know, all the usual stuff. But as always with our partners at ETR and the Cube community, we're here for you. We have the data and we'll be the first to report when we see a change at the margin. Okay, that's a wrap for today. I want to thank Alex Morrison who's on production and manages the podcast, Ken Schiffman as well out of our Boston studio getting this up on LinkedIn Live. Thank you for that. Kristen Martin also and Cheryl Knight help get the word out on social media and in our newsletters. And Rob Hof is our Editor-in-Chief over at siliconangle.com. He does some great editing for us. Thank you all. Remember all these episodes are available as podcast. Wherever you listen, just search Breaking Analysis podcast. I publish each week on wikibon.com, at siliconangle.com where you can see all the data and you want to get in touch. Just all you can do is email me david.vellante@siliconangle.com or DM me @dvellante if you if you got something interesting, I'll respond. If you don't, it's either 'cause I'm swamped or it's just not tickling me. You can comment on our LinkedIn post as well. And please check out ETR.ai for the best survey data in the enterprise tech business. This is Dave Vellante for the Cube Insights powered by ETR. Thanks for watching and we'll see you next time on Breaking Analysis. (gentle upbeat music)

>> From "theCube" Studios in Palo Alto in Boston bringing you data-driven insights from "theCube" and ETR. This is "Breaking Analysis" with Dave Vellante. >> As an independent pure play company, Palo Alto Networks has earned its status as the leader in security. You can measure this in a variety of ways. Revenue, market cap, execution, ethos, and most importantly, conversations with customers generally. In CISO specifically, who consistently affirm this position. The company's on track to double its revenues in fiscal year 23 relative to fiscal year 2020. Despite macro headwinds, which are likely to carry through next year, Palo Alto owes its position to a clarity of vision and strong execution on a TAM expansion strategy through acquisitions and integration into its cloud and SaaS offerings. Hello and welcome to this week's "Wikibon Cube Insights" powered by ETR and this breaking analysis and ahead of Palo Alto Ignite the company's user conference, we bring you the next chapter on top of the last week's cybersecurity update. We're going to dig into the ETR data on Palo Alto Networks as we promised and provide a glimpse of what we're going to look for at "Ignite" and posit what Palo Alto needs to do to stay on top of the hill. Now, the challenges for cybersecurity professionals. Dead simple to understand. Solving it, not so much. This is a taxonomic eye test, if you will, from Optiv. It's one of our favorite artifacts to make the point the cybersecurity landscape is a mosaic of stovepipes. Security professionals have to work with dozens of tools many legacy combined with shiny new toys to try and keep up with the relentless pace of innovation catalyzed by the incredibly capable well-funded and motivated adversaries. Cybersecurity is an anomalous market in that the leaders have low single digit market shares. Think about that. Cisco at one point held 60% market share in the networking business and it's still deep into the 40s. Oracle captures around 30% of database market revenue. EMC and storage at its peak had more than 30% of that market. Even Dell's PC market shares, you know, in the mid 20s or even over that from a revenue standpoint. So cybersecurity from a market share standpoint is even more fragmented perhaps than the software industry. Okay, you get the point. So despite its position as the number one player Palo Alto might have maybe three maybe 4% of the total market, depending on what you use as your denominator, but just a tiny slice. So how is it that we can sit here and declare Palo Alto as the undisputed leader? Well, we probably wouldn't go that far. They probably have quite a bit of competition. But this CISO from a recent ETR round table discussion with our friend Eric Bradley, summed up Palo Alto's allure. We thought pretty well. The question was why Palo Alto Networks? Here's the answer. Because of its completeness as a platform, its ability to integrate with its own products or they acquire, integrate then rebrand them as their own. We've looked at other vendors we just didn't think they were as mature and we already had implemented some of the Palo Alto tools like the firewalls and stuff and we thought why not go holistically with the vendor a single throat to choke, if you will, if stuff goes wrong. And I think that was probably the primary driver and familiarity with the tools and the resources that they provided. Now here's another stat from ETR's Eric Bradley. He gave us a glimpse of the January survey that's in the field now. The percent of IT buyers stating that they plan to consolidate redundant vendors, it went from 34% in the October survey and now stands at 44%. So we fo we feel this bodes well for consolidators like Palo Alto networks. And the same is true from Microsoft's kind of good enough approach. It should also be true for CrowdStrike although last quarter we saw softness reported on in their SMB market, whereas interestingly MongoDB actually saw consistent strength from its SMB and its self-serve. So that's something that we're watching very closely. Now, Palo Alto Networks has held up better than most of its peers in the stock market. So let's take a look at that real quick. This chart gives you a sense of how well. It's a one year comparison of Palo Alto with the bug ETF. That's the cyber basket that we like to compare often CrowdStrike, Zscaler, and Okta. Now remember Palo Alto, they didn't run up as much as CrowdStrike, ZS and Okta during the pandemic but you can see it's now down unquote only 9% for the year. Whereas the cyber basket ETF is off 27% roughly in line with the NASDAQ. We're not showing that CrowdStrike down 44%, Zscaler down 61% and Okta off a whopping 72% in the past 12 months. Now as we've indicated, Palo Alto is making a strong case for consolidating point tools and we think it will have a much harder time getting customers to switch off of big platforms like Cisco who's another leader in network security. But based on the fragmentation in the market there's plenty of room to grow in our view. We asked breaking analysis contributor Chip Simington for his take on the technicals of the stock and he said that despite Palo Alto's leadership position it doesn't seem to make much difference these days. It's all about interest rates. And even though this name has performed better than its peers, it looks like the stock wants to keep testing its 52 week lows, but he thinks Palo Alto got oversold during the last big selloff. And the fact that the company's free cash flow is so strong probably keeps it at the one 50 level or above maybe bouncing around there for a while. If it breaks through that under to the downside it's ne next test is at that low of around one 40 level. So thanks for that, Chip. Now having get that out of the way as we said on the previous chart Palo Alto has strong opinions, it's founder and CTO, Nir Zuk, is extremely clear on that point of view. So let's take a look at how Palo Alto got to where it is today and how we think you should think about his future. The company was founded around 18 years ago as a network security company focused on what they called NextGen firewalls. Now, what Palo Alto did was different. They didn't try to stuff a bunch of functionality inside of a hardware box. Rather they layered network security functions on top of its firewalls and delivered value as a service through software running at the time in its own cloud. So pretty obvious today, but forward thinking for the time and now they've moved to a more true cloud native platform and much more activity in the public cloud. In February, 2020, right before the pandemic we reported on the divergence in market values between Palo Alto and Fort Net and we cited some challenges that Palo Alto was happening having transitioning to a cloud native model. And at the time we said we were confident that Palo Alto would make it through the knot hole. And you could see from the previous chart that it has. So the company's architectural approach was to do the heavy lifting in the cloud. And this eliminates the need for customers to deploy sensors on prem or proxies on prem or sandboxes on prem sandboxes, you know for instance are vulnerable to overwhelming attacks. Think about it, if you're a sandbox is on prem you're not going to be updating that every day. No way. You're probably not going to updated even every week or every month. And if the capacity of your sandbox is let's say 20,000 files an hour you know a hacker's just going to turn up the volume, it'll overwhelm you. They'll send a hundred thousand emails attachments into your sandbox and they'll choke you out and then they'll have the run of the house while you're trying to recover. Now the cloud doesn't completely prevent that but what it does, it definitely increases the hacker's cost. So they're going to probably hit some easier targets and that's kind of the objective of security firms. You know, increase the denominator on the ROI. All right, the next thing that Palo Alto did is start acquiring aggressively, I think we counted 17 or 18 acquisitions to expand the TAM beyond network security into endpoint CASB, PaaS security, IaaS security, container security, serverless security, incident response, SD WAN, CICD pipeline security, attack service management, supply chain security. Just recently with the acquisition of Cider Security and Palo Alto by all accounts takes the time to integrate into its cloud and SaaS platform called Prisma. Unlike many acquisitive companies in the past EMC was a really good example where you ended up with a kind of a Franken portfolio. Now all this leads us to believe that Palo Alto wants to be the consolidator and is in a good position to do so. But beyond that, as multi-cloud becomes more prevalent and more of a strategy customers tell us they want a consistent experience across clouds. And is going to be the same by the way with IoT. So of the next wave here. Customers don't want another stove pipe. So we think Palo Alto is in a good position to build what we call the security super cloud that layer above the clouds that brings a common experience for devs and operational teams. So of course the obvious question is this, can Palo Alto networks continue on this path of acquire and integrate and still maintain best of breed status? Can it? Will it? Does it even have to? As Holger Mueller of Constellation Research and I talk about all the time integrated suites seem to always beat best of breed in the long run. We'll come back to that. Now, this next graphic that we're going to show you underscores this question about portfolio. Here's a picture and I don't expect you to digest it all but it's a screen grab of Palo Alto's product and solutions portfolios, network cloud, network security rather, cloud security, Sassy, CNAP, endpoint unit 42 which is their threat intelligence platform and every imaginable security service and solution for customers. Well, maybe not every, I'm sure there's more to come like supply chain with the recent Cider acquisition and maybe more IoT beyond ZingBox and earlier acquisition but we're sure there will be more in the future both organic and inorganic. Okay, let's bring in more of the ETR survey data. For those of you who don't know ETR, they are the number one enterprise data platform surveying thousands of end customers every quarter with additional drill down surveys and customer round tables just an awesome SaaS enabled platform. And here's a view that shows net score or spending momentum on the vertical axis in provision or presence within the ETR data set on the horizontal axis. You see that red dotted line at 40%. Anything at or over that indicates a highly elevated net score. And as you can see Palo Alto is right on that line just under. And I'll give you another glimpse it looks like Palo Alto despite the macro may even just edge up a bit in the next survey based on the glimpse that Eric gave us. Now those colored bars in the bottom right corner they show the breakdown of Palo Alto's net score and underscore the methodology that ETR uses. The lime green is new customer adoptions, that's 7%. The forest green at 38% represents the percent of customers that are spending 6% or more on Palo Alto solutions. The gray is at that 40 or 8% that's flat spending plus or minus 5%. The pinkish at 5% is spending is down on Palo Alto network products by 6% or worse. And the bright red at only 2% is churn or defections. Very low single digit numbers for Palo Alto, that's a real positive. What you do is you subtract the red from the green and you get a net score of 38% which is very good for a company of Palo Alto size. And we'll note this is based on just under 400 responses in the ETR survey that are Palo Alto customers out of around 1300 in the total survey. It's a really good representation of Palo Alto. And you can see the other leading companies like CrowdStrike, Okta, Zscaler, Forte, Cisco they loom large with similar aspirations. Well maybe not so much Okta. They don't necessarily rule want to rule the world. They want to rule identity and of course the ever ubiquitous Microsoft in the upper right. Now drilling deeper into the ETR data, let's look at how Palo Alto has progressed over the last three surveys in terms of market presence in the survey. This view of the data shows provision in the data going back to October, 2021, that's the gray bars. The blue is July 22 and the yellow is the latest survey from October, 2022. Remember, the January survey is currently in the field. Now the leftmost set of data there show size a company. The middle set of data shows the industry for a select number of industries in the right most shows, geographic region. Notice anything, yes, Palo Alto up across the board relative to both this past summer and last fall. So that's pretty impressive. Palo Alto network CEO, Nikesh Aurora, stressed on the last earnings call that the company is seeing somewhat elongated deal approvals and sometimes splitting up size of deals. He's stressed that certain industries like energy, government and financial services continue to spend. But we would expect even a pullback there as companies get more conservative. But the point is that Nikesh talked about how they're hiring more sales pros to work the pipeline because they understand that they have to work harder to pull deals forward 'cause they got to get more approvals and they got to increase the volume that's coming through the pipeline to account for the possibility that certain companies are going to split up the deals, you know, large deals they want to split into to smaller bite size chunks. So they're really going hard after they go to market expansion to account for that. All right, so we're going to wrap by sharing what we expect and what we're going to probe for at Palo Alto Ignite next week, Lisa Martin and I will be hosting "theCube" and here's what we'll be looking for. First, it's a four day event at the MGM with the meat of the program on days two and three. That's day two was the big keynote. That's when we'll start our broadcasting, we're going for two days. Now our understanding is we've never done Palo Alto Ignite before but our understanding it's a pretty technically oriented crowd that's going to be eager to hear what CTO and founder Nir Zuk has to say. And as well CEO Nikesh Aurora and as in addition to longtime friend of "theCube" and current president, BJ Jenkins, he's going to be speaking. Wendy Whitmore runs Unit 42 and is going to be several other high profile Palo Alto execs, as well, Thomas Kurian from Google is a featured speaker. Lee Claridge, who is Palo Alto's, chief product officer we think is going to be giving the audience heavy doses of Prisma Cloud and Cortex enhancements. Now, Cortex, you might remember, came from an acquisition and does threat detection and attack surface management. And we're going to hear a lot about we think about security automation. So we'll be listening for how Cortex has been integrated and what kind of uptake that it's getting. We've done some, you know, modeling in from the ETR. Guys have done some modeling of cortex, you know looks like it's got a lot of upside and through the Palo Alto go to market machine, you know could really pick up momentum. That's something that we'll be probing for. Now, one of the other things that we'll be watching is pricing. We want to talk to customers about their spend optimization, their spending patterns, their vendor consolidation strategies. Look, Palo Alto is a premium offering. It charges for value. It's expensive. So we also want to understand what kind of switching costs are customers willing to absorb and how onerous they are and what's the business case look like? How are they thinking about that business case. We also want to understand and really probe on how will Palo Alto maintain best of breed as it continues to acquire and integrate to expand its TAM and appeal as that one-stop shop. You know, can it do that as we talked about before. And will it do that? There's also an interesting tension going on sort of changing subjects here in security. There's a guy named Edward Hellekey who's been in "theCube" before. He hasn't been in "theCube" in a while but he's a security pro who has educated us on the nuances of protecting data privacy, public policy, how it varies by region and how complicated it is relative to security. Because securities you technically you have to show a chain of custody that proves unequivocally, for example that data has been deleted or scrubbed or that metadata does. It doesn't include any residual private data that violates the laws, the local laws. And the tension is this, you need good data and lots of it to have good security, really the more the better. But government policy is often at odds in a major blocker to sharing data and it's getting more so. So we want to understand this tension and how companies like Palo Alto are dealing with it. Our customers testing public policy in courts we think not quite yet, our government's making exceptions and policies like GDPR that favor security over data privacy. What are the trade-offs there? And finally, one theme of this breaking analysis is what does Palo Alto have to do to stay on top? And we would sum it up with three words. Ecosystem, ecosystem, ecosystem. And we said this at CrowdStrike Falcon in September that the one concern we had was the pace of ecosystem development for CrowdStrike. Is collaboration possible with competitors? Is being adopted aggressively? Is Palo Alto being adopted aggressively by global system integrators? What's the uptake there? What about developers? Look, the hallmark of a cloud company which Palo Alto is a cloud security company is a thriving ecosystem that has entries into and exits from its platform. So we'll be looking at what that ecosystem looks like how vibrant and inclusive it is where the public clouds fit and whether Palo Alto Networks can really become the security super cloud. Okay, that's a wrap stop by next week. If you're in Vegas, say hello to "theCube" team. We have an unbelievable lineup on the program. Now if you're not there, check out our coverage on theCube.net. I want to thank Eric Bradley for sharing a glimpse on short notice of the upcoming survey from ETR and his thoughts. And as always, thanks to Chip Symington for his sharp comments. Want to thank Alex Morrison, who's on production and manages the podcast Ken Schiffman as well in our Boston studio, Kristen Martin and Cheryl Knight they help get the word out on social and of course in our newsletters, Rob Hoof, is our editor in chief over at Silicon Angle who does some awesome editing, thank you to all. Remember all these episodes they're available as podcasts. Wherever you listen, all you got to do is search "Breaking Analysis" podcasts. I publish each week on wikibon.com and silicon angle.com where you can email me at david.valante@siliconangle.com or dm me at D Valante or comment on our LinkedIn post. And please do check out etr.ai. They've got the best survey data in the enterprise tech business. This is Dave Valante for "theCube" Insights powered by ETR. Thanks for watching. We'll see you next week on "Ignite" or next time on "Breaking Analysis". (upbeat music)

>>From the Cube Studios in Palo Alto in Boston, bringing you data driven insights from the cube and etr. This is breaking analysis with Dave Ante. >>Have you ever been driving on the highway and traffic suddenly slows way down and then after a little while it picks up again and you're cruising along and you're thinking, Okay, hey, that was weird. But it's clear sailing now. Off we go, only to find out in a bit that the traffic is building up ahead again, forcing you to pump the brakes as the traffic pattern ebbs and flows well. Welcome to the Seesaw economy. The fed induced fire that prompted an unprecedented rally in tech is being purposefully extinguished now by that same fed. And virtually every sector of the tech industry is having to reset its expectations, including the cloud segment. Hello and welcome to this week's Wikibon Cube Insights powered by etr. In this breaking analysis will review the implications of the earnings announcements from the big three cloud players, Amazon, Microsoft, and Google who announced this week. >>And we'll update you on our quarterly IAS forecast and share the latest from ETR with a focus on cloud computing. Now, before we get into the new data, we wanna review something we shared with you on October 14th, just a couple weeks back, this is sort of a, we told you it was coming slide. It's an XY graph that shows ET R'S proprietary net score methodology on the vertical axis. That's a measure of spending momentum, spending velocity, and an overlap or presence in the dataset that's on the X axis. That's really a measure of pervasiveness. In the survey, the table, you see that table insert there that shows Wiki Bond's Q2 estimates of IAS revenue for the big four hyperscalers with their year on year growth rates. Now we told you at the time, this is data from the July TW 22 ETR survey and the ETR hadn't released its October survey results at that time. >>This was just a couple weeks ago. And while we couldn't share the specific data from the October survey, we were able to get a glimpse and we depicted the slowdown that we saw in the October data with those dotted arrows kind of down into the right, we said at the time that we were seeing and across the board slowdown even for the big three cloud vendors. Now, fast forward to this past week and we saw earnings releases from Alphabet, Microsoft, and just last night Amazon. Now you may be thinking, okay, big deal. The ETR survey data didn't really tell us anything we didn't already know. But judging from the negative reaction in the stock market to these earnings announcements, the degree of softness surprised a lot of investors. Now, at the time we didn't update our forecast, it doesn't make sense for us to do that when we're that close to earning season. >>And now that all the big three ha with all the big four with the exception of Alibaba have announced we've, we've updated. And so here's that data. This chart lays out our view of the IS and PAs worldwide revenue. Basically it's cloud infrastructure with an attempt to exclude any SaaS revenue so we can make an apples to apples comparison across all the clouds. Now the reason that actual is in quotes is because Microsoft and Google don't report IAS revenue, but they do give us clues and kind of directional commentary, which we then triangulate with other data that we have from the channel and ETR surveys and just our own intelligence. Now the second column there after the vendor name shows our previous estimates for q3, and then next to that we show our actuals. Same with the growth rates. And then we round out the chart with that lighter blue color highlights, the full year estimates for revenue and growth. >>So the key takeaways are that we shaved about $4 billion in revenue and roughly 300 basis points of growth off of our full year estimates. AWS had a strong July but exited Q3 in the mid 20% growth rate year over year. So we're using that guidance, you know, for our Q4 estimates. Azure came in below our earlier estimates, but Google actually exceeded our expectations. Now the compression in the numbers is in our view of function of the macro demand climate, we've made every attempt to adjust for constant currency. So FX should not be a factor in this data, but it's sure you know that that ma the the, the currency effects are weighing on those companies income statements. And so look, this is the fundamental dynamic of a cloud model where you can dial down consumption when you need to and dial it up when you need to. >>Now you may be thinking that many big cloud customers have a committed level of spending in order to get better discounts. And that's true. But what's happening we think is they'll reallocate that spend toward, let's say for example, lower cost storage tiers or they may take advantage of better price performance processors like Graviton for example. That is a clear trend that we're seeing and smaller companies that were perhaps paying by the drink just on demand, they're moving to reserve instance models to lower their monthly bill. So instead of taking the easy way out and just spending more companies are reallocating their reserve capacity toward lower cost. So those sort of lower cost services, so they're spending time and effort optimizing to get more for, for less whereas, or get more for the same is really how we should, should, should phrase it. Whereas during the pandemic, many companies were, you know, they perhaps were not as focused on doing that because business was booming and they had a response. >>So they just, you know, spend more dial it up. So in general, as they say, customers are are doing more with, with the same. Now let's look at the growth dynamic and spend some time on that. I think this is important. This data shows worldwide quarterly revenue growth rates back to Q1 2019 for the big four. So a couple of interesting things. The data tells us during the pandemic, you saw both AWS and Azure, but the law of large numbers and actually accelerate growth. AWS especially saw progressively increasing growth rates throughout 2021 for each quarter. Now that trend, as you can see is reversed in 2022 for aws. Now we saw Azure come down a bit, but it's still in the low forties in terms of percentage growth. While Google actually saw an uptick in growth this last quarter for GCP by our estimates as GCP is becoming an increasingly large portion of Google's overall cloud business. >>Now, unfortunately Google Cloud continues to lose north of 850 million per quarter, whereas AWS and Azure are profitable cloud businesses even though Alibaba is suffering its woes from China. And we'll see how they come in when they report in mid-November. The overall hyperscale market grew at 32% in Q3 in terms of worldwide revenue. So the slowdown isn't due to the repatriation or competition from on-prem vendors in our view, it's a macro related trend. And cloud will continue to significantly outperform other sectors despite its massive size. You know, on the repatriation point, it just still doesn't show up in the data. The A 16 Z article from Sarah Wong and Martin Martin Kasa claiming that repatriation was inevitable as a means to lower cost of good sold for SaaS companies. You know, while that was thought provoking, it hasn't shown up in the numbers. And if you read the financial statements of both AWS and its partners like Snowflake and you dig into the, to the, to the quarterly reports, you'll see little notes and comments with their ongoing negotiations to lower cloud costs for customers. >>AWS and no doubt execs at Azure and GCP understand that the lifetime value of a customer is worth much more than near term gross margin. And you can expect the cloud vendors to strike a balance between profitability, near term profitability anyway and customer attention. Now, even though Google Cloud platform saw accelerated growth, we need to put that in context for you. So GCP, by our estimate, has now crossed over the $3 billion for quarter market actually did so last quarter, but its growth rate accelerated to 42% this quarter. And so that's a good sign in our view. But let's do a quick little comparison with when AWS and Azure crossed the $3 billion mark and compare their growth rates at the time. So if you go back to to Q2 2016, as we're showing in this chart, that's around the time that AWS hit 3 billion per quarter and at the same time was growing at 58%. >>Azure by our estimates crossed that mark in Q4 2018 and at that time was growing at 67%. Again, compare that to Google's 42%. So one would expect Google's growth rate would be higher than its competitors at this point in the MO in the maturity of its cloud, which it's, you know, it's really not when you compared to to Azure. I mean they're kind of con, you know, comparable now but today, but, but you'll go back, you know, to that $3 billion mark. But more so looking at history, you'd like to see its growth rate at this point of a maturity model at least over 50%, which we don't believe it is. And one other point on this topic, you know, my business friend Matt Baker from Dell often says it's not a zero sum game, meaning there's plenty of opportunity exists to build value on top of hyperscalers. >>And I would totally agree it's not a dollar for dollar swap if you can continue to innovate. But history will show that the first company in makes the most money. Number two can do really well and number three tends to break even. Now maybe cloud is different because you have Microsoft software estate and the power behind that and that's driving its IAS business and Google ads are funding technology buildouts for, for for Google and gcp. So you know, we'll see how that plays out. But right now by this one measurement, Google is four years behind Microsoft in six years behind aws. Now to the point that cloud will continue to outpace other markets, let's, let's break this down a bit in spending terms and see why this claim holds water. This is data from ET r's latest October survey that shows the granularity of its net score or spending velocity metric. >>The lime green is new adoptions, so they're adding the platform, the forest green is spending more 6% or more. The gray bars spending is flat plus or minus, you know, 5%. The pinkish colors represent spending less down 6% or worse. And the bright red shows defections or churn of the platform. You subtract the reds from the greens and you get what's called net score, which is that blue dot that you can see on each of the bars. So what you see in the table insert is that all three have net scores above 40%, which is a highly elevated measure. Microsoft's net scores above 60% AWS well into the fifties and GCP in the mid forties. So all good. Now what's happening with all three is more customers are keep keeping their spending flat. So a higher percentage of customers are saying, our spending is now flat than it was in previous quarters and that's what's accounting for the compression. >>But the churn of all three, even gcp, which we reported, you know, last quarter from last quarter survey was was five x. The other two is actually very low in the single digits. So that might have been an anomaly. So that's a very good sign in our view. You know, again, customers aren't repatriating in droves, it's just not a trend that we would bet on, maybe makes for a FUD or you know, good marketing head, but it's just not a big deal. And you can't help but be impressed with both Microsoft and AWS's performance in the survey. And as we mentioned before, these companies aren't going to give up customers to try and preserve a little bit of gross margin. They'll do what it takes to keep people on their platforms cuz they'll make up for it over time with added services and improved offerings. >>Now, once these companies acquire a customer, they'll be very aggressive about keeping them. So customers take note, you have negotiating leverage, so use it. Okay, let's look at another cut at the cloud market from the ETR data set. Here's the two dimensional view, again, it's back, it's one of our favorites. Net score or spending momentum plotted against presence. And the data set, that's the x axis net score on the, on the vertical axis, this is a view of et r's cloud computing sector sector. You can see we put that magic 40% dotted red line in the table showing and, and then that the table inserts shows how the data are plotted with net score against presence. I e n in the survey, notably only the big three are above the 40% line of the names that we're showing here. The oth there, there are others. >>I mean if you put Snowflake on there, it'd be higher than any of these names, but we'll dig into that name in a later breaking analysis episode. Now this is just another way of quantifying the dominance of AWS and Azure, not only relative to Google, but the other cloud platforms out there. So we've, we've taken the opportunity here to plot IBM and Oracle, which both own a public cloud. Their performance is largely a reflection of them migrating their install bases to their respective public clouds and or hybrid clouds. And you know, that's fine, they're in the game. That's a point that we've made, you know, a number of times they're able to make it through the cloud, not whole and they at least have one, but they simply don't have the business momentum of AWS and Azure, which is actually quite impressive because AWS and Azure are now as large or larger than IBM and Oracle. >>And to show this type of continued growth that that that Azure and AWS show at their size is quite remarkable and customers are starting to recognize the viability of on-prem hi, you know, hybrid clouds like HPE GreenLake and Dell's apex. You know, you may say, well that's not cloud, but if the customer thinks it is and it was reporting in the survey that it is, we're gonna continue to report this view. You know, I don't know what's happening with H P E, They had a big down tick this quarter and I, and I don't read too much into that because their end is still pretty small at 53. So big fluctuations are not uncommon with those types of smaller ends, but it's over 50. So, you know, we did notice a a a negative within a giant public and private sector, which is often a, a bellwether giant public private is big public companies and large private companies like, like a Mars for example. >>So it, you know, it looks like for HPE it could be an outlier. We saw within the Fortune 1000 HPE E'S cloud looked actually really good and it had good spending momentum in that sector. When you di dig into the industry data within ETR dataset, obviously we're not showing that here, but we'll continue to monitor that. Okay, so where's this Leave us. Well look, this is really a tactical story of currency and macro headwinds as you can see. You know, we've laid out some of the points on this slide. The action in the stock market today, which is Friday after some of the soft earnings reports is really robust. You know, we'll see how it ends up in the day. So maybe this is a sign that the worst is over, but we don't think so. The visibility from tech companies is murky right now as most are guiding down, which indicates that their conservative outlook last quarter was still too optimistic. >>But as it relates to cloud, that platform is not going anywhere anytime soon. Sure, there are potential disruptors on the horizon, especially at the edge, but we're still a long ways off from, from the possibility that a new economic model emerges from the edge to disrupt the cloud and the opportunities in the cloud remain strong. I mean, what other path is there? Really private cloud. It was kind of a bandaid until the on-prem guys could get their a as a service models rolled out, which is just now happening. The hybrid thing is real, but it's, you know, defensive for the incumbents until they can get their super cloud investments going. Super cloud implying, capturing value above the hyperscaler CapEx, you know, call it what you want multi what multi-cloud should have been, the metacloud, the Uber cloud, whatever you like. But there are opportunities to play offense and that's clearly happening in the cloud ecosystem with the likes of Snowflake, Mongo, Hashi Corp. >>Hammer Spaces is a startup in this area. Aviatrix, CrowdStrike, Zeke Scaler, Okta, many, many more. And even the projects we see coming out of enterprise players like Dell, like with Project Alpine and what Pure Storage is doing along with a number of other of the backup vendors. So Q4 should be really interesting, but the real story is the investments that that companies are making now to leverage the cloud for digital transformations will be paying off down the road. This is not 1999. We had, you know, May might have had some good ideas and admittedly at a lot of bad ones too, but you didn't have the infrastructure to service customers at a low enough cost like you do today. The cloud is that infrastructure and so far it's been transformative, but it's likely the best is yet to come. Okay, let's call this a rap. >>Many thanks to Alex Morrison who does production and manages the podcast. Also Can Schiffman is our newest edition to the Boston Studio. Kristin Martin and Cheryl Knight helped get the word out on social media and in our newsletters. And Rob Ho is our editor in chief over@siliconangle.com, who does some wonderful editing for us. Thank you. Remember, all these episodes are available as podcasts. Wherever you listen, just search breaking analysis podcast. I publish each week on wiki bond.com at silicon angle.com. And you can email me at David dot valante@siliconangle.com or DM me at Dante or comment on my LinkedIn posts. And please do checkout etr.ai. They got the best survey data in the enterprise tech business. This is Dave Valante for the Cube Insights powered by etr. Thanks for watching and we'll see you next time on breaking analysis.

>> From theCUBE Studios in Palo Alto in Boston, bringing you data-driven insights from theCUBE and ETR. This is Breaking Analysis with Dave Vellante. >> Like a marathon runner pumped up on adrenaline, UiPath sprinted to the lead in what is surely going to be a long journey toward enabling the modern automated enterprise. Now, in doing so the company has established itself as a leader in enterprise automation while at the same time, it got out over its skis on critical execution items and it disappointed investors along the way. In our view, the company has plenty of upside potential, but will have to slog through its current challenges, including restructuring its go-to market, prioritizing investments, balancing growth with profitability and dealing with a very difficult macro environment. Hello and welcome to this week's Wikibon Cube insights powered by ETR. In this Breaking Analysis and ahead of Forward 5, UiPath's big customer event, we once again dig into RPA and automation leader, UiPath, to share our most current data and view of the company's prospects relative to the competition and the market overall. Now, since the pandemic, four sectors have consistently outperformed in the overall spending landscape in the ETR dataset, cloud, containers, machine learning/AI, and robotic process automation. For the first time in a long time ML and AI and RPA have dropped below the elevated 40% line shown in this ETR graph with the red dotted line. The data here plots the net score or spending momentum for each sector with we put in video conferencing, we added it in simply to provide height to the vertical access. Now, you see those squiggly lines, they show the pattern for ML/AI and RPA, and they demonstrate the downward trajectory over time with only the most current period dropping below the 40% net score mark. While this is not surprising, it underscores one component of the macro headwinds facing all companies generally and UiPath specifically, that is the discretionary nature of certain technology investments. This has been a topic of conversation on theCUBE since the spring spanning data players like Mongo and Snowflake, the cloud, security, and other sectors. The point is ML/AI and RPA appear to be more discretionary than certain sectors, including cloud. Containers most likely benefit from the fact that much of the activity is spending on internal resources, staff like developers as much of the action in containers is free and open source. Now, security is not shown on this graphic, but as we've reported extensively in the last week at CrowdStrike's Falcon conference, security is somewhat less discretionary than other sectors. Now, as it relates to the big four that we've been highlighting since the pandemic hit, we're starting to see priorities shift from strategic investments like AI and automation to more tactical areas to keep the lights on. UiPath has not been immune to this downward pressure, but the company is still able to show some impressive metrics. Here's a snapshot chart from its investor deck. For the first time UiPath's ARR has surpassed $1 billion. The company now has more than 10,000 customers with a large number generating more than $100,000 in ARR. While not shown in this data, UiPath reported this month in its second quarter close that it had $191 million plus ARR customers, which is up 13% sequentially from its Q1. As well, the company's NRR is over 130%, which is very solid and underscores the low churn that we've previously reported for the company. But with that increased ARR comes slower growth. Here's some data we compiled that shows the dramatic growth in ARR, the blue bars, compared with the rapid deceleration and growth. That's the orange line on the right hand access there. For the first time UiPath's ARR growth dipped below 50% last quarter. Now, we've projected 34% and 25% respectively for the company's Q3 in Q4, which is slightly higher than the upper range of UiPath's CFO, Ashim Gupta's guidance from the last earnings call. That still puts UiPath exiting its fiscal year at a 25% ARR growth rate. While it's not unexpected that a company reaching $1 billion in ARR, that milestone, will begin to show lower, slower growth, net new ARR is well off its fiscal year '22 levels. The other perhaps more concerning factor is the company, despite strong 80% gross margins, remains unprofitable and free cash flow negative. New CEO, Rob Enslin, has emphasized the focus on profitability, and we'd like to see a consistent and more disciplined Rule of 40 or Rule of 45 to 50 type of performance going forward. As a result of this decelerating growth and lowered guidance stemming from significant macro challenges including currency fluctuations and weaker demand, especially in Europe and EP and inconsistent performance, the stock, as shown here, has been on a steady decline. What all growth stocks are facing, you know, challenges relative to inflation, rising interest rates, and looming recession, but as seen here, UiPath has significantly underperformed relative to the tech-heavy NASDAQ. UiPath has admitted to execution challenges, and it has brought in an expanded management team to facilitate its sales transition and desire to become a more strategic platform play versus a tactical point product. Now, adding to this challenge of foreign exchange issues, as we've previously reported unlike most high flying tech companies from Silicon Valley, UiPath has a much larger proportion of its business coming from locations outside of the United States, around 50% of its revenue, in fact. Because it prices in local currencies, when you convert back to appreciated dollars, there are less of them, and that weighs down on revenue. Now, we asked Breaking Analysis contributor, Chip Simonton, for his take on this stock, and he told us, "From a technical standpoint, there's really not much you can say, it just looks like a falling knife. It's trading at an all time low but that doesn't mean it can't go lower. New management with a good product is always a positive with a stock like this, but this is just a bad environment for UiPath and all growth stocks really, and," he added, "95% of money managers have never operated in this type of environment before. So that creates more uncertainty. There will be a bottom, but picking it in this high-inflation, high-interest rate world hasn't worked too well lately. There's really no floor to these stocks that don't have earnings, until you start to trade to cash levels." Well, okay, let's see, UiPath has $1.6 billion in cash in the balance sheet and no debt, so we're a long ways off from that target, the cash value with its current $7 billion valuation. You have to go back to April 2019 to UiPaths Series D to find a $7 billion valuation. So Simonton says, "The stock still could go lower." The valuation range for this stock has been quite remarkable from around $50 billion last May to $7 billion today. That's quite a swing. And the spending data from ETR sort of supports this story. This graphic here shows the net score or spending momentum granularity for UiPath. The lime green is new additions to the platform. The forest green is spending 6% or more. The gray is flat spending. The pink is spending down 6% or worse. And the bright red is churn. Subtract the red from the green and you get net score, which is that blue line. The yellow line is pervasiveness within the data set. Now, that yellow line is skewed somewhat because of Microsoft citations. There's a belief from some that competition from Microsoft is the reason for UiPath's troubles, but Microsoft is really delivering RPA for individuals and isn't an enterprise automation platform at least not today, but it's Microsoft, so you can't discount their presence in the market. And it probably is having some impact, but we think there are many other factors weighing on UiPath. Now, this is data through the July survey but taking a glimpse at the early October returns they're trending with the arrows, meaning less green more gray and red, which is going to lower UiPath's overall net score, which is consistent with the macro headwinds and the business performance that it's been seeing. Now, nonetheless, UiPath continues to get high marks from its customers, and relative to it's peers it maintains a leadership position. So this chart from ETR, shows net score or spending velocity in the vertical access, an overlap or presence in the dataset on the horizontal access. Microsoft continues to have a big presence, and as we mentioned, somewhat skews the data. UiPath has maintained its lead relative to automation anywhere on the horizontal access, and remains ahead of the legacy pack of business process and other RPA vendors. Solonis has popped up in the ETR data set recently as a process mining player and has a pretty high net score. It's a critical space UiPath has entered, via its acquisition of ProcessGold back in October 2019. Now, you can also see what we did is we added in the Gartner Magic Quadrant for robotic process automation. We didn't blow it up here but we circled the position of UiPath. You can see it's leading in both the vertical and the horizontal access, ahead of automation anywhere as well as Microsoft and others. Now, we're still not seeing the likes of SAP, Service Now, and Salesforce showing up in the ETR data, but these enterprise software vendors are in a reasonable position to capitalize on automation opportunities within their installed basis. This is why it's so important that UiPath transitions to an enterprise-wide horizontal play that can cut across multiple ERP, CRM, HCM, and service management platforms. While the big software companies can add automation to their respective stovepipes, and they're doing that, UiPath's opportunity is to bring automation to enable enterprises to build on top of and across these SaaS platforms that most companies are running. Now, on the chart, you see the red arrows slanting down. That signifies the expected trend from the upcoming October ETR survey, which is currently in the field and will run through early next month. Suffice it to say that there is downward spending pressure across the board, and we would expect most of these names, including UiPath, to dip below the 40% dotted line. Now, as it relates to the conversation about platform versus product, let's dig into that a bit more. Here's a graphic from UiPath's investor deck that underscores the move from product to platform. UiPath has expanded its platform from its initial on-prem point product to focus on automating tasks for individuals and back offices to a cloud-first platform approach. The company has added in technology from a number of acquisitions and added organically to those. These include, the previously mentioned, ProcessGold for process discovery, process documentation from the acquisition of StepShot, API automation via the acquisition of Cloud Elements, to its more recent acquisition of Re:infer, a natural language processing specialist. Now, we expect the platform to be a big focus of discussion at Forward 5 next week in Las Vegas. So let's close in on our expectations for the three-day event next week at the Venetian. UiPath's user conference has grown over the years and the Venetian should be by far be the biggest and most heavily attended in the company's history. We expect UiPath to really emphasize the role of automation, specifically in the context of digital transformation, and how UiPath has evolved, again, from point product to platform to support digital transformation. Expect to focus on platform maturity. When UiPath announced its platform intentions back in 2019, which was the last physical face-to-face customer event prior to COVID, it essentially was laying out a statement of direction. And over the past three years, it has matured the platform and taken it from vision to reality. You know, I said the last event, actually, the last event was 2021. Of course, theCUBE was there at the Bellagio in Las Vegas. But prior to that, 2019 is when they laid out that platform vision. Now, in a conjunction with this evolution, the company has evolved its partnerships, pairing up with the likes of Snowflake and the data cloud, CrowdStrike, to provide better security, and, of course, the big Global System Integrators, to help implement enterprise automation. And this is where we expect to hear a lot from customers. I've heard, there'll be over 100 speaking at the show about the outcomes and how they're digitally transforming. Now, I mentioned earlier that we haven't seen the big ERP and enterprise software companies show up yet in the ETR data, but believe me they're out there and they're selling automation and RPA and they're competing. So expect UiPath to position themselves and deposition those companies. Position UiPath as a layer above these bespoke platforms shown here on number four. With process discovery and task discovery, building automation across enterprise apps, and operationalizing process workflows as a horizontal play. And I'm sure there'll be some new graphics on this platform that we can share after the event that will emphasize this positioning. And finally, as we showed earlier in the platform discussion, we expect to hear a lot about the new platform capabilities and use cases, and not just RPA, but process mining, testing, testing automation, which is a new vector of growth for UiPath, document processing. And also, we expect UiPath to address its low code development capabilities to expand the number of people in the organization that can create automation capabilities and automations. Those domain experts is what we're talking about here that deeply understand the business but aren't software engineers. Enabling them is going to be really important, and we expect to hear more about that. And we expect this conference to set the tone for a new chapter in UiPath's history. The company's second in-person gathering, but the first one was last October. So really this is going to be sort of a build upon that, and many in-person events. For the first time this year, UiPath was one of the first to bring back its physical event, but we expect it to be bigger than what was at the Bellagio, and a lot of people were concerned about traveling. Although UiPath got a lot of customers there, but I think they're going to really up the game in terms of attendance this year. And really, that comparison is unfair because UiPath, again, it was sort of the middle of COVID last year. But anyway, we expect this new operations and go-to-market oriented focus from co-CEO, Rob Enslin, and new sales management, we're going to be, you know, hearing from them. And the so-called adult supervision has really been lacking at UiPath, historically. Daniel Dines will no doubt continue to have a big presence at the event and at the company. He's not a figurehead by any means. He's got a deep understanding of the product and the market and we'll be interviewing both Daniel and Rob Enslin on theCUBE to find out how they see the future. So tune in next week, or if you're in Las Vegas, definitely stop by theCUBE. If you're not go to thecube.net, you'll be able to watch all of our coverage. Okay, we're going to leave it there today. I want to thank Chip Simonton again for his input to today's episode. Thanks to Alex Morrison who's on production and manages our podcasts. Ken Schiffman, as well, from our Boston office, our Boston studio. Kristen Martin, and Cheryl Knight, they helped get the word out on social media and in our newsletters. And Rob Hof is our editor in chief over at SiliconANGLE that does some great editing. Thanks all. Remember, these episodes are all available as podcasts wherever you listen. All you got to do is search Breaking Analysis Podcasts. I publish each week on wikibon.com and siliconangle.com, and you could email me at david.vellante@siliconangle.com or DM me @dvellante. If you got anything interesting, I'll respond. If not, please keep trying, or comment on my LinkedIn post and please do check out etr.ai for the best survey data in the enterprise tech business. This is Dave Vellante for theCUBE insights powered by ETR. Thanks for watching, and we'll see you next time on Breaking Analysis. (gentle techno music)

>> From the Cube studios in Palo Alto and Boston, bringing you data driven insights from theCUBE and ETR, this is Breaking Analysis with Dave Vellante. >> While the precise direction of VMware's future is unknown, given the plan Broadcom acquisition, one thing is clear. The topic of what Broadcom plans will not be the main focus of the agenda at the upcoming VMware Explore event next week in San Francisco. We believe that despite any uncertainty, VMware will lay out for its customers what it sees as its future. And that future is multi-cloud or cross-cloud services, what we call Supercloud. Hello, and welcome to this week's Wikibon Cube Insights powered by ETR. In this breaking analysis, we drill into the latest survey data on VMware from ETR. And we'll share with you the next iteration of the Supercloud definition based on feedback from dozens of contributors. And we'll give you our take on what to expect next week at VMware Explorer 2022. Well, VMware is maturing. You can see it in the numbers. VMware had a solid quarter just this week, which was announced beating earnings and growing the top line by 6%. But it's clear from its financials and the ETR data that we're showing here that VMware's Halcion glory days are behind it. This chart shows the spending profile from ETR's July survey of nearly 1500 IT buyers and CIOs. The survey included 722 VMware customers with the green bars showing elevated spending momentum, ie: growth, either new or growing at more than 6%. And the red bars show lower spending, either down 6% or worse or defections. The gray bars, that's the flat spending crowd, and it really tells a story. Look, nobody's throwing away their VMware platforms. They're just not investing as rapidly as in previous years. The blue line shows net score or spending momentum and subtracts the reds from the greens. The yellow line shows market penetration or pervasiveness in the survey. So the data is pretty clear. It's steady, but it's not remarkable. Now, the timing of the acquisition, quite rightly, is quite good, I would say. Now, this next chart shows the net score and pervasiveness juxtaposed on an XY graph and breaks down the VMware portfolio in those dimensions, the product portfolio. And you can see the dominance of respondents citing VMware as the platform. They might not know exactly which services they use, but they just respond VMware. That's on the X axis. You can see it way to the right. And the spending momentum or the net score is on the Y axis. That red dotted line at 4%, that indicates elevated levels and only VMware cloud on AWS is above that line. Notably, Tanzu has jumped up significantly from previous quarters, with the rest of the portfolio showing steady, as you would expect from a maturing platform. Only carbon black is hovering in the red zone, kind of ironic given the name. We believe that VMware is going to be a major player in cross cloud services, what we refer to as Supercloud. For months, we've been refining the concept and the definition. At Supercloud '22, we had discussions with more than 30 technology and business experts, and we've gathered input from many more. Based on that feedback, here's the definition we've landed on. It's somewhat refined from our earlier definition that we published a couple weeks ago. Supercloud is an emerging computing architecture that comprises a set of services abstracted from the underlying primitives of hyperscale clouds, e.g. compute, storage, networking, security, and other native resources, to create a global system spanning more than one cloud. Supercloud is three essential properties, three deployment models, and three service models. So what are those essential elements, those properties? We've simplified the picture from our last report. We show them here. I'll review them briefly. We're not going to go super in depth here because we've covered this topic a lot. But supercloud, it runs on more than one cloud. It creates that common or identical experience across clouds. It contains a necessary capability that we call a superPaaS that acts as a cloud interpreter, and it has metadata intelligence to optimize for a specific purpose. We'll publish this definition in detail. So again, we're not going to spend a ton of time here today. Now, we've identified three deployment models for Supercloud. The first is a single instantiation, where a control plane runs on one cloud but supports interactions with multiple other clouds. An example we use is Kubernetes cluster management service that runs on one cloud but can deploy and manage clusters on other clouds. The second model is a multi-cloud, multi-region instantiation where a full stack of services is instantiated on multiple clouds and multiple cloud regions with a common interface across them. We've used cohesity as one example of this. And then a single global instance that spans multiple cloud providers. That's our snowflake example. Again, we'll publish this in detail. So we're not going to spend a ton of time here today. Finally, the service models. The feedback we've had is IaaS, PaaS, and SaaS work fine to describe the service models for Supercloud. NetApp's Cloud Volume is a good example in IaaS. VMware cloud foundation and what we expect at VMware Explore is a good PaaS example. And SAP HANA Cloud is a good example of SaaS running as a Supercloud service. That's the SAP HANA multi-cloud. So what is it that we expect from VMware Explore 2022? Well, along with what will be an exciting and speculation filled gathering of the VMware community at the Moscone Center, we believe VMware will lay out its future architectural direction. And we expect it will fit the Supercloud definition that we just described. We think VMware will show its hand on a set of cross-cloud services and will promise a common experience for users and developers alike. As we talked about at Supercloud '22, VMware kind of wants to have its cake, eat it too, and lose weight. And by that, we mean that it will not only abstract the underlying primitives of each of the individual clouds, but if developers want access to them, they will allow that and actually facilitate that. Now, we don't expect VMware to use the term Supercloud, but it will be a cross-cloud multi-cloud services model that they put forth, we think, at VMworld Explore. With IaaS comprising compute, storage, and networking, a very strong emphasis, we believe, on security, of course, a governance and a comprehensive set of data protection services. Now, very importantly, we believe Tanzu will play a leading role in any announcements this coming week, as a purpose-built PaaS layer, specifically designed to create a common experience for cross clouds for data and application services. This, we believe, will be VMware's most significant offering to date in cross-cloud services. And it will position VMware to be a leader in what we call Supercloud. Now, while it remains to be seen what Broadcom exactly intends to do with VMware, we've speculated, others have speculated. We think this Supercloud is a substantial market opportunity generally and for VMware specifically. Look, if you don't own a public cloud, and very few companies do, in the tech business, we believe you better be supporting the build out of superclouds or building a supercloud yourself on top of hyperscale infrastructure. And we believe that as cloud matures, hyperscalers will increasingly I cross cloud services as an opportunity. We asked David Floyer to take a stab at a market model for super cloud. He's really good at these types of things. What he did is he took the known players in cloud and estimated their IaaS and PaaS cloud services, their total revenue, and then took a percentage. So this is super set of just the public cloud and the hyperscalers. And then what he did is he took a percentage to fit the Supercloud definition, as we just shared above. He then added another 20% on top to cover the long tail of Other. Other over time is most likely going to grow to let's say 30%. That's kind of how these markets work. Okay, so this is obviously an estimate, but it's an informed estimate by an individual who has done this many, many times and is pretty well respected in these types of forecasts, these long term forecasts. Now, by the definition we just shared, Supercloud revenue was estimated at about $3 billion in 2022 worldwide, growing to nearly $80 billion by 2030. Now remember, there's not one Supercloud market. It comprises a bunch of purpose-built superclouds that solve a specific problem. But the common attribute is it's built on top of hyperscale infrastructure. So overall, cloud services, including Supercloud, peak by the end of the decade. But Supercloud continues to grow and will take a higher percentage of the cloud market. The reasoning here is that the market will change and compute, will increasingly become distributed and embedded into edge devices, such as automobiles and robots and factory equipment, et cetera, and not necessarily be a discreet... I mean, it still will be, of course, but it's not going to be as much of a discrete component that is consumed via services like EZ2, that will mature. And this will be a key shift to watch in spending dynamics and really importantly, computing economics, the things we've talked about around arm and edge and AI inferencing and new low cost computing architectures at the edge. We're talking not the near edge, like, Lowes and Home Depot, we're talking far edge and embedded devices. Now, whether this becomes a seamless part of Supercloud remains to be seen. Look, if that's how we see it, the current and the future state of Supercloud, and we're committed to keeping the discussion going with an inclusive model that gathers input from all parts of the industry. Okay, that's it for today. Thanks to Alex Morrison, who's on production, and he also manages the podcast. Ken Schiffman, as well, is on production in our Boston office. Kristin Martin and Cheryl Knight, they help us get the word out on social media and in our newsletters. And Rob Hoffe is our editor in chief over at Silicon Angle and does some helpful editing. Thank you, all. Remember these episodes, they're all available as podcasts, wherever you listen. All you got to do is search Breaking Analysis Podcast. I publish each week on wikibon.com and siliconangle.com. You can email me directly at david.vellante@siliconangle.com or DM me @Dvellante or comment on our LinkedIn posts. Please do check out etr.ai. They've got some great enterprise survey research. So please go there and poke around, And if you need any assistance, let them know. This is Dave Vellante for the Cube Insights powered by ETR. Thanks for watching, and we'll see you next time on Breaking Analysis. (lively music)

>> Announcer: From theCUBE studios in Palo Alto in Boston, bringing you data-driven insights from theCUBE and ETR. This is "Breaking Analysis" with Dave Vellante. >> The rapid pace of cloud adoption has changed the way organizations approach cybersecurity. Specifically, the cloud is increasingly becoming the first line of cyber defense. As such, along with communicating to the board and creating a security aware culture, the chief information security officer must ensure that the shared responsibility model is being applied properly. Meanwhile, the DevSecOps team has emerged as the critical link between strategy and execution, while audit becomes the free safety, if you will, in the equation, i.e., the last line of defense. Hello, and welcome to this week's, we keep on CUBE Insights, powered by ETR. In this "Breaking Analysis", we'll share the latest data on hyperscale, IaaS, and PaaS market performance, along with some fresh ETR survey data. And we'll share some highlights and the puts and takes from the recent AWS re:Inforce event in Boston. But first, the macro. It's earning season, and that's what many people want to talk about, including us. As we reported last week, the macro spending picture is very mixed and weird. Think back to a week ago when SNAP reported. A player like SNAP misses and the Nasdaq drops 300 points. Meanwhile, Intel, the great semiconductor hope for America misses by a mile, cuts its revenue outlook by 15% for the year, and the Nasdaq was up nearly 250 points just ahead of the close, go figure. Earnings reports from Meta, Google, Microsoft, ServiceNow, and some others underscored cautious outlooks, especially those exposed to the advertising revenue sector. But at the same time, Apple, Microsoft, and Google, were, let's say less bad than expected. And that brought a sigh of relief. And then there's Amazon, which beat on revenue, it beat on cloud revenue, and it gave positive guidance. The Nasdaq has seen this month best month since the isolation economy, which "Breaking Analysis" contributor, Chip Symington, attributes to what he calls an oversold rally. But there are many unknowns that remain. How bad will inflation be? Will the fed really stop tightening after September? The Senate just approved a big spending bill along with corporate tax hikes, which generally don't favor the economy. And on Monday, August 1st, the market will likely realize that we are in the summer quarter, and there's some work to be done. Which is why it's not surprising that investors sold the Nasdaq at the close today on Friday. Are people ready to call the bottom? Hmm, some maybe, but there's still lots of uncertainty. However, the cloud continues its march, despite some very slight deceleration in growth rates from the two leaders. Here's an update of our big four IaaS quarterly revenue data. The big four hyperscalers will account for $165 billion in revenue this year, slightly lower than what we had last quarter. We expect AWS to surpass 83 billion this year in revenue. Azure will be more than 2/3rds the size of AWS, a milestone from Microsoft. Both AWS and Azure came in slightly below our expectations, but still very solid growth at 33% and 46% respectively. GCP, Google Cloud Platform is the big concern. By our estimates GCP's growth rate decelerated from 47% in Q1, and was 38% this past quarter. The company is struggling to keep up with the two giants. Remember, both GCP and Azure, they play a shell game and hide the ball on their IaaS numbers, so we have to use a survey data and other means of estimating. But this is how we see the market shaping up in 2022. Now, before we leave the overall cloud discussion, here's some ETR data that shows the net score or spending momentum granularity for each of the hyperscalers. These bars show the breakdown for each company, with net score on the right and in parenthesis, net score from last quarter. lime green is new adoptions, forest green is spending up 6% or more, the gray is flat, pink is spending at 6% down or worse, and the bright red is replacement or churn. Subtract the reds from the greens and you get net score. One note is this is for each company's overall portfolio. So it's not just cloud. So it's a bit of a mixed bag, but there are a couple points worth noting. First, anything above 40% or 40, here as shown in the chart, is considered elevated. AWS, as you can see, is well above that 40% mark, as is Microsoft. And if you isolate Microsoft's Azure, only Azure, it jumps above AWS's momentum. Google is just barely hanging on to that 40 line, and Alibaba is well below, with both Google and Alibaba showing much higher replacements, that bright red. But here's the key point. AWS and Azure have virtually no churn, no replacements in that bright red. And all four companies are experiencing single-digit numbers in terms of decreased spending within customer accounts. People may be moving some workloads back on-prem selectively, but repatriation is definitely not a trend to bet the house on, in our view. Okay, let's get to the main subject of this "Breaking Analysis". TheCube was at AWS re:Inforce in Boston this week, and we have some observations to share. First, we had keynotes from Steven Schmidt who used to be the chief information security officer at Amazon on Web Services, now he's the CSO, the chief security officer of Amazon. Overall, he dropped the I in his title. CJ Moses is the CISO for AWS. Kurt Kufeld of AWS also spoke, as did Lena Smart, who's the MongoDB CISO, and she keynoted and also came on theCUBE. We'll go back to her in a moment. The key point Schmidt made, one of them anyway, was that Amazon sees more data points in a day than most organizations see in a lifetime. Actually, it adds up to quadrillions over a fairly short period of time, I think, it was within a month. That's quadrillion, it's 15 zeros, by the way. Now, there was drill down focus on data protection and privacy, governance, risk, and compliance, GRC, identity, big, big topic, both within AWS and the ecosystem, network security, and threat detection. Those are the five really highlighted areas. Re:Inforce is really about bringing a lot of best practice guidance to security practitioners, like how to get the most out of AWS tooling. Schmidt had a very strong statement saying, he said, "I can assure you with a 100% certainty that single controls and binary states will absolutely positively fail." Hence, the importance of course, of layered security. We heard a little bit of chat about getting ready for the future and skating to the security puck where quantum computing threatens to hack all of the existing cryptographic algorithms, and how AWS is trying to get in front of all that, and a new set of algorithms came out, AWS is testing. And, you know, we'll talk about that maybe in the future, but that's a ways off. And by its prominent presence, the ecosystem was there enforced, to talk about their role and filling the gaps and picking up where AWS leaves off. We heard a little bit about ransomware defense, but surprisingly, at least in the keynotes, no discussion about air gaps, which we've talked about in previous "Breaking Analysis", is a key factor. We heard a lot about services to help with threat detection and container security and DevOps, et cetera, but there really wasn't a lot of specific talk about how AWS is simplifying the life of the CISO. Now, maybe it's inherently assumed as AWS did a good job stressing that security is job number one, very credible and believable in that front. But you have to wonder if the world is getting simpler or more complex with cloud. And, you know, you might say, "Well, Dave, come on, of course it's better with cloud." But look, attacks are up, the threat surface is expanding, and new exfiltration records are being set every day. I think the hard truth is, the cloud is driving businesses forward and accelerating digital, and those businesses are now exposed more than ever. And that's why security has become such an important topic to boards and throughout the entire organization. Now, the other epiphany that we had at re:Inforce is that there are new layers and a new trust framework emerging in cyber. Roles are shifting, and as a direct result of the cloud, things are changing within organizations. And this first hit me in a conversation with long-time cyber practitioner and Wikibon colleague from our early Wikibon days, and friend, Mike Versace. And I spent two days testing the premise that Michael and I talked about. And here's an attempt to put that conversation into a graphic. The cloud is now the first line of defense. AWS specifically, but hyperscalers generally provide the services, the talent, the best practices, and automation tools to secure infrastructure and their physical data centers. And they're really good at it. The security inside of hyperscaler clouds is best of breed, it's world class. And that first line of defense does take some of the responsibility off of CISOs, but they have to understand and apply the shared responsibility model, where the cloud provider leaves it to the customer, of course, to make sure that the infrastructure they're deploying is properly configured. So in addition to creating a cyber aware culture and communicating up to the board, the CISO has to ensure compliance with and adherence to the model. That includes attracting and retaining the talent necessary to succeed. Now, on the subject of building a security culture, listen to this clip on one of the techniques that Lena Smart, remember, she's the CISO of MongoDB, one of the techniques she uses to foster awareness and build security cultures in her organization. Play the clip >> Having the Security Champion program, so that's just, it's like one of my babies. That and helping underrepresented groups in MongoDB kind of get on in the tech world are both really important to me. And so the Security Champion program is purely purely voluntary. We have over 100 members. And these are people, there's no bar to join, you don't have to be technical. If you're an executive assistant who wants to learn more about security, like my assistant does, you're more than welcome. Up to, we actually, people grade themselves when they join us. We give them a little tick box, like five is, I walk on security water, one is I can spell security, but I'd like to learn more. Mixing those groups together has been game-changing for us. >> Now, the next layer is really where it gets interesting. DevSecOps, you know, we hear about it all the time, shifting left. It implies designing security into the code at the dev level. Shift left and shield right is the kind of buzz phrase. But it's getting more and more complicated. So there are layers within the development cycle, i.e., securing the container. So the app code can't be threatened by backdoors or weaknesses in the containers. Then, securing the runtime to make sure the code is maintained and compliant. Then, the DevOps platform so that change management doesn't create gaps and exposures, and screw things up. And this is just for the application security side of the equation. What about the network and implementing zero trust principles, and securing endpoints, and machine to machine, and human to app communication? So there's a lot of burden being placed on the DevOps team, and they have to partner with the SecOps team to succeed. Those guys are not security experts. And finally, there's audit, which is the last line of defense or what I called at the open, the free safety, for you football fans. They have to do more than just tick the box for the board. That doesn't cut it anymore. They really have to know their stuff and make sure that what they sign off on is real. And then you throw ESG into the mix is becoming more important, making sure the supply chain is green and also secure. So you can see, while much of this stuff has been around for a long, long time, the cloud is accelerating innovation in the pace of delivery. And so much is changing as a result. Now, next, I want to share a graphic that we shared last week, but a little different twist. It's an XY graphic with net score or spending velocity in the vertical axis and overlap or presence in the dataset on the horizontal. With that magic 40% red line as shown. Okay, I won't dig into the data and draw conclusions 'cause we did that last week, but two points I want to make. First, look at Microsoft in the upper-right hand corner. They are big in security and they're attracting a lot of dollars in the space. We've reported on this for a while. They're a five-star security company. And every time, from a spending standpoint in ETR data, that little methodology we use, every time I've run this chart, I've wondered, where the heck is AWS? Why aren't they showing up there? If security is so important to AWS, which it is, and its customers, why aren't they spending money with Amazon on security? And I asked this very question to Merrit Baer, who resides in the office of the CISO at AWS. Listen to her answer. >> It doesn't mean don't spend on security. There is a lot of goodness that we have to offer in ESS, external security services. But I think one of the unique parts of AWS is that we don't believe that security is something you should buy, it's something that you get from us. It's something that we do for you a lot of the time. I mean, this is the definition of the shared responsibility model, right? >> Now, maybe that's good messaging to the market. Merritt, you know, didn't say it outright, but essentially, Microsoft they charge for security. At AWS, it comes with the package. But it does answer my question. And, of course, the fact is that AWS can subsidize all this with egress charges. Now, on the flip side of that, (chuckles) you got Microsoft, you know, they're both, they're competing now. We can take CrowdStrike for instance. Microsoft and CrowdStrike, they compete with each other head to head. So it's an interesting dynamic within the ecosystem. Okay, but I want to turn to a powerful example of how AWS designs in security. And that is the idea of confidential computing. Of course, AWS is not the only one, but we're coming off of re:Inforce, and I really want to dig into something that David Floyer and I have talked about in previous episodes. And we had an opportunity to sit down with Arvind Raghu and J.D. Bean, two security experts from AWS, to talk about this subject. And let's share what we learned and why we think it matters. First, what is confidential computing? That's what this slide is designed to convey. To AWS, they would describe it this way. It's the use of special hardware and the associated firmware that protects customer code and data from any unauthorized access while the data is in use, i.e., while it's being processed. That's oftentimes a security gap. And there are two dimensions here. One is protecting the data and the code from operators on the cloud provider, i.e, in this case, AWS, and protecting the data and code from the customers themselves. In other words, from admin level users are possible malicious actors on the customer side where the code and data is being processed. And there are three capabilities that enable this. First, the AWS Nitro System, which is the foundation for virtualization. The second is Nitro Enclaves, which isolate environments, and then third, the Nitro Trusted Platform Module, TPM, which enables cryptographic assurances of the integrity of the Nitro instances. Now, we've talked about Nitro in the past, and we think it's a revolutionary innovation, so let's dig into that a bit. This is an AWS slide that was shared about how they protect and isolate data and code. On the left-hand side is a classical view of a virtualized architecture. You have a single host or a single server, and those white boxes represent processes on the main board, X86, or could be Intel, or AMD, or alternative architectures. And you have the hypervisor at the bottom which translates instructions to the CPU, allowing direct execution from a virtual machine into the CPU. But notice, you also have blocks for networking, and storage, and security. And the hypervisor emulates or translates IOS between the physical resources and the virtual machines. And it creates some overhead. Now, companies like VMware have done a great job, and others, of stripping out some of that overhead, but there's still an overhead there. That's why people still like to run on bare metal. Now, and while it's not shown in the graphic, there's an operating system in there somewhere, which is privileged, so it's got access to these resources, and it provides the services to the VMs. Now, on the right-hand side, you have the Nitro system. And you can see immediately the differences between the left and right, because the networking, the storage, and the security, the management, et cetera, they've been separated from the hypervisor and that main board, which has the Intel, AMD, throw in Graviton and Trainium, you know, whatever XPUs are in use in the cloud. And you can see that orange Nitro hypervisor. That is a purpose-built lightweight component for this system. And all the other functions are separated in isolated domains. So very strong isolation between the cloud software and the physical hardware running workloads, i.e., those white boxes on the main board. Now, this will run at practically bare metal speeds, and there are other benefits as well. One of the biggest is security. As we've previously reported, this came out of AWS's acquisition of Annapurna Labs, which we've estimated was picked up for a measly $350 million, which is a drop in the bucket for AWS to get such a strategic asset. And there are three enablers on this side. One is the Nitro cards, which are accelerators to offload that wasted work that's done in traditional architectures by typically the X86. We've estimated 25% to 30% of core capacity and cycles is wasted on those offloads. The second is the Nitro security chip, which is embedded and extends the root of trust to the main board hardware. And finally, the Nitro hypervisor, which allocates memory and CPU resources. So the Nitro cards communicate directly with the VMs without the hypervisors getting in the way, and they're not in the path. And all that data is encrypted while it's in motion, and of course, encryption at rest has been around for a while. We asked AWS, is this an, we presumed it was an Arm-based architecture. We wanted to confirm that. Or is it some other type of maybe hybrid using X86 and Arm? They told us the following, and quote, "The SoC, system on chips, for these hardware components are purpose-built and custom designed in-house by Amazon and Annapurna Labs. The same group responsible for other silicon innovations such as Graviton, Inferentia, Trainium, and AQUA. Now, the Nitro cards are Arm-based and do not use any X86 or X86/64 bit CPUs. Okay, so it confirms what we thought. So you may say, "Why should we even care about all this technical mumbo jumbo, Dave?" Well, a year ago, David Floyer and I published this piece explaining why Nitro and Graviton are secret weapons of Amazon that have been a decade in the making, and why everybody needs some type of Nitro to compete in the future. This is enabled, this Nitro innovations and the custom silicon enabled by the Annapurna acquisition. And AWS has the volume economics to make custom silicon. Not everybody can do it. And it's leveraging the Arm ecosystem, the standard software, and the fabrication volume, the manufacturing volume to revolutionize enterprise computing. Nitro, with the alternative processor, architectures like Graviton and others, enables AWS to be on a performance, cost, and power consumption curve that blows away anything we've ever seen from Intel. And Intel's disastrous earnings results that we saw this past week are a symptom of this mega trend that we've been talking about for years. In the same way that Intel and X86 destroyed the market for RISC chips, thanks to PC volumes, Arm is blowing away X86 with volume economics that cannot be matched by Intel. Thanks to, of course, to mobile and edge. Our prediction is that these innovations and the Arm ecosystem are migrating and will migrate further into enterprise computing, which is Intel's stronghold. Now, that stronghold is getting eaten away by the likes of AMD, Nvidia, and of course, Arm in the form of Graviton and other Arm-based alternatives. Apple, Tesla, Amazon, Google, Microsoft, Alibaba, and others are all designing custom silicon, and doing so much faster than Intel can go from design to tape out, roughly cutting that time in half. And the premise of this piece is that every company needs a Nitro to enable alternatives to the X86 in order to support emergent workloads that are data rich and AI-based, and to compete from an economic standpoint. So while at re:Inforce, we heard that the impetus for Nitro was security. Of course, the Arm ecosystem, and its ascendancy has enabled, in our view, AWS to create a platform that will set the enterprise computing market this decade and beyond. Okay, that's it for today. Thanks to Alex Morrison, who is on production. And he does the podcast. And Ken Schiffman, our newest member of our Boston Studio team is also on production. Kristen Martin and Cheryl Knight help spread the word on social media and in the community. And Rob Hof is our editor in chief over at SiliconANGLE. He does some great, great work for us. Remember, all these episodes are available as podcast. Wherever you listen, just search "Breaking Analysis" podcast. I publish each week on wikibon.com and siliconangle.com. Or you can email me directly at David.Vellante@siliconangle.com or DM me @dvellante, comment on my LinkedIn post. And please do check out etr.ai for the best survey data in the enterprise tech business. This is Dave Vellante for theCUBE Insights, powered by ETR. Thanks for watching. Be well, and we'll see you next time on "Breaking Analysis." (upbeat theme music)

>> From The Cube studios in Palo Alto, in Boston, bringing you data driven insights from the cube and ETR. This is breaking analysis with Dave Vellante. >> Last year, we noted in a breaking analysis that the cloud ecosystem is innovating beyond the idea or notion of multi-cloud. We've said for years that multi-cloud is really not a strategy but rather a symptom of multi-vendor. And we coined this term supercloud to describe an abstraction layer that lives above the hyperscale infrastructure that hides the underlying complexities, the APIs, and the primitives of each of the respective clouds. It interconnects whether it's On-Prem, AWS, Azure, Google, stretching out to the edge and creates a value layer on top of that. So our vision is that supercloud is more than running an individual service in cloud native mode within an individual individual cloud rather it's this new layer that builds on top of the hyperscalers. And does things irrespective of location adds value and we'll get into that in more detail. Now it turns out that we weren't the only ones thinking about this, not surprisingly, the majority of the technology ecosystem has been working towards this vision in various forms, including some examples that actually don't try to hide the underlying primitives. And we'll talk about that, but give a consistent experience across the DevSecOps tool chain. Hello, and welcome to this week's Wikibon, Cube insights powered by ETR. In this breaking analysis, we're going to share some recent examples and direct quotes about supercloud from the many Cube guests that we've had on over the last several weeks and months. And we've been trying to test this concept of supercloud. Is it technically feasible? Is it business rational? Is there business case for it? And we'll also share some recent ETR data to put this into context with some of the players that we think are going after this opportunity and where they are in their supercloud build out. And as you can see I'm not in the studio, everybody's got COVID so the studios shut down temporarily but breaking analysis continues. So here we go. Now, first thing is we uncovered an article from earlier this year by Lori MacVittie, is entitled, Supercloud: The 22 Answer to Multi-Cloud Challenges. What a great title. Of course we love it. Now, what really interested us here is not just the title, but the notion that it really doesn't matter what it's called, who cares? Supercloud, distributed cloud, someone even called it Metacloud recently, and we'll get into that. But Lori is a technologist. She's a developer by background. She works at F-Five and she's partial to the supercloud definition that was put forth by Cornell. You can see it here. That's a cloud architecture that enables application migration as a service across different availability zones or cloud providers, et cetera. And that the supercloud provides interfaces to allocate, migrate and terminate resources... And can span all major public cloud providers as well as private clouds. Now, of course, we would take that as well to the edge. So sure. That sounds about right and provides further confirmation that something new is really happening out there. And that was our initial premise when we put this fourth last year. Now we want to dig deeper and hear from the many Cube guests that we've interviewed recently probing about this topic. We're going to start with Chuck Whitten. He's Dell's new Co-COO and most likely part of the Dell succession plan, many years down the road hopefully. He coined the phrase multi-cloud by default versus multi-cloud by design. And he provides a really good business perspective. He's not a deep technologist. We're going to hear from Chuck a couple of times today including one where John Furrier asks him about leveraging hyperscale CapEx. That's an important concept that's fundamental to supercloud. Now, Ashesh Badani heads products at Red Hat and he talks about what he calls Metacloud. Again, it doesn't matter to us what you call it but it's the ecosystem gathering and innovating and we're going to get his perspective. Now we have a couple of clips from Danny Allan. He is the CTO of Veeam. He's a deep technologist and super into the weeds, which we love. And he talks about how Veeam abstracts the cloud layer. Again, a concept that's fundamental to supercloud and he describes what a supercloud is to him. And we also bring with Danny the edge discussion to the conversation. Now the bottom line from Danny is we want to know is supercloud technically feasible? And is it a thing? And then we have Jeff Clarke. Jeff Clark is the Co-COO and Vice Chairman of Dell super experienced individual. He lays out his vision of supercloud and what John Furrier calls a business operating system. You're going to hear from John a couple times. And he, Jeff Clark has a dropped the mic moment, where he says, if we can do this X, we'll describe what X is, it's game over. Okay. So of course we wanted to then go to HPE, one of Dell's biggest competitors and Patrick Osborne is the vice president of the storage business unit at Hewlett Packet Enterprise. And so given Jeff Clarke's game over strategy, we want to understand how HPE sees supercloud. And the bottom line, according to Patrick Osborne is that it's real. So you'll hear from him. And now Raghu Raghuram is the CEO of VMware. He threw a curve ball at this supercloud concept. And he flat out says, no, we don't want to hide the underlying primitives. We want to give developers access to those. We want to create a consistent developer experience in that DevsSecOps tool chain and Kubernetes runtime environments, and connect all the elements in the application development stack. So that's a really interesting perspective that Raghu brings. And then we end on Itzik Reich. Itzik is a technologist and a technical team leader who's worked as a go between customers and product developers for a number of years. And we asked Itzik, is supercloud technically feasible and will it be a reality? So let's hear from these experts and you can decide for yourselves how real supercloud is today and where it is, run the sizzle >> Operative phrase is multi-cloud by default that's kind of the buzz from your keynote. What do you mean by that? >> Well, look, customers have woken up with multiple clouds, multiple public clouds, On-Premise clouds increasingly as the edge becomes much more a reality for customers clouds at the edge. And so that's what we mean by multi-cloud by default. It's not yet been designed strategically. I think our argument yesterday was, it can be and it should be. It is a very logical place for architecture to land because ultimately customers want the innovation across all of the hyperscale public clouds. They will see workloads and use cases where they want to maintain an On-Premise cloud, On-Premise clouds are not going away, I mentioned edge clouds, so it should be strategic. It's just not today. It doesn't work particularly well today. So when we say multi-cloud by default we mean that's the state of the world today. Our goal is to bring multi-cloud by design as you heard. >> Really great question, actually, since you and I talked, Dave, I've been spending some time noodling just over that. And you're right. There's probably some terminology, something that will get developed either by us or in collaboration with the industry. Where we sort of almost have the next almost like a Metacloud that we're working our way towards. >> So we manage both the snapshots and we convert it into the Veeam portable data format. And here's where the supercloud comes into play. Because if I can convert it into the Veeam portable data format, I can move that OS anywhere. I can move it from physical to virtual, to cloud, to another cloud, back to virtual, I can put it back on physical if I want to. It actually abstracts the cloud layer. There are things that we do when we go between cloud some use BIOS, some use UEFI, but we have the data in backup format, not snapshot format, that's theirs, but we have it in backup format that we can move around and abstract workloads across all of the infrastructure. >> And your catalog is control in control of that. Is that right? Am I thinking about that the right way? >> Yeah it is, 100%. And you know what's interesting about our catalog, Dave, the catalog is inside the backup. Yes. So here's, what's interesting about the edge, two things, on the edge you don't want to have any state, if you can help it. And so containers help with that You can have stateless environments, some persistent data storage But we not not only provide the portability in operating systems, we also do this for containers. And that's true. If you go to the cloud and you're using say EKS with relational database services RDS for the persistent data later, we can pick that up and move it to GKE or move it to OpenShift On-Premises. And so that's why I call this the supercloud, we have all of this data. Actually, I think you termed the term supercloud. >> Yeah. But thank you for... I mean, I'm looking for a confirmation from a technologist that it's technically feasible. >> It is technically feasible and you can do it today. >> You said also technology and business models are tied together and enabler. If you believe that then you have to believe that it's a business operating system that they want. They want to leverage whatever they can. And at the end of the day, they have to differentiate what they do. >> Well, that's exactly right. If I take that in what Dave was saying and I summarize it the following way, if we can take these cloud assets and capabilities, combine them in an orchestrated way to deliver a distributed platform, game over. >> We have a number of platforms that are providing whether it's compute or networking or storage, running those workloads that they plum up into the cloud they have an operational experience in the cloud and they now they have data services that are running in the cloud for us in GreenLake. So it's a reality, we have a number of platforms that support that. We're going to have a a set of big announcements coming up at HPE Discover. So we led with Electra and we have a block service. We have VM backup as a service and DR on top of that. So that's something that we're providing today. GreenLake has over, I think it's actually over 60 services right now that we're providing in the GreenLake platform itself. Everything from security, single sign on, customer IDs, everything. So it's real. We have the proofpoint for it. >> Yeah. So I want to clarify something that you said because this tends to be very commonly confused by customers. I use the word abstraction. And usually when people think of abstraction, they think it hides capabilities of the cloud providers. That's not what we are trying to do. In fact, that's the last thing we are trying to do. What we are trying to do is to provide a consistent developer experience regardless of where you want to build your application. So that you can use the cloud provider services if that's what you want to use. But the DevSecOp tool chain, the runtime environment which turns out to be Kubernetes and how you control the Kubernetes environment, how do you manage and secure and connect all of these things. Those are the places where we are adding the value. And so really the VMware value proposition is you can build on the cloud of your choice but providing these consistent elements, number one, you can make better use of us, your scarce developer or operator resources and expertise. And number two, you can move faster. And number three, you can just spend less as a result of this. So that's really what we are trying to do. We are not... So I just wanted to clarify the word abstraction. In terms of where are we? We are still, I would say, in the early stages. So if you look at what customers are trying to do, they're trying to build these greenfield applications. And there is an entire ecosystem emerging around Kubernetes. There is still, Kubernetes is not a developer platform. The developer experience on top of Kubernetes is highly inconsistent. And so those are some of the areas where we are introducing new innovations with our Tanzu Application Platform. And then if you take enterprise applications, what does it take to have enterprise applications running all the time be entirely secure, et cetera. >> Well, look, the multi-cloud by default today are isolated clouds. They don't work together. Your data is siloed. It's locked up and it is expensive to move and make sense of it. So I think the word you and I were batting around before, this is an interconnected tissue. That's what the world needs. They need the clouds to work together as a single platform. That's the problem that we're trying to solve. And you saw it in some of our announcements here that we're starting to make steps on that journey to make multi-cloud work together much simpler. >> It's interesting, you mentioned the hyperscalers and all that CapEx investments. Why wouldn't you want to take advantage of a cloud and build on the CapEx and then ultimately have the solutions machine learning as one area. You see some specialization with the clouds. But you start to see the rise of superclouds, Dave calls them, and that's where you can innovate on a cloud then go to the multiple clouds. Snowflakes is one, we see a lot of examples of supercloud... >> Project Alpine was another one. I mean, it's early, but it's its clearly where you're going. The technology is just starting to come around. I mean it's real. >> Yeah. I mean, why wouldn't you want to take advantage of all of the cloud innovation out there? >> Is that something that's, that supercloud idea is a reality from a technologist perspective. >> I think it is. So for example Katie Gordon, which I believe you've interviewed earlier this week, was demonstrating the Kubernetes data mobility aspect which is another project. That's exactly part of the it's rationale, the rationale of customers being able to move some of their Kubernetes workloads to the cloud and back and between different clouds. Why are we doing? Because customers wants to have the ability to move between different cloud providers, using a common API that will be able to orchestrate all of those things with a self-service that may be offered via the APEX console itself. So it's all around enabling developers and meeting them where they are today and also meeting them into tomorrow's world where they actually may have changed their mind to do those things. So yes we are walking on all of those different aspects. >> Okay. Let's take a quick look at some of the ETR data. This is an X-Y graph. You've seen it a number of times on breaking analysis, it plots the net score or spending momentum on the Y-axis and overlap or pervasiveness in the ETR dataset on the X-axis, used to be called market share. I think that term was off putting to some people, but anyway it's an indicator of presence in the dataset. Now that red dotted line that's rarefied air where anything above that line is considered highly elevated. Now you can see we've plotted Azure and AWS in the upper right. GCP is in there and Kubernetes. We've done that as reference points. They're not necessarily building supercloud platforms. We'll see if they ever want to do so. And Kubernetes of course not a company, but we put 'em in there for context. And we've cherry picked a few players that we believe are building out or are important for supercloud build out. Let's start with Snowflake. We've talked a lot about this company. You can see they're highly elevated on the vertical axis. We see the data cloud as a supercloud in the making. You've got pure storage in there. They made the public, the early part of its supercloud journey at Accelerate 2019 when it unveiled a hybrid block storage service inside of AWS, it connects its On-Prem to AWS and creates that singular experience for pure customers. We see Hashi, HashiCorp as an enabling infrastructure, as code. So they're enabling infrastructure as code across different clouds and different locations. You see Nutanix. They're embarking on their multi-cloud strategy but it's doing so in a way that we think is supercloud, like now. Now Veeam, we were just at VeeamON. And this company has tied Dell for the number one revenue player in data protection. That's according to IDC. And we don't think it won't be long before it holds that position alone at the top as it's growing faster than in Dell in the space. We'll see, Dell is kind of waking up a little bit and putting more resource on that. But Veeam, they're a pure play vendor in data protection. And you heard their CTO, Danny Allan's view on Supercloud, they're doing it today. And we heard extensive comments as well from Dell that's clearly where they're headed, project Alpine was an early example from Dell technologies world of Supercloud in our view. And HPE with GreenLake. Finally beginning to talk about that cross cloud experience. I think it in initially HPE has been more focused on the private cloud, we'll continue to probe. We'll be at HPE discover later on the spring, actually end of June. And we'll continue to probe to see what HPE is doing specifically with GreenLake. Now, finally, Cisco, we put them on the chart. We don't have direct quotes from recent shows and events but this data really shows you the size of Cisco's footprint within the ETR data set that's on the X-axis. Now the cut of this ETR data includes all sectors across the ETR taxonomy which is not something that we commonly show but you can see the magnitude of Cisco's presence. It's impressive. Now, they had better, Cisco that is, had better be building out a supercloud in our view or they're going to be left behind. And I'm quite certain that they're actually going to do so. So we have a lot of evidence that we're putting forth here and seeing in the marketplace what we said last year, the ecosystem is take taking shape, supercloud is forming and becoming a thing. And really in our view, is the future of cloud. But there are always risks to these predictive scenarios and we want to acknowledge those. So first, look, we could end up with a bunch of bespoke superclouds. Now one supercloud is better than three separate cloud native services that do fundamentally the same thing from the same vendor. One for AWS, one for GCP and one for Azure. So maybe that's not all that bad. But to point number two, we hope there evolves a set of open standards for self-service infrastructure, federated governance, and data sharing that will evolve as a horizontal layer versus a set of proprietary vendor specific tools. Now, maybe a company like Veeam will provide that as a data management layer or some of Veeam's competitors or maybe it'll emerge again as open source. As well, and this next point, we see the potential for edge disruptions, changing the economics of the data center. Edge in fact could evolve on its own, independent of the cloud. In fact, David Floria sees the edge somewhat differently from Danny Allan. Floria says he sees a requirement for distributed stateful environments that are ephemeral where recovery is built in. And I said, David, stateful? Ephemeral? Stateful ephemeral? Isn't that an oxymoron? And he responded that, look, if it's not ephemeral the costs are going to be prohibitive. He said the biggest mistake the companies could make is thinking that the edge is simply an extension of their current cloud strategies. We're seeing that a lot. Dell largely talks about the edge as retail. Now, and Telco is a little bit different, but back to Floria's comments, he feels companies have to completely reimagine an integrated file and recovery system which is much more data efficient. And he believes that the technology will evolve with massive volumes and eventually seep into enterprise cloud and distributed data centers with better economics. In other words, as David Michelle recently wrote, we're about 15 years into the most recent cloud cycle and history shows that every 15 years or so, something new comes along that is a blind spot and highly disruptive to existing leaders. So number four here is really important. Remember, in 2007 before AWS introduced the modern cloud, IBM outpost, sorry, IBM outspent Amazon and Google and RND and CapEx and was really comparable to Microsoft. But instead of inventing cloud, IBM spent hundreds of billions of dollars on stock buybacks and dividends. And so our view is that innovation rewards leaders. And while it's not without risks, it's what powers the technology industry it always has and likely always will. So we'll be watching that very closely, how companies choose to spend their free cash flow. Okay. That's it for now. Thanks for watching this episode of The Cube Insights, powered by ETR. Thanks to Stephanie Chan who does some of the background research? Alex Morrison is on production and is going to compile all this stuff. Thank you, Alex. We're all remote this week. Kristen Nicole and Cheryl Knight do Cube distribution and social distribution and get the word out, so thank you. Robert Hof is our editor in chief. Don't forget the checkout etr.ai for all the survey action. Remember I publish each week on wikibon.com and siliconangle.com and you can check out all the breaking analysis podcasts. All you can do is search breaking analysis podcast so you can pop in the headphones and listen while you're on a walk. You can email me at david.vellante@siliconangle.com. If you want to get in touch or DM me at DVellante, you can always hit me up into a comment on our LinkedIn posts. This is Dave Vellante. Thank you for watching this episode of break analysis, stay safe, be well and we'll see you next time. (upbeat music)

>> From theCUBE Studios in Palo Alto in Boston, bringing you data driven insights from theCUBE and ETR. This is Breaking Analysis with Dave Vellante. >> Cybersecurity stocks have been sending mixed signals as of late, mostly negative like much of tech, but some such as Palo Alto Networks, despite a tough go of it recently have held up better than most tech names. Others like CrowdStrike, had been out performing Broader Tech in March, but then flipped in May. Okta's performance was pretty much tracking along with CrowdStrike for most of the past several months, a little bit below, but then the Okta hack changed the trajectory of that name. Zscaler has crossed the critical billion dollar ARR revenue milestone, and now sees a path to five billion dollars in revenue, but the company stock fell sharply after its last earnings report and has been on a down trend since last November. Meanwhile, CyberArk's recent beat and raise, was encouraging and the stock acted well after its last report. Security remains the number one initiative priority amongst IT organizations and the spending momentum for many high flying cyber names remain strong. So what gives in cyber security? Hello, and welcome to this week's Wikibon CUBE insights powered by ETR. In this breaking analysis, we focus on security and will update you on the latest data from ETR to try to make sense out of the market and read into what this all means in both the near and long term, for some of our favorite names in cyber. First, the news. There's always something happening in security news cycles. The big recent news is new President Rodrigo Chavez declared a national emergency in Costa Rica due to the preponderance of Russian cyber attacks on the country's critical infrastructure. Such measures are normally reserved for natural disasters like earthquakes, but this move speaks to the nature of today's cyber threats. Of no surprise is modern superpower warfare even for a depleted power like Russia almost certainly involves cyber warfare as we continue to see in Ukraine. Privately held Arctic Wolf Networks hired Dustin Williams as its new CFO. Williams has taken three companies to IPO, including Nutanix in 2016, a very successful IPO for that company. Whether AWN chooses to pull the trigger this year or will wait until markets are less choppy or obviously remains to be seen. But it's a pretty clear sign the company is headed to IPO at some point. Now, big point of discussion this week at Red Hat Summit in Boston and the prior week at Dell technologies world was security. In the case of Red Hat, securing the digital supply chain was the main theme. And from Dell building, many security features into its storage arrays and cyber resilience services into its as a service offering called Apex. And we're seeing a trend where buyers want to reduce the number of bespoke tools they use if they, in fact can. Here's IDC's Jim Mercer, sharing data from a recent survey they conducted on the topic. Play the clip. >> Interestingly, we did a survey, I think around last August or something. And one of the questions was around where do you want your security, right? Where do you want to get your DevSecOps security from? Do you want to get it from individual vendors, right? Or do you want to get it from like your platforms that you're using and deploying changes in Kubernetes? >> Great question. What did they say? >> The majority of them, they're hoping they can get it built into the platform. That's really what they want-- >> Now, whether that's actually achievable is debatable because you have so much innovation and investment going on from the likes of startups and for instance, lace work or sneak and security companies that you see even trying to build platforms, you've got CrowdStrike, Okta, Zscaler and many others, trying to build security platforms and put it all under their umbrella. Now the last point will hit here is there was a lot of buzz in the news about Okta. The reaction to what was a relatively benign hack was pretty severe and probably overblown, but Okta's stock is paying the price of what is generally considered a blown communications plan versus a technical failure. Remember, identity is not an easy thing to rip and replace and Okta remains a best-of-breed player and leader in the space. So we're going to look at some ETR data later in this segment to try and make sense of the recent action in the market and certain names. Speaking of which let's take a look at how some of the names in cybersecurity have fared relative to some of the indices and relative indicators that we like to look at. Here's a Google finance comparison for a number of stocks and names in the bottom there you can see we plot the hack ETF which tracks security stocks. This is a year to date view. And so we don't show it here but the tech heavy NASDAQ is off around 26% year to date whereas the cyber ETF that we're showing is down 18%, okay. So cyber holding up a little bit better than broader tech as we've reported earlier, was actually much better and still seems to be a gap there, but the data are mixed. You can see Okta is way off relative to its peers. That's a combination of the breach that we talked about but also the run up in the stock since COVID. CrowdStrike was actually faring better but broke this month, we'll see how it's upcoming earnings announcements are received when it announces on June 2nd after the close. Palo Alto in the light blue has done better than most and until recently was holding up quite well. And of course, Sailpoint is another identity specialist, it is kind of off the charts here because it's going private with the acquisition by Thoma Bravo at nearly seven billion dollars. So you see some mixed signals in cyber these past several months and weeks. And so we're trying to understand what that all means. So let's take a look at the survey data and see how spending momentum is holding up. As we've reported IT spending forecast, at the macro level, they've come off their 8% highs from the end of the year, the ETRS December survey, but robust tech spending is still there. It's expected at nearly seven percent and this is amongst 1200 ETR respondents. Here's a picture from the ETR survey of the cybersecurity landscape. That y-axis that's net score or a measure of spending momentum and that horizontal access is overlap. We used to talk about it as a market share which is a measure of pervasiveness in the data set. That dotted red line at 40% indicates an elevated spending momentum level on the vertical axis and we filter the names and limited to only those with a hundred or more responses in the ETR survey. Then the pictures still pretty crowded as you can see. You got lots of companies above the red dotted line, including Microsoft which is up into the right, they're so far off the chart, it's just amazing. But also Palo Alto and Okta, Auth0, which of course is now owned by Okta, Zscaler, CyberArk is making moves. Sailpoint and Cloudflare, they're all above that magic 40% line. Now, you look at Cisco, it shows a very large presence in the horizontal axis in the data set. And it's got pretty respectable momentum and you see Splunk doing okay, no before and tenable just below that 40% line and a lot of names in the very respectable 20% zone. And we've included some legacy names just for context that fall below the zero percent line with a negative net score. And that means a larger proportion, that negative net score means a larger proportion of their customers in the survey are spending less than those that are spending more. Now, typically for these legacy names you're going to have a huge proportion of customers who have flat spending that kind of fat middle and that's why they sort of don't have that highly elevated score, but they're still viable as they get the recurring revenue each year. But the bottom line is that spending remains robust for some of the top names that we've talked about earlier despite their rocky stock performance. Now, let's filter this data a bit more to make it a little bit easier to read. So to do that, we take out Microsoft because they're just so dominant and we cherry pick some names to make the data more consumable and scannable. The other data point we've added is Okta's net score breakdown, the multicolored rows there, that row in the bottom right. Net score, it measures the percent of customers that are adding the platform new, that's the lime green, at 18% for Okta. The forest green is at 42%. That's the percent of customers in the survey that are spending six percent or more. The gray is flat spending. That's 32% for Okta, this past survey. The pink is customers that are spending less, that's three percent. They're spending six percent or worse in the survey, so only three percent for Okta. And the bright red at three percent is decommissioning the platform. You subtract the reds from the greens and you get a net score, well, into the 50s for Okta and you can see. We highlight Okta here because it's a name that we've been following for quite some time and customers have given us really solid feedback on the technology and up until the hack, they're affinity to Okta, but that seems to be continuing. We'll talk more about that. This recent breach to Okta has caused us to take a closer look. And you may recall, we reported with our ETR colleague, Eric Bradley. The breach was announced right in the middle of ETR collecting data in the last survey. And while we did see a noticeable downtick right after the announcement, the exposure of the hack and Okta's net score just after the breach was disclosed, you can see the combination of Okta and Auth0 remains very strong. I asked Eric Bradley this morning what he thought about Okta, and he pointed out that you can't evaluate this company on its price to earnings ratio. But it's forward sales multiple is now below 7X. And while attractive, these high flyers at some point, Eric says, they got to start making a profit. So you going to hold that thought, we'll come back to that. Now, another cut of the ETR data to look at our four star security names here. A while back we developed a methodology to try and cut through the noise of the crowded security sector using the ETR data to evaluate two key metrics; net score and shared N. Net score again is, spending momentum, the latter is an indicator of presence in the data set which is a proxy for market presence. Okay, we assigned those companies that cracked the top 10 in both net score and shared N, we give them four stars, okay, if they make the top 10. This chart here shows the April survey data for those companies with an N that's greater than, equal to a hundred responses. So again, we're filtering on those with a hundred or more responses. The table on the left that you see there, that's sorted by net score, okay. So we're sorting by spending momentum. And then the one on the right is sorted by shared N, so their presence in the data set. Seven companies hit the top 10 for both categories; Palo Alto Network, Splunk, CrowdStrike Okta, Proofpoint, Fortinet and Zscaler. Now, remember, take a look, Okta excludes Auth0, in this little methodology that we came up with. Auth0 didn't make the cuts but it hits the top 10 for net score. So if you add in Auth0's 112 N there that you see on the right. You add that into Okta, we put Okta in the number two spot in the survey on the right most table with the shared N of 354. Only Cisco has a higher presence in the data set. And you can see Cisco in the left lands just below that red dotted line. That's the top 10 in security. So if we were to combine Okta and Auth0 as one, Cisco would make the cut and earn four stars. Now, some other notables are CyberArk, which is just below the red line on the right most chart with an impressive 177 shared N. Again, if you combine Auth0 and Okta, CyberArk makes the four star grade because it's in the top 10 for net score on the left. And Sailpoint is another notable with a net score above 50% and it's got a shared N of 122, which is respectable. So despite the market's choppy waters, we're seeing some positive signs in the survey data for some of the more prominent names that we've been following for the last couple of years. So what does this mean for the markets going forward? As always, when we see these confusing signs we like to reach out to the network and one of the sharpest traders out there is Chip Simonton. We've quoted him before and we like to share some of his insights. And so we're going to highlight some of that here. So technically, almost every good tech stock is oversold. And as such, he suggested we might see a bounce here. We certainly are seeing that on this Friday, the 13th. But the right call tactically has been to sell into the rally these past several months, so we'll see what happens on Monday. The key issue with the name like Okta and some other momentum names like CrowdStrike and Zscaler is that when money comes back into tech, it's likely going to go to the FAANG stocks, the Facebook, Apple, Amazon, Netflix, Google, and of course, you put Microsoft in there as well. And we'll see about Amazon, by the way, it's kind of out of favor right now, as everyone's focused on the retail side of the business meanwhile it's cloud business is booming and that's where all the profit is. We think that should be the real focus for Amazon. But the point is, for these momentum names in cybersecurity that don't make money, they face real headwinds, as growth is slowing overall and interest rates rise, that makes the net present value of these investments much less attractive. We've talked about that before. But longer term, we agree with Chip Simonton that these are excellent companies and they will weather the storm and we think they're going to lead their respective markets. And in cyber, we would expect continued M&A activity, which could act as a booster shot in the arms of these names. Now in 2019, we saw the ETR data, it pointed to CrowdStrike, Zscaler, Okta and others in the security space. Some of those names that really looked to us like they were moving forward and the pandemic just created a surge in these names and admittedly they got out over their skis. But the data suggests that these leading companies have continued momentum and the potential for stay in power. Unlike the SolarWinds hack, it seems at this point anyway that Okta will recover in the market. For the reasons that we cited, investors, they might stay away for some time but longer term, there's a shift in CSO security strategies that appear to be permanent. They're really valuing cloud-based modern platforms, these platforms will likely continue to gain share and carry their momentum forward. Okay, that's it for now, thanks to Stephanie Chan, who helps with the background research and with social, Kristen Martin and Cheryl Knight help get the word out and do some great work as well. Alex Morrison is on production and handles all of our podcast. Alex, thank you. And Rob Hof is our Editor in Chief at SiliconANGLE. Remember, all these episodes, they're available as podcast, you can pop in the headphones and listen, just search "Breaking Analysis Podcast." I publish each week on wikibon.com and SiliconANGLE.com. Don't forget to check out etr.ai, best in the business for real customer data. It's an awesome platform. You can reach me at dave.vellante@siliconangle.com or @dvellante. You can comment on our LinkedIn posts. This is Dave Vellante for the CUBEinsights powered by ETR. Thanks for watching. And we'll see you next time. (bright upbeat music)