Dan Niles Says Workday Deal Could Put A Floor Under Software Stocks – Palo Alto CEO Says AI Is No 'Existential Threat' To Cybersecurity

• Niles said he believes AI-native companies like Anthropic and OpenAI would further pressure an already-stressed software industry, including point-solution software companies and IT service vendors.
• However, if the Workday deal were to go through, Niles said it would likely create a floor for the software sector and could even help it outperform the S&P 500 between now and year-end. 
• Meanwhile, Palo Alto Networks CEO Nikesh Arora responded to Niles’ comments on X, saying that he does not believe AI will be an “existential threat” to cybersecurity companies.

Private equity firm Silver Lake’s potential acquisition of software giant Workday Inc. (WDAY) is likely to create “a floor” for the pressured software sector “for some time,” as per Dan Niles, founder of Niles Investment Management. 

In a post on X, the portfolio manager said the potential deal would likely support not just Workday, which “was considered one of the names most likely to be disintermediated by AI,” but also provide respite for the sector as a whole. 

Reuters reported on Thursday that talks were underway for a potential deal, after which Workday's shares closed nearly 18% higher at $206.45, boosting its value from $43 billion to around $51.1 billion. 

Niles’ Thesis On The Software Sector

Niles said that private equity firms face a higher hurdle with acquisitions because they rely on debt, now facing the highest long-term borrowing costs in nearly two decades, and must have confidence in a five- to seven-year exit valuation. 

The challenge is even greater for a $50B+ Workday deal, which would rival Silver Lake’s record ~$55B Electronic Arts buyout, he said. 

Additionally, he added that he believes AI native companies like Anthropic and OpenAI, which operate at an annualized run rate of over $100 billion at present versus $29 billion at the start of the year would further pressurize an already stressed software industry, including point solution software companies and IT service vendors “that are not system of record, security or gaming.”

For context, the iShares Expanded Tech-Software Sector ETF (IGV) is down about 3% in the last one year, compared to a growth of over 20% for the S&P 500, indicating a lag in software shares compared to the broader market. 

“Having said that, these two recent events should help put a floor under the software sector as a whole and may help it to outperform between now and year-end given the massive underperformance and multiple compression seen since it peaked in October of last year,” Niles added. 

Palo Alto CEO Says Security Companies Not Threatened By AI

Meanwhile, Palo Alto Networks Inc. (PANW) CEO Nikesh Arora responded to Niles’ comments on X, saying that he does not believe that cybersecurity companies will come under too much pressure from the ongoing AI boom. 

“There are pressures to change with AI, but not an existential threat,” Arora said. 

PANW’s CEO said that large language model (LLM) companies are partnering with software firms because they lack a perimeter strategy, which makes it “hard to do low latency, small form factor edge security with frontier LLMs.”

He also said that while they could potentially be useful for some security use cases, they will require the industry to refactor various products. “In addition, over time all software products need to be more agentic and ‘opinionated’ with AI,” he added. 

However, Arora said he does not “disagree” that productivity software, creative studios, and systems of record that embed human business processes will feel pressure from AI, at least requiring a new approach. 

He later clarified in a separate post that he may have “misread” Niles’ stance on security, which appeared to align with his own thesis. 

How Are WDAY, PANW Stocks Performing?

Following the news report, WDAY stock surged, closing up nearly 18% higher on Thursday, but slipped about 0.5% in the overnight session. 

Meanwhile, PANW stock closed more than 2% higher and traded largely flat overnight. 

WDAY stock has reversed all its losses so far in 2026 and is up about 0.32% year-to-date. Meanwhile, PANW stock has surged nearly 121% this year.

On Stocktwits, retail sentiment around WDAY stock jumped from ‘neutral’ to ‘extremely bullish’ over 24 hours, while it was ‘bullish’ for PANW stock at the time of writing. 

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