Cybersecurity stocks fall, but are China fears just 'fake news'?

By Christine Ji Shares of Fortinet, Palo Alto Networks and other cybersecurity players dropped on news of a reported crackdown by Beijing Palo Alto Networks shares are falling on Wednesday. Tensions between the U.S. and China are flaring up again, and this time cybersecurity firms are caught in the crossfire. On Wednesday morning, Reuters reported that Chinese regulators have ordered domestic firms to stop using software from roughly a dozen U.S. and Israeli cybersecurity companies, citing national-security concerns. The list of targeted companies reportedly includes Palo Alto Networks (PANW), Fortinet (FTNT) and Broadcom's (AVGO) VMware, as well as Israel's Check Point Software Technologies (CHKP). While shares of all four companies initially retreated in premarket trading, they saw mixed results after the opening bell. By late morning Wednesday, Broadcom's stock was down 5.0%, with shares of Fortinet and Palo Alto Networks falling 2.3% and 1.5%, respectively. Check Point Software reversed its earlier losses, however, trading up 1.8%. Chinese officials are concerned that these companies' products could be used to collect sensitive data and transmit it abroad. It's the latest push from Beijing to encourage homegrown technology and reduce China's reliance on foreign companies. Despite the reported directive, it remains unclear if the companies themselves have been officially notified. A spokesperson for Check Point told MarketWatch that the company is not aware of any restrictions on its operations and has received no government notification to date. "We'll continue supporting our customers in this region," the spokesperson added, noting that their China business primarily supports international firms and a few local entities. Fortinet, Palo Alto Networks, and Broadcom did not immediately respond to requests for comment. See also: Salesforce and Adobe see their stocks slide as AI fears intensify The development caught some on Wall Street by surprise, with Bernstein analyst Peter Weed questioning in a Wednesday note whether it was "real or fake news." Many of the listed firms have low exposure to China, Weed wrote. For Palo Alto Networks, management has indicated less than 0.5% of total revenue comes from China. Fortinet has a slightly bigger presence likely in the "low-to-middle single digits," according to Weed, as the company has hardware firewalls available locally and an existing relationship with Chinese tech conglomerate Alibaba (BABA). While not mentioned in the report, Cloudflare (NET) is another candidate for potential restrictions, Weed mentioned. The company has a relationship with JD.com (JD) to offer security services and edge network capabilities in China. A similar conflict has been playing out related to Nvidia's (NVDA) ability to sell artificial-intelligence chips in the China market. After the Trump administration approved limited sales of Nvidia's H200 chip to China on Tuesday, Chinese officials have told customs agents to prohibit the entrance of H200 chips into the country, according to a separate Reuters report on Wednesday. Regulators reportedly met with Chinese tech companies on Tuesday, explicitly instructing them to limit purchases of the chips unless absolutely necessary. Read: Nvidia's stock was just named a top pick for a reason that might be surprising Nvidia didn't immediately respond to a MarketWatch request for comment. -Christine Ji This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal. (END) Dow Jones Newswires 01-14-26 1151ET