Trend Micro’s share price fell rapidly after the company announced a downward revision to its operating profit forecast in its earnings report. The increase in AI-related and cloud costs was a factor, while the market’s long-term growth potential remains an area to watch.
Trend Micro released its earnings report, leaving its revenue outlook unchanged while revising its operating profit forecast downward. The share price subsequently hit the limit-down price, falling temporarily to ¥5,302 after reaching ¥6,982 before the announcement. The sharp decline raises concerns about short-term profit deterioration, but the cybersecurity market in which the company operates is expected to grow in the AI era.
On the cost side, spending on enhanced AI-enabled defenses and cloud-related expenses increased markedly, including AI token and API connection costs. While these expenses represent growth investment, they are also putting pressure on short-term profits. As AI adoption increases, the importance of security operations centers (SOCs) is rising, creating a need for company-wide monitoring and more sophisticated defensive capabilities.
Over the long term, recurring revenue is expected to expand through the shift to subscription-based services, making ARR growth a key focus. At the same time, foreign-exchange movements and the company’s high overseas sales mix could affect earnings volatility. Security spending is regarded as an expense that companies are unlikely to cut, making the ability to recoup these costs through the value delivered a key issue.
Competition is intensifying with major players such as CrowdStrike, Palo Alto Networks and Microsoft. This will test the company’s ability to pursue a strategy that combines open integration with the expansion of its proprietary capabilities. Growth in the SOC market and broader use of AI are factors that could expand the market, but the sustainability of earnings will depend on balancing the pass-through of costs with the integration of functions.
Key points for investment decisions include ARR growth, whether cloud-related costs stabilize, whether AI investment leads to higher revenue and contract values, a recovery in the operating margin, the appropriate implementation of the pricing model, and the maintenance of competitive advantages. Cost-structure changes over the next several years will need to be monitored closely.