HIGHLIGHTS: Nikesh Arora - CEO of Palo Alto Networks

0:00Hi, everybody. Tune in to this short version of the podcast, which we do every Friday. For the long version, tune in on Wednesdays. Hi, everyone. I'm Nikolai Tangen, the CEO of the Norwegian Sober and Wealth Fund. And today I'm in really good company with Nikesh Arora, the CEO of Palo Alto Networks. Palo Alto Networks is the world leader within cybersecurity, which has never been more important than today. We own 1.2 % of the company, translating into more than$1 billion. Thank you so much, Nikesh, for taking the time. Thank you, Nikolai. Lovely to see you again. Now, let's start off with the basics.

0:39What do you guys do? That's a good question. Look, as the world has digitized, as we've all adopted technology, whether it's on our smartphones or as companies make applications available to everyone, the possibilities of bad actors getting into company systems or our personal systems goes up. And our job is to protect that technology infrastructure from bad actors. So we are in the business of cybersecurity, which is to protect our enterprise customers, governments, and individuals from being hacked or attacked or coerced by bad actors. Now, the thing is that everything is digital these days, right?

1:16Yes. Your car, you know, streetlights. So what's kind of happening with the whole attack surface? Well, it's a great, great comment, Nikolai, because you've said it right. We call this the attack surface, and the attack surface is expanding, and I think we're not done. And as you said, if you drive around in San Francisco in a Waymo, that's your car, but the car is now fully connected to some central nervous system. And if a bad actor could get their hands on that control system to your car, they can control your car. So as we create more and more technology, more and more interconnectivity, we are creating the opportunity for bad actors to get involved and start to interfere or start to take over this attack surface.

1:59So yes, the attack surface is fundamentally exploding, will continue to explode, which makes it more and more important for us to make sure that we are able to protect those situations faster and faster and faster in more real time as we can. What's the most difficult part of what you do? The most difficult part is the tables are unfairly stacked. The bad actor has to be right once and we have to be right 100 % of the time. That's hard to do. How do you do it? More and more technology. We all talk about AI and I'm sure we'll talk about it, but we have to be able to identify things as they're happening.

2:42We have to be able to look for the needle in the haystack. And today, with the amount of data that's floating around in the world, the amount of connectivity as we talked about that is going on, the only way to do it efficiently, effectively, and in real time is to use the same technology to protect ourselves against cyber threats that we are using to make our lives convenient. How has AI changed the way you work? Oh, I think AI is going to change everything. It's almost as we are beginning to see every week there's a net new incarnation of AI. And you can see it keeps getting smarter. And the way I sort of correlate this is like, AI is like having a really smart person that you can have work for you.

3:23This person doesn't forget anything. This person knows everything that's ever happened in the world. This person knows how to recognize patterns. And what's happening is that that person is, over time, going to become smarter than the average employee and be able to either assist the current employees in the task and possibly take over their tasks. Now, that also applies to cybersecurity, right? If you can have somebody who has infinite memory, infinite pattern recognition, And the question is, can I train it with my information to be more effective and helpful for me? I think that's just phase one.

3:53Who are the bad guys? Where is the dark side? The dark side is interesting. It's been an evolution. I think 15 years ago, it was people who sat playing games in their parents' basements and who were great at technology. and sort of hacking somebody or proving a point was kind of like getting a trophy. It's like, you know, look at me, I'm so smart. I can hack into the system X, the system Y. And look, I showed that I can do it. But very quickly, as the world became more and more interconnected, it started getting any sort of economic legs. People said, wait, if I do that, I can actually find a way to monetize it and find a way of getting money for it, whether from the companies or individuals.

4:35And we're seeing a lot of that. There's a lot of ransomware activity, a lot of activity where people are scared into sharing economics with bad actors. I think we're past that, too. I think nation states have started building that capability in a robust way because I think the future wars will be fought both in the digital war sort of battlefield as well as a physical battlefield. The digital battlefield is a lot less expensive from a situation where, from a casualty perspective. If you were a bit more specific about the countries. I don't think it's a state secret that there are countries which have tremendous offensive capability.

5:15Even the U.S. has great offensive capability, but there are people out there who spend more time building offensive capability than defensive capability because they feel that that capability would be extremely well leveraged in an adversarial situation. And we have bad actors. We have seen groups in North Korea. We've seen groups in China. You've seen groups in Russia, various parts of Eastern Europe, some parts of Middle East. So you have groups of people. Now, that doesn't mean the whole country is bad. If you had my job, what would you be the most worried about? Look, in your business, there's event risk, right?

5:51Although everything goes down the path, you have wonderful models that try and tell you how things are going to happen. From an event risk perspective, it's very hard to model it. It's very hard to be afraid of it because event risk is event risk. If something's going to happen to one of your portfolio companies, it's going to happen. If something's going to happen that impacts a certain sector of your portfolio, it's going to happen. I think on the flip side, what you can look for is, let's say, basic hygiene. Typically, cybersecurity is like water. It follows the path of least resistance. So the companies that are most vulnerable will be the ones which will have the most problems.

6:27So demanding a certain level of quality, a certain level of cybersecurity hygiene becomes important. And you see that, you know, there are various executive orders, edicts from governments where they demand that a certain level of hygiene be maintained by critical infrastructure because that can impact nation state stability. Are you worried about the whole financial system plumbing, like stock exchanges, that kind of thing? Look, I can scare myself every day if I want to. So I believe in the sort of, you know, the goodness of humanity. If you look around, we haven't seen those things. And I think the flip side is the resilience as well.

7:02Look at, you know, we powered through a pandemic, which is one of the biggest crises that civilization has seen in modern times. So can we overcome some plumbing breakdown? Sure, we can. Will it be choppy? Possibly. It all depends on the extent and the extent of the impact and the scale of the impact. But I'm not worried. there's enough segmentation, there's enough circuit breakers in the systems where I think today we say, look, when you think about cybersecurity, think about cyber resilience, because the possibility that you can get attacked, hacked, or brought down to your knees is reasonably high.

7:40If somebody shows up with tremendous amounts of force and compute, they can find a way to breaking into that one chink in your armor and destabilize you. The question is, how resilient are you? If somebody does destabilize you, how quickly can you come back up? How quickly can you bring your infrastructure back up and you can resume operation? That's kind of where the focus has been the last few years amongst large companies, enterprises, critical systems. And that's a good thing because I think that's the right way to think about it. I am slightly confident by the fact that you still believe in the goodness of humankind because I hadn't really expected that to be the case.

8:17As you say, hope for the best and prepare for the worst. That's what we do every day. What's the Indian leadership style like? What are the commonalities? Look, remember, we all grew up with scarcity. I think so being resourceful has to come naturally to us. Because if I look at some of my friends and peers in the industry, I know the backgrounds of many of them. And we all share similar backgrounds. We all went to some sort of engineering school in India. We all came from lower middle class or middle class families, if you look across the board. And I'm just thinking of eight or 10 people I know in our sector who are legendary CEOs right now.

8:57They all have similar backgrounds. So we all have some degree of resourcefulness, some degree of scrappiness, perhaps, that comes with it. It comes with a very strong work ethic because you can't survive in a country with one plus billion people at that point in time if you don't have the ability to put your head down and work hard. When I went to engineering school, I think 100 ,000 people took the exam and chose 2 ,000 people to go to those five schools that we wanted to go to. So there's a 2 % chance that you get in. So to get there, it was not just going to be pure luck. It was going to be a lot of hard work and dedication.

9:31I think every one of us went through that. So there's a work ethic. There's a resourcefulness aspect. I think there's a constant learning aspect to it. None of us grew up with AI, like you said. None of us grew up with the cloud. but somehow we've all managed to learn it. I didn't grow up with cybersecurity. We all managed to learn it. So there is some degree of a constant learning sort of algorithm in there. Hopefully, there's a dose of ample humility across the board, because we're all blessed and privileged to be able to work in this environment and be part of a larger sort of, cosmos in the United States to be able to sort of make our dreams come true.

10:05And then the rest is chance. How do you stay humble with all that success? oh uh go home to the family they'll set you right in a heartbeat you know it doesn't matter how successful you're at work you're still part of a family unit and i think i think it's consistent and i know some of these people i said and their spouses and you know they keep us grounded they keep us focused on the right things and i was chatting with somebody last night you know i still hang out with my friends i knew in high school you know it doesn't matter what i do for a living and they don't really care what i do for a living for the most part so just go back stay with your family and your friends and they'll keep you grounded