Are cyber attacks now causing IT security industry share prices to rise?

The war in Ukraine does not end on the ground, it continues digitally - cyberwar prevails at the same time. During this period, cyberattacks and the spread of false information increased rapidly. This has also led to an increased demand for IT security services. This suggests: The IT security industry is booming, and stock prices are rising. Shanna Strauss-Frank, Switzerland spokesperson for the investment company Freedom Finance Europe, explains which IT security companies and shares are significant, how they perform and why innovation dominates the industry. 

Accumulation of cyberattacks after the start of the war in Ukraine

Every company will fall victim to a cyber attack sooner or later, warns the German IT industry association Bitkom. While the resulting damage amounted to 103 billion euros in 2018/19, the sum almost doubled to 203 billion euros in 2022.[1] In the third quarter of 2022, global attacks increased by 28 percent year-on-year. On February 27, three days after the official start of the war in Ukraine, Check Point Research reported a 196 percent increase in cyberattacks on Ukraine's military and government sectors.[2] But it wasn't just war-related attacks that characterized the past year. According to an IBM report, companies that use artificial intelligence and automation to detect potential threats and breaches had a 74-day shorter data breach cycle and saved an average of $3 million more.[3] These developments suggest that the need for cyber defense will become increasingly central to enterprises in the coming years.

Cyber stocks affected by tech meltdown only in the short term

Like many other technology stocks, cybersecurity stocks saw strong demand as well as market growth in the early stages of the corona pandemic, as Strauss-Frank explains, "With the shift to digital work, concerns about the need for cybersecurity measures have increased." In recent months, however, the tide has turned: investor expectations have not been met, the Fed has hiked the federal funds rate, and companies in the technology sector have seen sales and share prices plummet. Will this development weaken IT security stocks? Says Strauss-Frank: "Cybersecurity stocks are part of the growth stock segment and these are the first to suffer from an interest rate hike. Despite the temporary downturn, they can be interesting from a long-term perspective, as the current weakness creates opportunities to build positions. And when equity markets recover in general, growth stocks can be among the top performers."

Increasing complexity could dampen flight of fancy

For example, Strauss-Frank says the global cybersecurity market is expected to grow at a compound annual growth rate of 8.9 percent between 2022 and 2027 - reaching a value of $266 billion by then. But Strauss-Frank warns, "Cyberattacks can be expected to become more complex in the coming years. That presents new challenges for implementing security solutions and could hinder market growth." The future development of the market also depends heavily on political and social tensions. Examples of this include the hacking attacks during the 2020 U.S. elections and the serious increase in cyberattacks on healthcare in the wake of the pandemic.

Innovation as an elementary survival strategy

There is also the question of whether in the cyber market, as in the technology industry, individual big players will be able to dominate the market. "Certainly there are some well-established and large players, but a significant number of smaller, specialized companies can also be found that are successful by focusing on specific market areas with innovative products and services," Strauss-Frank says. In the industry, he says, it is essential to keep up with the latest trends, identify potential future threats and constantly innovate to stay ahead of the competition. For entrenched operations, this can be a challenge if their processes are outdated. Smaller, more agile cybersecurity providers might be able to respond more quickly to developments. That's why, for example, the big player in the cloud security market Palo Alto Networks acquired over a dozen young cloud developers in recent years.

Significant cybersecurity vendors and stocks

For both individuals and organizations, cybersecurity is a growing necessity and effective security measures are taking a high priority. "Accordingly, private individuals are increasingly using antivirus software or VPNs. Cloud-based services to protect their own devices, such as a password manager, are also popular here. Companies, on the other hand, often require more complex security measures," explains Strauss-Frank, pointing to other cybersecurity stocks worth mentioning: "In terms of revenue, software provider Fortinet is one of the most profitable IT security companies, along with Palo Alto Networks. Both companies are forecasting double-digit percentage revenue growth in the coming years." CrowdStrike Holding and Zscaler are also cloud providers with potential, according to Strauss-Frank. Finally, she adds, "Okta's identity management software could be in high demand in an increasingly mobile and cloud-based world."

Sources:

[1] https://www.bitkom.org/Presse/Presseinformation/Wirtschaftsschutz-2022#item-16370-close

[2] https://blog.checkpoint.com/2022/10/26/third-quarter-of-2022-reveals-increase-in-cyberattacks/

[3] https://www.ibm.com/reports/data-breach