Many cybersecurity stocks have delivered strong returns for investors in 2020. Just look at the gains delivered by stocks such as Cloudflare and Crowdstrike Holdings. The former has risen around 225% year-to-date, while the latter is up around 165%.
Can cybersecurity stocks continue to outperform? Looking at what is going on in the world today, it is certainly possible. Here are three reasons why the cybersecurity sector could be set for further gains in 2020 and beyond.
1 — Hackers are targeting the US election
In the near term, one thing that could boost the cybersecurity industry is the US presidential election.
After the 2016 US election, there was speculation that the voting system had been compromised by international cybercriminals. Shortly after that election, the Department of Homeland Security (DHS), the Office of the Director of National Intelligence (ODNI), and the Federal Bureau of Investigation (FBI) issued a Joint Analysis Report (JAR) confirming that the election was indeed subject to foreign interference.
The Facebook-Cambridge Analytica data breach — which is covered in the Netflix documentary ‘The Great Hack’ — was another scandal that took place at the time. Here, it was alleged that the personal data of millions of Facebook users was harvested without consent to be used predominantly for political advertising. Facebook was fined around $5 billion by the Federal Trade Commission (FTC) for the data breach.
On September 10th, tech giant Microsoft warned that the Russian military intelligence unit that attacked the Democratic National Committee in 2016, Strontium Group, was back again and targeting the 2020 election intensely.
“Similar to what we observed in 2016, Strontium is launching campaigns to harvest people’s log-in credentials or compromise their accounts, presumably to aid in intelligence gathering or disruption operations,” said Tom Burt, VP, Customer Security & Trust at Microsoft.
Microsoft also warned that this year, the threats would be more sophisticated than they were in the past.
This means that cybersecurity is going to play a crucial role in this year’s presidential election. In the short term, this should boost demand for advanced cybersecurity solutions.
2 — Remote working has made businesses more vulnerable
In the medium term, a growth driver for the cybersecurity industry is the work-from-home trend.
This year, working from home has become the norm for millions of employees around the world due to Covid-19 lockdown measures. This new style of working has plenty of advantages, both for employees and employers, however, it also has its downsides. One drawback is that it has made organisations far more vulnerable to cyberattacks.
The sudden shift to a distributed workforce has been a golden opportunity for cybercriminals, who have been quick to take advantage of unsecured home networks and a lack of proper cybersecurity protocols. Businesses are concerned. Research shows that over 80%¹ of IT leaders believe their company is at greater risk of a cyberattack now that more employees are working from home.
Faced with the threat of being hacked, organisations are waking up to the risks of remote working and spending heavily on cybersecurity solutions to protect themselves.
With the work-from-home trend set to accelerate in the years ahead (over 40% of employees are likely to work from home at least some of the time in the future²), we can expect spending on cybersecurity to remain high going forward.
3 — Businesses are embracing cloud technology
A third growth driver for cybersecurity stocks is the increased use of cloud technology.
Today, businesses all over the world are turning to cloud technology to enhance efficiency and gain an edge over the competition. Cloud technology is truly a game changer. Not only does it enable companies to be more agile (i.e., allowing employees to work from anywhere) and innovate faster, but it can also lead to large cost savings and help reduce organisational risk. Ultimately, the cloud has completely reshaped the business technology landscape.
The increased use of the cloud to store and transfer data is driving demand for more sophisticated cybersecurity software. Simple firewalls and other perimeter security devices are no longer sufficient to protect the enormous amount of valuable data that is stored in the cloud. And keeping this data secure is absolutely crucial for businesses. A tightening data security regulatory environment around the world, as shown by the EU’s General Data Protection Regulation (GDPR) and the California Consumer Privacy Act (CCPA), leaves little room for mistakes. The penalties associated with data breaches are huge.
The cloud computing industry is forecast to grow at nearly 20% per year between 2020 and 2025³. As more organisations race ahead with cloud technologies to meet their ever- expanding business needs, it should benefit companies that offer state-of-the-art cybersecurity solutions.
The best way to invest in cybersecurity stocks
The cybersecurity industry appears to offer a compelling opportunity for investors.
Currently, the global cybersecurity market is valued at around $170 billion. However, it is expected to grow at a compound annual growth rate (CAGR) of around 10% between now and 2027 to be worth approximately $330 billion⁴. Those investing now should be well placed to capitalise on this formidable industry growth.
Those looking to invest in publicly listed cybersecurity companies have no shortage of options. From well-known cybersecurity giants that have been around for decades such as NortonLifeLock to more niche players such as VMware and Zscaler which focus on cloud security, there are plenty of stocks in which to invest.
Not all cybersecurity stocks will turn out to be winners in the long run, however. In this industry, developing a sustainable competitive advantage is not easy. This is due to the fact that the nature of the threat is constantly evolving.
Ultimately, the best way to gain exposure to the cybersecurity sector is through a diversified fund that is focused on the industry. By investing in a whole portfolio of cybersecurity stocks, you can potentially capitalise on the upside that the theme offers, while minimising your downside risk.
To help investors gain exposure to the cybersecurity growth story, eToro has developed a Smart Portfolio that is focused specifically on cybersecurity stocks. This strategy provides investors with exposure to a wide range of leading companies that are working hard to protect governments, businesses, and individuals from the ever-increasing cybercrime threat.
You can find out more about eToro’s CyberSecurity Smart Portfolio here.
Sources:
https://www.marketsandmarkets.com/Market-Reports/cloud-computing-market-234.html
https://www.grandviewresearch.com/industry-analysis/cyber-security-market
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