Investing in Cybersecurity: Questions and Risks

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Computers have become a vital part of our everyday life as we are able to stay connected online with friends or colleagues 24/7. However, cybersecurity has become an important issue as more and more people fall victim to online fraud, losing money or having their personal data exposed. 

The development of advanced cybersecurity tools has become imperative in order to safeguard browsing the world wide web. As a result, cybersecurity has created a market that has drawn a lot of attention when it comes to investors who try to diversify their portfolio.

Investing in cybersecurity could be one more option for investors who include tech firm shares in their investment portfolio.

What is Cybersecurity?

Cybersecurity is the protection of online-connected systems such as hardware, software and data from external or internal threats. Individuals and enterprises use cybersecurity measures to protect against unauthorized access to data centers and other computerized systems.

The Evolution of Cybersecurity

Cybersecurity is not something new. Its origins can be found in the 1980s when computers started to become the new normal in homes with some of them having access to the first online local networks. Although most people tried to reap the benefits of having access to information and use them in a positive way, some vowed to profit by performing illegal actions.

Cybersecurity: How It Started

In 1987, Andreas Lüning and Kai Figge released their first antivirus product for the Atari ST platform. The first IBM PC compatible "in the wild" computer virus, and one of the first widespread infections, was "Brain" in 1986. While some younger readers may wonder what the Atari ST was, these are considered the first steps towards the cybersecurity environment that we all know now.

From the First Antivirus to Firewalls and the Digital Era

Ever since then, a lot has changed. The MS-DOS gave its place to Windows, accessing the internet became an everyday routine, connection speeds have sky-rocketed, and the majority of the global population is able to browse favourite websites or buy online a wide range of products.

As online access is a prerequisite for many things, cybersecurity measures evolved. Advanced antiviruses, firewalls, antimalware tools and VPNs and other such software and sometimes hardware have been deployed to protect data and funds of people who surf the internet every day. On the other hand, cybercriminals have also improved the means that they use to steal data and money online.

However, the war is ongoing as both sides try to catch up with the technological evolution.

Should Investors Put Their Money Into Cybersecurity?

Investing in cybersecurity seems to be a topic of conversation for many analysts and investors in the past few years. As the number of cyber threats mounts, people with new ideas regarding cybersecurity form new companies and challenge the legacy companies of this industry.

Morgan Stanley Research showed cybersecurity spending appears poised to grow faster than other software categories. In a report published on August 25th 2022, Morgan Stanley analysts wrote: “Ultimately, the ever-growing threat of cybercrime is driving opportunity for cybersecurity providers. Morgan Stanley Research estimates that total direct revenues at security software vendors eclipsed $45 billion in 2020, expanding at a 12% three-year compound annual growth rate—making security one of the fastest-growing subsectors within technology.“ They also add that “while cybersecurity remains one of the most compelling secular growth opportunities in technology today, it’s worth noting that this opportunity has not been lost on the market. In fact, the sector has outperformed its software peers in recent years, and valuations remain above pre-COVID levels. Investors should keep in mind that still-elevated valuations may make the sector susceptible to more downside if macro pressures persist.”

Some market experts point out the influence that Artificial Intelligence could have on cybersecurity. Citigroup analysts said that "we view generative AI as a force multiplier and a positive for cyber vendors as it amplifies the ability of the masses to make proper threat assessments in a timely manner."

In its latest forecast,  research firm Gartner predicted that enterprise information security spending will reach $186 billion in 2023 and will grow to $278 billion in 2027. That's better than most information technology spending categories. On the other hand, Bank of America analysts expect market share to shift to cybersecurity firms with cloud computing platforms.

Investing In Cybersecurity: Is It Still Attractive?

Up until recently, cybersecurity startups had access to funding as they seemed attractive options to investors who wanted to diversify their portfolio. Some economists question whether the banking crisis could slow venture capital investment in the sector.

Baird analysts wrote in a note that "the cybersecurity startup ecosystem is flooded, with 3,000 security vendors reported by CyberDB. Despite high demand for cybersecurity tools, the vast number of vendors exacerbates complexity and tool sprawl, making it challenging for customers to review and adopt new technologies. Many subscale startups may fail or face financial difficulties as the market struggles to absorb rapid innovation."

Goldman Sachs market analysts suggested that investors should take into consideration long-term trends. “The industry is less cyclical as mix shifts away from hardware and toward SaaS (software-as-a-service). There are natural extensions for growth for industry incumbents that would otherwise be facing market saturation. They include Secure Access Service Edge for network security leaders and cloud workload protection platforms,” they wrote in a report.

Investing in Cybersecurity with Admirals

If you feel ready to start your investing journey by investing in cybersecurity, at Admirals we offer our clients the ability to invest in a wide range of different stocks and Exchange-Traded Funds (ETFs).  If you're interested in starting your own investing journey, click the banner below to open an account today:

This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.