You may think the time is right to move into cybersecurity stocks amid a flurry of high profile hacking incidents. Also, buzz surrounding artificial intelligence is driving investor interest in cybersecurity stocks. And, federal government spending on cybersecurity should provide a boost in 2024, analysts say.
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Cybersecurity Breaches Are A Concern For Executives. This Is ‘Critical’ As They Prepare.
As of Nov. 4, the Computer Software-Security group ranked No. 118 out of 197 industry groups that IBD tracks.
Cybersecurity Stocks: Identity Security
Meanwhile, research firm IDC forecasts big growth in identity security. The Identity and Access Management market will double from $23.5 billion in 2024 to $47.1 billion in 2028, according to IDC. Growth is expected to be driven by the increasing awareness of the critical nature of identity security in organizations, said a JPMorgan report, which sees upside in privileged access management for firms such as CyberArk (CYBR).
Public cloud deployment of identity security solutions will account for 83% of the market in 2028, up from 72% in 2024, said IDC.
CheckPoint Software Technologies (CHKP) on Oct. 29 missed on billings, a sales growth metric, when it reported third quarter earnings. Also, Fortinet (FTNT) and Cloudflare (NET) report on Nov. 7. CyberArk reports Nov. 13.
“Our discussions with resellers, private companies, industry leaders, and customers suggest the cybersecurity spending environment remains challenging and somewhat similar to prior periods,” said William Blair analyst Jonathan Ho in a report. “We had been optimistic that recent interest rate cuts, geopolitical instability, and heightened threat environment driven by AI could lead to increased optimism and spending, but our discussions indicate decision-makers appear to still be cautious with spending.”
Ho added: “We are not seeing evidence of an enhanced budget flush or accelerated spending in the fourth quarter. Instead, we believe trends consistent with prior periods will persist, including increased deal scrutiny, focus on value, elongation of sales cycles, and challenges in new customer acquisitions.”
What’s more, Cloudflare recently brought in Chirantan “CJ” Desai, formerly at ServiceNow (NOW), as president of product and engineering.
Meanwhile, Palo Alto Networks (PANW) has gained 23% in 2024 while Fortinet is up 34%. In an interview with IBD, Palo Alto Chief Executive Nikesh Arora talked about how his platform strategy will drive growth for Palo Alto stock.
Cybersecurity Stocks: Will CrowdStrike Rebound?
Meanwhile, CrowdStrike (CRWD) has gained 18% in 2024. CrowdStrike stock plunged in the wake of a widespread IT outage caused by the cybersecurity firm’s defective software update. CrowdStrike lowered fiscal 2025 guidance. But CrowdStrike stock has clawed back a bit.
Also, IBD recently profiled CrowdStrike rival SentinelOne (S) as a New America feature.
Also, Google-parent Alphabet’s (GOOGL) talks to acquire well-funded startup Wiz fell apart. Wiz plans to focus on hitting $1 billion in annual recurring revenue and preparing for an eventual initial public offering. A Wiz IPO would likely be the biggest ever in cybersecurity.
Among other possible cybersecurity IPOs, Cato Networks recently reached the $200 million mark in annual recurring revenue. And, Netskope reportedly plans an IPO in 2025.
Meanwhile, Mastercard (MA) acquired Recorded Future for $2.65 billion.
Cloud Products Boost Cybersecurity Stocks
One of the fastest growing markets for cybersecurity stocks — Secure Access Service Edge, or SASE, — has slowed down, says Dell’Oro Group.
Some Wall Street analysts tout cybersecurity stocks with cloud-based platforms as the most likely market share gainers.
Palo Alto Networks has used acquisitions to build a cloud platform equipped with artificial intelligence tools. Many companies aim to consolidate purchasing by buying from fewer security vendors, analysts say.
Further, CrowdStrike and Palo Alto Networks are players in the cloud security market, which incudes Cloud Native Application Protection Platform (CNAPP) products and services.
Bank of America forecasts that the CNAPP market will grow from $7.2 billion in 2023 to $16.3 billion in 2027 — a 24% five-year compound annual growth rate.
“The CNAPP market is evolving rapidly and private companies (Wiz and Orca), once leading the space technologically, are seeing more established security vendors entering the space like Crowdstrike, Palo Alto Networks, Zscaler, Fortinet and others, all addressing it from different angles,” said a BofA report.
Market research firm IDC holds a similar outlook.
The cybersecurity market will grow double digits from 2023 to 2028, hitting $201 million in 2028, IDC forecasts. It predicts that the CNAPP will be the fastest growing product category over the five years.
Cybersecurity Stocks: Microsoft Competition
The cybersecurity stocks have thrived despite growing competition from cloud computing giant Microsoft (MSFT). Microsoft aims to integrate artificial intelligence tools into its security platform. Called Microsoft Security Copilot, the platform uses a new AI assistant.
The recent hacks on UnitedHealth Group and casino operators MGM Resorts (MGM) and Caesars Entertainment (CZR) underlined worries that generative AI will increase ransomware attacks.
Also, some computer security firms could get a boost from new federal government initiatives.
Meanwhile, the Securities and Exchange Commission has new disclosure rules for public companies. The rules require companies to report hacking incidents within four business days if they have a material impact on operations.
The Cyber Incident Reporting Act of 2023 requires agencies, federal contractors and critical infrastructure operators to notify the Department of Homeland Security when a data breach is detected, a significant step in building security.
Cybersecurity Stocks: AI Double-Edged Sword
Meanwhile, both computer security firms and hackers are expected to make use of generative AI tools. Here’s a look at the AI cybersecurity battle.
Cybersecurity firms expect generative AI tools to help reduce the time to detect and respond to many forms of computer hacking. Also, they see generative AI automating more functions in security operations centers to help companies deal with a shortage of software engineers.
Analysts say a new wave of startups is taking share from industry incumbents. They include Wiz, Netskope, Tanium, Snyk, Lacework and Illumio.
Analysts say others to watch include Vectra AI, Huntress, Artic Wolf, Noname Security, Obsidian Security, Deep Instinct and Skyflow. The startups pressure incumbents into higher research and development spending.
Cybersecurity Stocks: Wide Range Of Products
Further, it behooves an investor to know which cybersecurity stocks address ransomware, phishing or other kinds of cyberattacks.
CyberArk specializes in privileged access management, part of the identity and access management market. IBD featured CyberArk stock in its New America section.
Also, Fortinet competes with Palo Alto Networks and others in the firewall security market. Firewalls reside between private networks and the internet. They block unauthorized traffic and check web applications for malware.
As large companies shift to off-premise cloud computing services, one view is that firewall technology will play a lesser role. Fortinet has targeted software-defined wide area networks, or SD-WANs, an emerging computer networking technology.
Also, many fast-growing cybersecurity firms are in the endpoint market. Their tools detect malware on laptops, mobile phones and other devices that access corporate networks.
In addition, Zscaler (ZS) is the biggest provider of cloud-based web security gateways that inspect customers’ data traffic for malware. Zscaler stock has pulled back 17% in 2024.
In addition, Rapid7 (RPD) and Qualys (QLYS) specialize in vulnerability management services. Qualys reports earnings on Nov. 5.
Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on 5G wireless, artificial intelligence, cybersecurity and cloud computing.
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