With news of ransomware, data breaches, and other cyber crimes reported each month, it should come as no surprise that the global cyber security industry is booming. The market is 30 times the size it was in 2006, and globally across all sectors there has been a 141 percent increase in cyber security spending since 2010.
Public and private sector pressure to combat cyber attack and cyber crime and to enhance overall cyber security for government, enterprise, and consumers alike is only intensifying as valuable and confidential data is increasingly stored and accessed online and through the cloud. Regulatory and compliance issues (such as GDPR’s breach reporting requirements) also factor in making cyber security spending a necessity.
As cyber attacks grow more sophisticated in their efforts to hijack these valuable troves of data, governments, companies, and individuals must continually enhance their security in a never-ending game of cat and mouse with hackers and other malicious actors.
With global cyber security-related spending projected to be north of $133 billion USD by 2022, investors should look for continued growth by cyber security companies in 2020 and take advantage of the strong fundamentals of this global industry. For the smart investor, news of each new cyber attack should act as a reminder to invest in cybersecurity stocks.
Why Cyber Security is Serious Business
Most would agree that, as a matter of principle (to say nothing of the law), every company should do all it can to safeguard customer and client data. But more than being just the right thing to do, failure to protect the trust of customers has severe impacts on a company’s financial performance.
One recent study found that companies who suffered a substantial data breach on average see their share prices drop more than 7 percent and see their stock underperform the Nasdaq by more than 4 percent, with this negative performance lasting up to six months.
Few companies can afford either the loss of customer confidence or the bottom-line damage (not to mention the bad PR) caused by these incidents. That’s why each new data breach spurs new corporate spending on cyber security. Various high-profile breaches in the financial services sector alone have resulted in companies in that sector now spending between 6 and 14 percent of their total IT budget to secure their computer systems from cyber attack.
Growth Drivers for Cybersecurity Stocks in 2020
- Government and defence investing anchors growth: With rising cyber threats to defence and civil infrastructure, cyber security has become an on-going priority for all levels of government. The U.S. 2019 President’s Budget includes $14.98 billion for cyber security (up from $14.4 billion in 2018 and $13.1 billion in 2017). As part of its national defence strategy, France has announced it will spend €1.6 billionto have 4,000 “cyber combatants” available by 2025. Cyber security and the increasing potential for cyber warfare was also a key concern of the aerospace and defence sector in 2019. These trends—and spending on them—aren’t going anywhere in 2020.
- Internet of Things (IoT) security increasingly important: The growing number of internet-connected devices that are not traditional computing devices (smart home thermostats, for example, or smart home door locks) offer multiple new points of vulnerability for consumers. Likewise, the growing number of Industrial IoT devices, the digitization of the workplace, and the rise of AI applications all pose threats in 2020, with the need for more detection and prevention of advanced attacks taking priority. Given the costs of cyber crime for corporations, expect overall spending on cyber security by the private sector to increase.
- The need for cloud-based security: Cloud-based security spending was $5.6 billion in 2018 but is expected to rise to $12.6 billion by 2023. Businesses typically use a mix of public and private clouds (or a hybrid of the two) and often use multiple service providers. While 54 percent of companies use some kind of public cloud (up from 25% in 2015), many are still wary of the risks posed by public, shared clouds. That’s why spending on public cloud-native platform security is anticipated to be the fastest-growing sector of cloud security over the next several years, reaching $9.7 billion in spending by 2023. Linked, too, to the proliferation of IoT-connected devices, expect cloud-based security solutions to be a long-term driver for overall growth in the cyber security industry.
Evolve’s Cyber Security ETF, CYBR ETF
So, what is the best way to invest in cyber security for 2020?
Canadian investors can take advantage of CYBR, from Evolve. The first cyber security ETF in Canada, CYBR offers investors broad-based coverage in the cyber security sector, in both hardware and software development. Because cyber crime affects people, governments, and organizations worldwide, CYBR offers exposure to cyber security firms globally. The fund grew 19.3%* in 2019, with holdings including Fortinet, Palo Alto Networks, and Check Point Software Technologies.
*Source: Bloomberg, as at December 31, 2019.
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