Investment in cybersecurity, 9 stock picks and 5 themes to watch
- Sophisticated cybersecurity attacks are on the rise this year, with major infrastructure targeted.
- The scrutiny is expected to intensify on business cybersecurity solutions and investment in the space is expected to increase.
- We chat with two experts from leading cybersecurity ETFs about what topics to watch and how to play them.
- See more stories on the Insider business page.
When the cloud computing service Quickly went down a few hours earlier this week it was like the internet was down.
Many major news sites and critical websites, such as the New York Times, the White House and the UK government’s main public center, Gov.uk, were completely inaccessible.
And it was all due to a customer who changed their settings and triggered a software bug that caused the outage.
It was just one event among many that highlighted the vulnerabilities that exist within the company’s technology stacks.
More often than not, malicious actors seek to take advantage of these vulnerabilities. Cyber security attacks have skyrocketed this year with increased sophistication and a focus on critical infrastructure.
In May, criminals successfully shut down the Colonial Pipeline, an essential oil pipeline, using a
attack until the company pays $ 4.4 million. And this month, JBS, the world’s largest meat-packing company, saw its operations paralyzed for days following a cyberattack.
President Joe Biden has already begun to bolster the United States’ cybersecurity defenses with a new decree May 12, and increased scrutiny and investment in space is expected to continue.
Insider spoke to two experts, Pedro Palandrani and Rahul Bhushan, from leading cybersecurity exchange-traded funds to understand how investors can better capture the trend.
Palandrani is Research Analyst at Global X ETFs and Hedges Their $ 397 Million Cybersecurity ETF (BUG).
Bhushan is the co-founder of Rize ETF and oversees Europe’s largest cybersecurity ETF, the Rize ETF on Cyber Security and Data Privacy (CYBR) with $ 107 million in assets under management.
Cyber Security Perspectives
When a business is affected by a cybersecurity attack, it affects not only the victims, but also the company’s competitors, suppliers and customers, Palandrani said.
So an increase in attacks, especially of critical goods and services, has strengthened the long-term case for investing in cybersecurity, Palandrani said. Those who have been exposed to cyber attacks become more aware of the risks and therefore invest more in solutions.
Cyber security companies will be the recipients of all of this spending, Bhushan said. Over time, investors can expect both incomes and multiples to rise to reflect this huge increase in demand, he added.
Industry generally expects cybersecurity spending to skyrocket, and Bhushan prefers talking to businesses to get a more rational view.
“Even this rational view is extremely optimistic,” Bhushan said. The middle ground between what third parties say and what companies say is always very appealing and genuinely optimistic, he added.
A changing digital landscape
Part of the reason for the increase in attacks is the changing digital landscape and the ability to work from anywhere.
“We actually think it’s a decades-long trend because I don’t think we’re going to reverse the digitization that has happened,” Bhushan said.
Our personal and professional lives are increasingly digitized, which has created a wealth of confidential information and an environment in which employees take advantage of personal and professional devices to access work, said Palandrani.
This means that any device connected to the Internet could now become an entry point into a company, since they all access the employee’s personal network.
As a result, all of these devices, including microwaves or home assistants, can inadvertently provide a way to breach an entity’s existing security barriers.
As attacks increasingly focus on critical infrastructure, Palandrani expects governments to push harder to ensure private and public companies have robust cybersecurity solutions.
“Cyberspace has become this battleground for political warfare,” Bhushan said. “I think it’s a really big change and I certainly don’t see it reversing anytime soon.”
Biden’s recent decree is a first step for the new administration in focusing on cybersecurity.
Insider recently spoke to Max Gokhman, head of asset allocation at Pacific Life Fund Advisors, who pointed out that Biden could potentially change his infrastructure bill to take more account of cybersecurity risks.
“We’re very confident that the US government is going to really step up its efforts here, and we’re likely to see much larger budgets allocated to cybersecurity spending over the next few years,” he added. said Palandrani.
Themes to watch
Both Palandrani and Bhushan point out that one of the big misconceptions in cybersecurity is that most investors think all companies do the same. There are five major areas of investment related to cybersecurity and not all organizations have all of their bases covered.
Here is a breakdown of these five sectors and the companies exposed to them.