BIg Tech Propels Cybersecurity Growth
Worried about a recession?
It’s here. Or it’s coming.
But not all recessions are the same.
Not all industries decline in a recession.
Yes, sectors like consumer discretionary are set to get trampled in 2023.
Others have such intrinsic growth, even a recession won’t slow them down.
Judging by the scale of investments made by the world’s top tech companies, there’s no recession ahead for the cybersecurity sector.
That’s an easy call to make. But the bigger question is how to invest in it all.
Today we’ll look at the record-setting pace of cybersecurity investment and the best (and worst) ways to invest in it.
First, you’ve got to see what the big tech companies are doing.
Tech Giants Accelerate Cybersecurity Investment
The big tech companies who built massive cash flow machines over the last decade are ramping up their investments in cybersecurity.
In 2021 they took their early stage cybersecurity funding to an entirely new level.
The chart below from Statista shows how aggressively the tech giants have taken to funding cybersecurity ventures:
That’s a crazy surge.
And it demonstrates the confidence these companies have in the future value of cybersecurity companies.
The catalyst is undoubtedly growth in demand for every type of cybersecurity.
According to Grandview Research the cybersecurity sector is poised to double over the next decade:
Again, no surprises there.
Cybersecurity is essential these days. Especially for tech giants running hundreds of billions of billions in revenue.
It’s not a luxury that can be cut.
So even when you see tech giant cutting payrolls, rolling back benefits, and curtailing marketing budgets, they’re not slashing security spending.
That’s why, in this environment, cybersecurity stocks could excel relative to the rest of the markets.
But investing in the sector isn’t as easy as it appears.
How To Invest In Cybersecurity
The big tech companies who built massive cash flow machines over the last decade are ramping up their investments in cybersecurity.
In 2021 they took their early stage cybersecurity funding to an entirely new level.
The chart below from Statista shows how aggressively the tech giants have taken to funding cybersecurity ventures:
If you want to “follow the money” from the tech giants and invest in cybersecurity, it can get a bit tricky.
Just look at what we found when looking at one of the most popular cybersecurity ETF’s, the ETFMG Prime Cyber Security ETF (HACK).
We looked at the top holdings of the ETF and realized this isn’t really isn’t a cybersecurity ETF at all.
For example, BAE Systems (BAESY) is one of the top five holdings of the ETF.
BAE is more of a defense contractor than a cybersecurity company.
It has major roles in fighter jets including Eurofighter Typhoon and the F-35.
It even has an entire division called “Weapons Systems & Munitions.”
BAE may be a fine company and stock to buy, but it’s hardly the cybersecurity battling digital hacking.
It’s just one example though.
Verisign (VRSN) in the top five of the ETF.
This is the company where you go to register an internet domain address if you want to start a “.com” or dot whatever.
Again, is this what you think of when you think future cybersecurity that’s highly in demand by tech giants?
Of course not.
And there’s Cisco Systems (CSCO) in the top five too.
Cisco is still the router and Internet hardway giant.
It inherently has some security role, but it’s not even close to a cybersecurity pure play.
And that’s what we’re looking for - cybersecurity pure plays.
Those companies that will benefit from the necessary and steady growth of cybersecurity needs of the entire tech industry.
And we’ve put together a list of the biggest.
The top three are Crowdstrike (CRWD), Palo Alto Networks (PANW), and Fortinet (FTNT).
They are all direct cybersecurity companies .
They count among their customers the government and tech giants with the kind of cash flows and demand that will have them growing for years to come.
And it’s those in this latter group that are probably best if you want true cybersecurity stocks.
In the end, a recession may be coming to the U.S. and global economy, but not to cybersecurity.
The aggressive investments made by the tech giants are a sign of how strong the sector could perform in the years ahead.
