What do the US Treasury, AT&T, Neiman Marcus, the Port of Seattle and Texas Tech University have in common? They were all hacked last year by cybercriminals.
In fact, more than 800,000 cyberattacks are reported annually in the US. The average cost of a single data breach? A whopping $4.88 million.
The cost of each breach is borne by the party breached as well as the cyber-insurance provider that provided them with coverage in the event of a breach. The cyber insurance would cover direct financial costs of a breach but not the second-order reputational costs and intangible costs such as reduced customer trust etc.
And in many cases, more than money is at stake. Recently, Chinese hackers targeted the phone communications of President Donald Trump and Vice President J.D. Vance…and the FBI has warned that foreign governments are poised to use malware to wreak havoc on water-treatment plants and the electrical grid in the US.
All of this means that cybersecurity isn’t just a tech buzzword anymore—it is a bonanza for companies that provide the complicated software and hardware to monitor and safeguard online databases and digital infrastructures. The US Federal government spends $13 billion a year defending against breaches. Analysts expect businesses’ spending on cybersecurity to grow 14% annually and be worth more than a half-trillion dollars a year by 2032.
To help you profit from this massive secular growth trend, Bottom Line Personal spoke to cybersecurity stock expert Malik Ahmed Khan, CFA, about strategies for investing and the most attractive companies to consider now…
Selecting stocks in the cybersecurity industry is challenging because the software and hardware products are highly technical and there are numerous specialty niches, ranging from identity management and cloud security to firewalls, threat assessment and intrusion response.
Here are things to keep in mind when you look for cybersecurity stock investment opportunities…
These include…
Native-cloud protection. Managing a company’s data on-premise is a difficult task. Companies need dedicated data centers with up-to-date server equipment and management teams. That’s why millions of businesses are migrating their data storage, billing and customer service from private on-premises servers to offsite locations that can be accessed remotely over the Internet. But cloud computing creates a much greater risk for breaches and therefore the need for protection.
Zero-trust security. Traditional security models require password verification to access a company’s networks and databases. That’s inadequate for a hybrid workforce of employees, suppliers and contractors who connect remotely to those networks. A zero-trust strategy assumes that no user or device can be trusted. Network traffic must be constantly monitored to identify suspicious behavior and react to threats. Users are typically granted enough access to accomplish only their specific objectives.
Artificial intelligence (AI)–enhanced assessment and response. Cybersecurity isn’t just about detecting viruses and neutralizing them. Advances in computational power and speed allow companies to analyze millions of cyber events a day, identifying potential threats before they are even launched.
News events and earnings surprises can easily swing the share prices of cybersecurity companies up or down by 20% or more. This can be advantageous for disciplined long-term investors because it creates bargain entry points to buy cybersecurity stocks during pullbacks.
The strong will get stronger in the highly fragmented cybersecurity industry by aggressively acquiring smaller competitors to broaden the platform of services and solutions they can offer to customers.
All five of the following cybersecurity companies are tapping into the growth trends above…
CrowdStrike Holdings (CRWD) is a global leader in “endpoint” security, using antivirus and malware software to protect devices and data at endpoints such as laptops, desktops, smartphones and digital printers. Because CrowdStrike’s software was designed for cloud environments, it is particularly well-suited for companies with remote workers. About half of Fortune 500 companies use CrowdStrike, including Alphabet, Delta and United Airlines, and Verizon Communications. CrowdStrike also has expanded aggressively into AI-enabled security products. Example: The company’s Threat Graph system collects data from the company’s endpoint customers and uses it to proactively hunt for emerging threats. CrowdStrike’s stock became a darling of Wall Street, soaring nearly 300% between the end of 2022 and the summer of 2024. But that summer, the company stumbled after a faulty CrowdStrike software update locked millions of users out of their Windows devices and caused mass cancellations of airline flights. CrowdStrike’s stock plunged 40%. The sell-off was likely an overreaction, and CrowdStrike will prove resilient. It recently earned Federal Risk and Authorization Management Program (FedRAMP) authorization, making it a trusted partner of federal government agencies. Estimated fair value is $300/share. Recent share price: $389.66.*
Datadog (DDOG) is much more than a clever name. The company’s cloud software works like a traffic cop providing a customizable dashboard that continuously monitors the performance and health of all a company’s servers, databases and software applications, as well as presenting the analysis in easy-to-understand graphs and charts. This allows Datadog’s 30,000 clients, which include Alamo Rent a Car, NASDAQ and Whole Foods, to rapidly detect issues such as server outages, security threats and performance bottlenecks that could affect employees and customers. Estimated fair value is $130/share. Recent share price: $116.55.
Fortinet (FTNT) is a best-in-class provider of firewall hardware, which is essential for building new data centers and 5G mobile networks. Firewalls regulate traffic between external networks and a company’s internal network based on security settings and rules. Fortinet has more than three-quarters of a million clients ranging from the Pittsburgh Steelers football organization and the financial-services firm Edward Jones to multiple energy-grid operators that need to manage bulk power transmission across control stations and substations. Fortinet boasts more cybersecurity-related patents than any company in the industry. It has leveraged that research to offer new products such as antivirus applications and virtual private network (VPN) technology that allows customers to safely send hidden encrypted data across the Internet. Estimated fair value is $88/share. Recent share price: $108.01.
Okta (OKTA). In an increasingly mobile and cloud-based world, businesses often have thousands of employees and third-party suppliers accessing their databases. Okta creates sophisticated identity and access management (IAM) software. IAM makes it easier for a company to manage access to any of its internal software or devices, as well as fine-tune verification systems. Example: Whenever someone leaves a company or transitions to a different role, his/her access to company databases must be discontinued or altered. In 2022, Okta’s stock lost nearly $2 billion in value after the firm reported it had suffered two cyberattacks that exposed customer-support data. Okta has spent $50 million overhauling its own security, and it has been able to maintain most of its 19,000 customers, including Albertsons, CVS Health, FedEx and OpenAI (creator of the hugely successful ChatGPT app). But the stock has struggled as the company tries to win back investor confidence. Estimated fair value price is $100/share. Recent share price: $90.49.
Palo Alto Networks (PANW) is the nation’s largest pure-play cybersecurity company with a market capitalization of more than $120 billion and 80,000 clients. It’s a one-stop shop for global customers such as Chevron, IBM and The World Bank. Originally, the company built firewall equipment for office computer systems, but Palo Alto has spent billions of dollars in recent years on acquisitions. Example: It now offers ransomware response…breach recovery and mitigation…and consulting services for companies that have been hacked and must deal with their insurance carriers and customer litigation. Estimated fair value price is $210/share, so it is trading slightly below fair value. Recent share price: $190.43.
*All performance figures through February 28, 2025, courtesy of Morningstar, Inc.
