Stock Breakdown: Cyber Security Overview
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The previous CPI print was 8.3% year over year for the month of April. Supply chain issues and increased fuel costs persist in the US and globally and these costs do not seem to be decreasing. The FED did raise interest 50 basis points which has made for an interesting time in the stock market. Most of the market has been relatively stagnant and somewhat stabilized. I do not see a scenario where continuing to raise interest rates will be a good thing in the short term for the market, but for the long term I believe it will benefit. As my good friend 3 aces (@notabigdeal111 on Twitter) has hammered home, it seems like it is the end of the business cycle which is usually followed by a depression.
Sector Description: What is the Cyber Security Industry?
Cyber security by definition is the practice of defending computers, servers, mobile devices, electronic systems, networks, and data from malicious attacks. Cyber security is a rapidly growing industry and is in high demand as more companies acquire data from their customers and have an online digital presence. The cyber security market was valued at $139.77 billion in 2021 and is projected to grow to $155.83 billion this year and $376.32 billion by 2029. This would lead to a 13.4% CAGR growth of the entire industry from 2022 to 2029 which is double the rate of the rise of the market from 2019 to 2020 (7.7% rise in CAGR). This industry looks to continue to grow and the growing digital environment will continue to benefit many of these cyber security companies.
Large Public Companies in the Sector
CrowdStrike Holdings (Ticker: $CRWD) - Market Cap: $65B
Zscaler (Ticker: $ZS) - Market Cap: $42B
Okta (Ticker: $OKTA) - Market Cap: $40B
Opportunities for Broad Exposure
The are many ETF options for the cyber security industry, but the one I will break down in a few weeks is the First Trust Nasdaq Cybersecurity ETF (Ticker: $CIBR). You can learn more about this ETF here.
Key Metrics and Considerations
Data Boom: It seems in almost every industry, data has become compared to gold. More and more companies are using data to help with their growth and further analyze their business and customers. Along with data, there is always some sort of digital aspect to almost every business at the moment and cybersecurity will be needed to protect businesses. It is a must for every business to have some sort of cybersecurity to help avoid malware attacks and as more businesses come along and businesses grow, the demand for cybersecurity will increase. This will look at how they protect customers and the company’s customer growth.
Both Retail and Industry Customers: Not only do cybersecurity sell the protection from attacks to major businesses, but also to retail consumers as well. If people want protection from attacks from specific bank accounts or other personal information that may lie on their at home computers. Everyone needs some sort of protection from digital attacks and cybersecurity seems to become the new car insurance and will increasingly become more of a necessity. I will look for both major clients as well as retail to ensure that these cybersecurity companies are not relying on one major client but diversified to keep their business running strong.
Chips in Everything: As mentioned in my breakdown of the semiconductor industry, there is an increasingly digital aspect to almost every industry. Semiconductor chips allow for an aspect of digitization or a “smart” aspect to seemingly every device, but that also has the potential to open up products for hacks. As more devices have an online presence, more devices as well as people will need some protection against potential hacks.
Opinion of Sector
I am bullish on the sector because everyone and everything is digital and online. Not only are more people and products getting online but cyber attacks are increasing at a rapid rate. According to the Identity Theft Resource Center, data breaches through the first 9 months of 2021 exceeded the amount of attacks in 2020 and some experts believe that the amount of attacks may have doubled year over year. Increasing attacks point to a larger need in cyber protection and that is where this entire industry will come into play. I am currently not an investor in any cyber security company but after doing a dive into some of these businesses I may consider doing so.
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