How to invest in the battle against the hackers – and the cyber-security stock up 128% in a year

We are under attack. Or to be more precise, the IT systems on which modern life depends are under siege by hackers.

This shifts the focus to investing in cybersecurity, the name given to the processes and technologies designed to protect us from this crime, which is expected to cost companies, governments and individuals $10 trillion per year from 2025.

British cybersecurity star Darktrace has become another British listed company to be acquired by a private equity bidder, but there are other stocks that can help you benefit from protection against online criminals. We take a look.

AI and the cybersecurity threat

Advances in artificial intelligence (AI) are making it cheaper and easier to conduct hacking attempts, endangering national security, banking, healthcare, and citizens’ personal and financial data.

This week, a cyber incident had a major impact on London hospitals, forcing the cancellation of operations.

Last month, Mark Read, boss of advertising giant WPP, said scammers had set up a fake WhatsApp account and a clone of his voice to arrange a Teams call with some of his staff.

The criminals wanted to steal money and confidential data. This deception was unsuccessful, but it has highlighted the scale of the threat to business – and to democracy in this election year in Britain and the US.

James Dowey, manager of Liontrust’s Global Technology Fund, said: ‘AI is a game changer in cyber security because it enhances the capabilities of cyber criminals. In the past, it would take a hacker hours to do damage after hacking into a company’s system. Now it takes minutes.’

The storage of more data in the ‘cloud’, that is, on the Internet, rather than on an organization’s individual servers, has increased the risks. Another factor is the increase in the number of ‘distributed workforces’, where some employees are at headquarters and others at home, or in different locations.

Supporting the fight against cybercrime

Sadly, the opportunity to support the UK industry player, Darktrace, has disappeared.

Although the company briefly rejoined the FTSE 100 this month, it is in the process of being acquired by US private equity group Thoma Bravo.

Several complex factors led to Darktrace stock’s previous poor valuation relative to US competition, but it is yet another example of our inability to nurture our own success stories. A level of cybersecurity exposure should help protect your portfolio. But these are long-term bets.

There is some concern about the optimistic predictions about the scale of growth in demand for cybersecurity services.

Spending is forecast to reach $133.8 billion by 2030. But even at this level, spending is still likely to lag behind the cost of crime.

The stocks that could benefit from the cyber battle

These are the big names to back in the fight against malicious hacker gangs – and the predatory intentions of what the cybersecurity industry calls “sophisticated nation-state actors” when referring to China and Russia.

CrowdStrike

Shares in Texas-based CrowdStrike have risen 128 percent in the past year to $349.

But Morgan Stanley analysts last month set a price target of $422. This would give the company a value of $100 billion. Some argue that this company could become a “mega-cap” company, the cybersecurity equivalent of all-conductor semiconductor giant Nvidia.

Dowey outlines the reasons why CrowdStrike is reporting higher-than-expected net new ARR (annual recurring revenue): “The best way to fight AI is with AI, and CrowdStrike has been built on an AI-based architecture from the ground up. CrowdStrike generates strong productivity gains for its customers, delivering them a sixfold return on every dollar spent.”

Palo Alto Networks

Palo Alto is perhaps the largest cybersecurity company by revenue, but has been somewhat overshadowed lately by the popularity of CrowdStrike.

Earlier this year, Palo Alto CEO Nikesh Arora said he was sensing signs of “spending fatigue” among customers, causing shares to fall.

Nevertheless, most analysts still consider Palo Alto a buy, with a price target of $244, up from the current $155.

Zscaler

Zscaler shares have performed poorly until recently. But results showing more customers adopting the Zero Trust Exchange platform are reversing the decline, and bidding rumors are starting to circulate around this Californian company.

Shares are at $155 and most analysts rate Zscaler a ‘buy’ with an average target of $244.

Funds and ETFs

Two exchange-traded funds, L&G Cyber ​​Security and iShares Digital Security, offer a diversification of investments that include CrowdStrike, Palo Alto, Zscaler, as well as names like Fortinet.

This is one of the stocks owned by Fundsmith Equity, as well as Polar Capital Technology Trust.

Allianz Technology, one of my innovation bets, owns CrowdStrike and Palo Alto Networks.

However, I plan to expand this ‘defensive’ part of my portfolio.