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We are under attack. Or, to be more precise, the computer systems upon which modern life depends are under siege by hackers.
This is focusing attention on investing in cybersecurity, the name given to the processes and technologies designed to defend us against this crime that is expected to cost companies, governments and individuals $10 trillion a year starting in 2025.
Advances in artificial intelligence (AI) are making it cheaper and easier to launch hacking attempts, putting national security, banking, healthcare, and citizens’ personal and financial data at risk.
This week, a cyber incident in London hospitals had a major impact, causing operations to be cancelled.
Last month, Mark Read, head of advertising giant WPP, said scammers had created a fake Whatsapp account and a clone of his voice to arrange a Teams call with some of his staff.
Under attack: The computer systems that modern life depends on are under siege by hackers
The criminals intended to extract money and confidential data. This hoax was unsuccessful, but it has highlighted the magnitude of the threat to business and democracy in this election year in the United Kingdom and the United States.
James Dowey, manager of Liontrust’s Global Technology Fund, says: ‘AI is a game-changer in cybersecurity because it enhances the capabilities of cybercriminals. It used to take hours for a hacker to cause damage once he had breached a company’s system. Now it’s a matter of minutes.
Storing more data in the “cloud” – that is, on the Internet, rather than on an organization’s individual servers – has increased risks. Another factor is the rise of ‘distributed workforces’, where some employees are in the main office and others at home, or in different locations.
Sadly the opportunity to back British 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 resulted in the previous poor valuation of Darktrace stock relative to US competition, but it is yet another example of our inability to value our own success stories. A level of cybersecurity exposure should help protect your portfolio. But these are long-term bets.
Some concern surrounds optimistic forecasts about the scale of growth in demand for cybersecurity services. Spending is projected to reach $133.8 billion in 2030. But even at this level, spending is still likely to lag behind the cost of crime.
These are the big names you can back in the fight against malicious hacking gangs and the predatory intentions of what the cybersecurity industry calls “sophisticated nation-state actors” when referring to China and Russia.
Strike crowd
Shares of Texas-based CrowdStrike have risen 99 percent over the past year to $315.
But Morgan Stanley analysts last month set a price target of $422. This would make the business worth $100 billion. Some argue that this corporation could become a ‘mega-cap’ company, the cybersecurity equivalent of the semiconductor giant Nvidia.
Dowey lays out the reasons why CrowdStrike has been reporting higher-than-expected net new ARR (annual recurring revenue): ‘The best way to fight AI is with AI, and CrowdStrike was built on an AI-based architecture from the beginning. CrowdStrike is generating strong productivity gains for its customers, giving them a six-fold return on every dollar spent.’
Palo Alto Networks
Palo Alto may be the largest cybersecurity company by sales, but it has been somewhat overshadowed lately by the popularity of CrowdStrike.
Earlier this year, Palo Alto boss Nikesh Arora said he was seeing signs of “spending fatigue” among customers, sending shares tumbling.
However, most analysts still consider Palo Alto a buy, with a price target of $244, up from the current $155.
zscaler
Until recently, Zscaler shares were not performing well. But results showing that more clients are adopting its Zero Trust Exchange platform are reversing the decline and deal rumors are beginning to circulate around this Californian company.
Shares sit at $155 and most analysts rate Zscaler as a “Buy” with an average target of $244.
Money
Two exchange-traded funds, L&G Cyber Security and iShares Digital Security, offer a variety of holdings including CrowdStrike, Palo Alto, Zscaler, but also names like Fortinet. This is one of the shares owned by Fundsmith Equity and also the Polar Capital Technology trust.
Allianz Technology, one of my commitments to innovation, has CrowdStrike and Palo Alto Networks.
However, I intend to expand this “defensive” part of my portfolio.
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