As cyberattacks continue to escalate in frequency and sophistication, the demand for effective cybersecurity solutions has skyrocketed. The staggering cost of cybercrime highlights the urgent need for cybersecurity measures to combat these attacks. According to Cybersecurity Ventures, the cost of cybercrime is projected to hit $10.5 trillion by 2025 up from predicted cost of $8 trillion in 2023.¹ As a result of both continued attacks and continued need to spend to prevent attacks, the cybersecurity industry is an intriguing investment opportunity.

Cybersecurity has become a paramount concern for individuals, governments, and businesses. Corporate cyberattacks have impacted large well-known companies such as United Healthcare (UNH), Clorox (CLX) and Target (TGT). The chart below² shows the cost of several high-profile security breaches over the past 11 years and their estimated cost. As shown below, the cost of the most recent cyberattack on United Healthcare was estimated to be over a billion dollars.

Further, Morgan Stanley research shows that ransomware attacks were up over 70% in 2023 from 2022.² These ransomware attacks hold corporations’ data and files hostage until they pay a ransom. According to Statista, over 72% of organizations were affected by ransomware attacks last year alone.³ The number of companies affected is also increasing over time, as shown in the chart below.

                              Companies Impacted by Ransomware Attacks

The data shows that the cost of cyberattacks is real and likely rising. Therefore, cybersecurity is widely recognized as a critical component of business operations and national security. The increasing level of threat and costs associated to prevent attacks provide a natural tailwind for companies developing cybersecurity solutions. The cybersecurity industry encompasses a diverse range of products and services, from endpoint protection and network security to cloud security and identity management. As businesses increasingly adopt cloud computing, remote work models and incorporate Artificial Intelligence (AI), the demand for security solutions should continue to rise in the future.

Some of the large public security software stocks that can benefit from the strong trends in cybersecurity are listed below:

• Palo Alto Networks (PANW)
• Crowdstrike (CRWD)
• Fortinet (FTNT)

As cyberthreats evolve, it is important for the companies that provide solutions to evolve as well. So, while these companies are current leaders in this space, it is critical for these firms to remain focused on providing technology and services that change as threats become more sophisticated.

As a reminder, new technologies can be used for prevention but can also be used to create more elaborate and realistic attacks. Therefore, the demand for cybersecurity solutions is expected to intensify, which should benefit cybersecurity stocks over the long term. In the digital age, where data is essential to business operations, investing in cybersecurity is not just a prudent financial decision but likely a necessary investment needed to safeguard their intellectual property and assets​​​​​​​​​​​​​​​.

At Gradient Investments, we will continue to monitor the cybersecurity landscape to make investments in what we believe is a long-term, secular growth industry. The primary portfolios that would benefit from cybersecurity exposure are the Core Select, Gradient 33, and Digital Discovery.

1. Cybersecurity Ventures: Cybercrime to Cost the World 10 Trillion by 2025
2. Morgan Stanley Cybersecurity Research
3. Statista Organizations Affected by Ransomware