What Obama’s Budget Proposal Means for Cybersecurity Stocks

On Tuesday, US President Barack Obama sent his final budget proposal for the 2017 fiscal year to the Republican-led Congress. The plan includes $19 billion for a national cybersecurity plan, an encouraging prospect for those interested in cybersecurity stocks.
According to The New York Times, Obama’s overall proposed budget exceeds $4 trillion, with the deficit rising from $438 billion last year to $616 billion. Around three-quarters of this budget is directed towards mandatory spending, including interest on federal debt, Social Security, Medicare and Medicaid benefits.
With a long-term view, Obama’s proposed 10-year savings plan primarily comes from almost $3 trillion in higher taxes from wealthy individuals and some businesses. Notably, the president has proposed a $10-a-barrel fee on crude oil, which would offset costs from some of his suggested initiatives, but is receiving strong backlash from Republican representatives.

Major cybersecurity initiative

As mentioned, one part of the budget is a $19-billion cybersecurity initiative. This money is to come from the quarter of the budget available for discretionary spending. The rest of the the government’s discretionary spending (totaling $1.2 trillion) will be split between domestic and military programs. The $19 billion dedicated to cybersecurity represents a much-needed 35-percent increase from current spending in the area.
Obama’s interest in the cybersecurity sector isn’t coming out of the blue, and many hope that the proposal will garner bipartisan support. For example, in October 2015 the US Senate passed the Cybersecurity Information Sharing Act, whose voluntary information-sharing provisions help to promote cross-collaboration between the government and private companies when it comes to cyber attacks.
Of the $19 billion being dedicated to cybersecurity, Obama sees $3.1 billion going to overhaul the government’s computer systems, which have long been a source of embarrassment. Think back on 2015’s massive breach of the Office of Personnel Management’s database, when Chinese hackers exposed the records of 22 million current and former federal employees. Recent government-sponsored reports on the these systems conclude that they are simply not designed to withstand modern cyberattacks.

Potential boost to cybersecurity stocks

Should Obama’s proposed cybersecurity funding receive support from Congress, cybersecurity stocks could benefit. From a national security perspective, it makes a lot of sense for the government to invest in this sector. However, private investors are primed to benefit from this support as well. As has been seen in Israel, government support for the sector can become a key factor in developing a robust and innovative cybersecurity hub.
The influx in government spending is sure to benefit diversified multinational corporations that deal in the cybersecurity space. However, this investment could also impact the share prices of smaller cybersecurity stocks, as companies and individuals follow the government’s lead and pay renewed attention to the sector. Here, companies like Zix (NASDAQ:ZIXI), which produces services for email encryption, data loss prevention and bring-your-own-device security, could benefit from Obama’s proposed budget.
If nothing else, the news of Obama’s proposed $19-billion cybersecurity plan emphasizes how important this sector is in the world today. The cybersecurity sector is growing rapidly, and investors would do well to get in now, while the market is still taking off.
 
Securities Disclosure: I, Morag McGreevey, hold no direct investment interest in any company mentioned in this article.