How to Invest in Cybersecurity

Can you invest in cybersecurity?

Cybersecurity has evolved significantly in recent years, expanding from a niche field to become a fundamental requirement in today's interconnected world. The digital transformation of businesses, along with the rise in remote work, cloud computing and the internet of things, has amplified the need for robust cybersecurity measures.

This evolution has in turn created significant opportunities for investment in cybersecurity. When it comes to investing in cybersecurity, investors should be aware of the diverse segments within the cybersecurity market, including network security, endpoint protection, cloud security, identity and access management and threat intelligence.

Investors should also consider the regulatory landscape surrounding cybersecurity. Governments worldwide are enacting stricter data protection regulations, and compliance with these regulations requires organizations to invest in robust cybersecurity measures, further driving demand for cybersecurity solutions.

Is now a good time to invest in cybersecurity?

The cybersecurity market holds immense potential for growth, making it an opportune time for investors to consider entering the space. There are a number of factors are contributing to this positive outlook.

For one thing, the increasing digitization of businesses and the growing complexity of cyber threats means that demand for cybersecurity solutions is expected to surge. According to research firm Markets and Markets, the global cybersecurity market is anticipated to reach $266.2 billion by 2027, growing at a compound annual growth rate of 8.9 percent. This growth is expected to be driven by the escalating frequency and sophistication of cyber threats.

Within the cybersecurity industry, specific segments are poised to take the lead. For example, as organizations increasingly migrate their operations to the cloud, cloud security will present significant investment opportunities. Endpoint protection, given the rise in remote work and the proliferation of connected devices, is another promising area. Additionally, threat intelligence, which focuses on proactive threat detection and mitigation, is gaining importance.

Artificial intelligence (AI) is playing a crucial role in strengthening cybersecurity defenses. AI-powered solutions offer advanced threat detection, behavior analysis and anomaly detection capabilities. However, it is essential to note that AI also presents challenges. Adversarial attacks, where AI systems are manipulated or deceived, pose a risk. Investors should consider the potential benefits and risks associated with the integration of AI in cybersecurity solutions.

ChatGPT is an example of AI technology that has the potential to contribute to cybersecurity efforts. As a language model, ChatGPT can assist in analyzing and interpreting security-related data, providing insights into potential threats.

While the cybersecurity market remains a compelling secular growth opportunity within the technology sector, it is important to note that the market has recognized this potential. In recent years, the sector has outperformed its software peers, leading to elevated valuations that surpass pre-COVID levels. Investors should be mindful that sustained macro pressures may impact the sector's valuation. It is advisable to selectively add exposure to cybersecurity stocks when valuations weaken, seeking potential opportunities during market fluctuations.

Investing in the dynamic cybersecurity market can unlock significant potential for investors. By carefully considering thematic exchange-traded funds (ETFs) or targeted single-stock investments, individuals can position themselves to benefit from the ever-growing demand for robust cybersecurity solutions.

How to invest in cybersecurity?

When investing in cybersecurity, investors have a variety of options to consider.

Cybersecurity stocks

One way to invest in cybersecurity is through individual stocks. There is an abundance of publicly traded cybersecurity companies to invest in currently, and you can read about the 10 biggest here. These are the three largest:

• Broadcom (NASDAQ:AVGO) — Broadcom's portfolio includes embedded and mainframe security solutions and payment authentication platforms. In November 2019, the company acquired cybersecurity firm Symantec and expanded its offerings.

• Cisco Systems (NASDAQ:CSCO) — Cisco Systems offers a variety of solutions for analytics, cloud security and endpoint security.

• IBM (NYSE:IBM) — IBM presents customers with a comprehensive and unified range of enterprise security products and services. The firm helps organizations seamlessly integrate security and provide risk assessment, threat response and incident detection.

Cybersecurity ETFs

Another option to consider is ETFs that provide broad exposure to the cybersecurity space. ETFs are a low-cost option for those looking to enter the segment, as fees and expenses are often lower than if you're purchasing mutual funds or other managed investments. They also allow investors to spread their funds out and be exposed to a variety of stocks.

For a full rundown of the biggest cybersecurity ETFs, read our article here. These are the top three:

• First Trust NASDAQ Cybersecurity ETF (NASDAQ:CIBR) — The objective of this ETF, which was launched in July 2015, is to track the performance of the NASDAQ CTA Cybersecurity Index (INDEXNASDAQ:NQCYBR). The fund's goal is to achieve similar price and yield results.

• ETFMG Prime Cyber Security ETF (ARCA:HACK) — This is the oldest cybersecurity ETF, launched in November 2014. It tracks the performance of publicly traded equity securities of companies worldwide that meet one of two criteria: they are involved in providing cyber defense applications or services, or they offer hardware or software for cyber defense activities.

• GlobalX Cybersecurity ETF (NASDAQ:BUG) — Launched in October 2019, this non-diversified fund aims to deliver investment results that closely align with the price and yield performance of the Indxx Cybersecurity Index. Investors can gain access to a diversified portfolio of securities within the cybersecurity sector, capturing potential opportunities arising from increased demand for cybersecurity solutions.