We are under attack. Or to be more exact, the IT systems on which modern life depends are being besieged by hackers.
This is turning attention to investing in cyber-security, the name given to the processes and technologies designed to defend us from this crime which is forecast to cost companies, governments and individuals $10 trillion a year from 2025.
Advances in artificial intelligence (AI) are making it cheaper and easier to launch hacking attempts, imperilling national security, banks, healthcare and citizens’ personal and financial data.
This week, a cyber incident at London hospitals had a major impact causing the cancellation of operations.
Last month, Mark Read, boss of advertising giant WPP, said that scammers had set up a fake Whatsapp account and a clone of his voice to arrange a Teams call with some of his staff.
Under attack: The IT systems on which modern life depends are being besieged by hackers
The criminals aimed to extract money and confidential details. This deception was not successful but it has highlighted the size of the threat to business – and to democracy in this election year in the UK and the US.
James Dowey, manager of Liontrust’s Global Technology Fund: says: ‘AI is a game changer in cyber-security because it is enhancing the capabilities of cyber criminals. It used to take a hacker hours to do damage once they had breached a company’s system. Now it takes minutes.’
The storage of more data on the ‘cloud’, that is, on the internet, rather than on an organisation’s individual servers has ramped up the risks. Another factor is the increase in ‘distributed workforces’, where some employees are in the main office and others at home, or in different locations.
Sadly, the opportunity to back the British player in the sector, Darktrace, has disappeared.
Although the company briefly rejoined the FTSE 100 this month, it is in the process of being acquired by American private equity group Thoma Bravo.
Various complex factors resulted in the previous poor valuation of Darktrace shares relative to the US competition, but it is yet another example of our failure to cherish our own success stories. A level of exposure to cyber-security should help safeguard your portfolio. But these are long-term bets.
Some concern surrounds the optimistic forecasts for the scale of growth in demand for cyber-security services. Spending is forecast to reach $133.8bn in 2030. But even at this level expenditure would still be likely to lag behind the cost of crime.
Here are the big names you can back in the fightback against malicious hacker gangs – and the predatory intentions of what the cyber-security sector calls ‘sophisticated nation-state actors’ when referring to China and Russia.
CrowdStrike
Shares in Texas-based CrowdStrike have risen by 99 per cent over the past year to $315.
But analysts at Morgan Stanley last month set a price target of $422. This would make the business worth $100bn. Some argue that this corporation could become a ‘mega-cap’ company, cyber-security’s equivalent of all-conquering semiconductor giant Nvidia.
Dowey sets out the reasons why CrowdStrike has been reporting higher-than-forecast 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 start. CrowdStrike is generating strong productivity gains for its customers, delivering them a six-times return on each dollar spent.’
Palo Alto Networks
Palo Alto may be the largest cyber-security companies by sales, but lately it has been somewhat overshadowed by CrowdStrike’s popularity.
Earlier this year Palo Alto boss Nikesh Arora said that he sensed signs of ‘spending fatigue’ among customers, causing the shares to fall.
Nevertheless, most analysts still consider Palo Alto a buy, with a target price of $244, against the current $155.
Zscaler
Zscaler shares were performing poorly until lately. But results showing more customers were adopting its Zero Trust Exchange platform are reversing the decline, and bid rumours are beginning to circulate around this Californian company.
The shares stand at $155 and most analysts rate Zscaler a ‘buy’ with an average target of $244.
Funds
Two exchange traded funds, L&G Cyber Security and iShares Digital Security, provide a spread of holdings that feature CrowdStrike, Palo Alto, Zscaler, but also names like Fortinet. This is one of the stocks owned by Fundsmith Equity, and also by the Polar Capital Technology trust.
Allianz Technology, one of my bets on innovation, holds CrowdStrike and Palo Alto Networks.
I intend to add to this ‘defensive’ part of my portfolio, however.