Cybersecurity Investments

Cybersecurity Investments

Investing in Cybersecurity

Upon arriving for work on March 19, 2019, employees of Norwegian aluminum producer Norsk Hydro found alarming signs posted throughout the office notifying staff that the company had been hacked and to not use any network devices. Locked out of all company computers, and unable to even use the office printers, desperate employees drove to local print shops to make the signs.

What happened at Norsk Hydro in early 2019 was a significant, and increasingly common, type of cyberattack in which hackers gain entry to a company’s secure network, encrypt important data, and hold it hostage until the company agrees to pay a ransom. Norsk Hydro decided early-on that it would not pay the ransom and would instead endeavor to retrieve the data from back-up servers.

While Norsk Hydro scrambled to address the attack, no company computers or devices could be used, which meant that the 35,000 employees across 40 countries were, temporarily, reliant on pen and paper to conduct business.

Ultimately, the attack affected the one of the top cybersecurity companies stock price and cost them over $40 million dollars (1).

The threat of cyberattack is becoming more real as life moves increasingly online. Hackers continuously probe systems for vulnerability, and individuals, businesses, and even governments are learning (sometimes the hard way) that cybersecurity needs to be taken extremely seriously.

The World Economic Forum’s Global Risks Report 2023, which annually identifies the most pressing global challenges, ranks cybercrime and cyber insecurity and among the top 10 risks globally in terms of overall impact (2).

They see this as a threat to all aspects of society and infrastructure, saying “attempts to disrupt critical technology-enabled resources and services will become more common, with attacks anticipated against agriculture and water, financial systems, public security, transport, energy and domestic, space-based and undersea communication infrastructure.” Facing this looming threat, organizations around the world are investing heavily in cybersecurity solutions.

The United States government uses the Cybersecurity and Infrastructure Security Agency (CISA) as its frontline defense against cybersecurity threats (3). CISA focuses on 5 main areas: Cyber Supply Chain and 5G, Election Security, Soft Target Security, Federal Cybersecurity, and Industrial Control Systems.

CISA received an additional $185 million from the Infrastructure Investment and Jobs Act (4) in fiscal year 2022 to address “cybersecurity risks and cybersecurity threats to information systems owned or operated by, or on behalf of, state, local and territorial governments.”

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What is Cybersecurity?

According to the National Institute of Standards and Technology Framework for Improving Critical Infrastructure Cybersecurity (5), cybersecurity is defined as “the process of protecting information by preventing, detecting, and responding to attacks.”

A successful cybersecurity strategy involves multiple layers of protection integrated across an organization’s technology and workforce. This involves securing devices, the network, and cloud with advanced protection technologies that prevent outside intrusion and bolster internal security.

Educating people on basic cybersecurity principles is equally as important as implementing advanced security tools; even the best security systems can fail if people are careless or unaware of potential threats from simple phishing attacks.

Organizations that implement a successful cybersecurity strategy often do so with the help of a cybersecurity framework, which helps inform decision-making when it comes to thinking critically about cybersecurity risks within an organization. The NIST Cybersecurity Framework is one such framework, and it is increasingly implemented by private companies in the U.S. as cybersecurity concerns increase.

Still, cyberattacks are becoming more sophisticated as technology becomes increasingly interconnected, and organizations of all shapes and sizes are scrambling to update their cybersecurity strategies. Unfortunately, hackers adapt, and the threats evolve just as fast as the defenses. There is a growing gap between the need for cybersecurity solutions and the ability for organizations to produce those solutions in-house.

Increasingly, organizations are looking to third-party security providers to help cope with complex, evolving threats. Even a robust, well-trained staff of IT professionals may not be sufficient to protect an organization from these threats.

Why Invest in Cybersecurity?

The global cybersecurity market is growing rapidly. According to market research by Mordor Intelligence, the Cybersecurity Market size is estimated at $182.9 billion in 2023, and is expected to reach $314.3 billion by 2028, growing at a CAGR of 11.4% during the forecast period (2023-2028) (6). Powerful global trends are pushing cybersecurity toward the forefront of all conversations surrounding technology for years to come, including data privacy issues, the internet of things and increased connectivity, and infrastructure vulnerabilities.

When looking for possible investments within this industry, you'll want to look for the best cybersecurity stocks and top cybersecurity ETFs out there (7).

In terms of the top 10 cyber security companies to invest in, that is up to the investor to find out, but this is a comprehensive list to help you get started (8). One of the best cyber security ETFs and most widely sought after is the HACK ETF.

This ETF, as well as the other cybersecurity ETFs out there, will give you access to a wide variety of stocks that occupy the space. By investing in an ETF, you can give yourself the ability to better manage your risk across a given sector, region, or, in this case, industry.

How to Invest in Cybersecurity

The cybersecurity market is complex - there are many players that specialize in different segments of the market, everything from data protection to network security to network security. This is also an emerging and highly technical industry, so researching cybersecurity stocks and investments can be a time-consuming process.

As with any tech investment, it’s important to understand the products and services that these companies are offering their customers, and how those offerings truly set them apart from the competition, in order to accurately gauge the potential growth as well as the potential risk in any cybersecurity investment.

An easy way to dip your toe into the cybersecurity market is to invest in an ETF or mutual fund that focuses on cybersecurity. Investing in a cybersecurity-focused fund can take the pressure off of the research process and give you built-in diversification.

References:

1. Adomaitis, Nerijus, “Norsk Hydro's initial loss from cyber attack may exceed $40 million,” Reuters, 26 March 2019, https://www.reuters.com/article/us-norway-cyber/norsk-hydros-initial-loss-from-cyber-attack-may-exceed-40-million-idUSKCN1R71X9
2. “Global Risks Report 2023,” World Economic Forum, 11 January 2023, https://www.weforum.org/reports/global-risks-report-2023/digest.
3. “About CISA,” Cybersecurity and Infrastructure Security Agency, https://www.cisa.gov/about
4. “Fiscal Year 2022 State and Local Cybersecurity Grant Program,” Cybersecurity and Infrastructure Security Agency, https://www.cisa.gov/sites/default/files/publications/SLCGP_Fact-Sheet_FY_2022_508c.pdf
5. “Framework for Improving Critical Infrastructure Cybersecurity,” National Institute of Standards and Technology, https://nvlpubs.nist.gov/nistpubs/CSWP/NIST.CSWP.04162018.pdf
6. “CYBERSECURITY MARKET - GROWTH, TRENDS, COVID-19 IMPACT, AND FORECASTS (2023 - 2028),” Mordor Intelligence, https://www.mordorintelligence.com/industry-reports/cyber-security-market
7. Rossolillo, Nicholas, "Investing in Cybersecurity Stocks," Motley Fool, 6 June 2023, https://www.fool.com/investing/stock-market/market-sectors/information-technology/cybersecurity-stocks/
8. "Top 10 Leading Cybersecurity Companies In The World," Emergen Research, https://www.emergenresearch.com/blog/top-10-leading-cybersecurity-companies-in-the-world

Disclosures:

Exchange Traded Funds (ETF’s) and mutual funds are sold by prospectus. Please consider the investment objectives, risks, charges, and expenses carefully before investing. The prospectus, which contains this and other information about the investment company, can be obtained from the Fund Company or your financial professional. Be sure to read the prospectus carefully before deciding whether to invest.

Diversification does not guarantee a profit or protect against a loss in a declining market. It is a method used to help manage investment risk.