THIS IS AN ADVERTISING FEATURE
Cutting edge tech companies that have exhibited strong revenue growth but that might have low or even negative net income have been challenged. Many cybersecurity companies that are focused on the future?things like cloud security rather than on premise security, for instance?have been no exception.
However, many of us would also recall that 2021 was a year of some major hacks, like the Colonial Pipeline, and it would be difficult to imagine any business today of any size with zero spending on or investment in cybersecurity.
There are few megatrends like cybersecurity in this sense: with artificial intelligence (AI), for example, there may be many reasons to use it or many benefits to be derived, but it’s still a choice. Not doing anything in cybersecurity really isn’t a choice anymore, so it’s more a question of the specific services to use and specific companies to work with.
Massive Growth Potential
It is estimated that in 2020, spending on cloud computing, specifically infrastructure-as-a-service (IaaS) and platform-as-a-service (PaaS) was $106.4 billion, expected to grow to $217.7 billion by 2023[1].
Now, cloud workloads need to be protected?but how much spending is estimated on the cybersecurity element? In 2020, it was roughly $1.2 billion, and in 2023, it is estimated to be $2.0 billion. That means that in 2023, it’s possible that spending on cloud security will be less than 1% of spending on cloud services[2].
It is estimated that ‘security spend’ should be closer to a figure between 5 and 10% of a given information technology budget. This means it would be more reasonable to see a figure of $12.4 billion of spending on cloud security in 2023, which would be a magnitude of growth of about 10x relative to the aforementioned estimate for the 2020 spending[3]. There is no guarantee that spending would ever reach this level, but the concept that firms need to take the topic more seriously is clearly being discussed.
What’s More Expensive?Dealing with a Cybersecurity Issue or Spending on Preventative Efforts?
This is one of the critical questions in cybersecurity, because if it is less expensive to just deal with issues after they occur, there would be no market for preventative measures. Towards the end of December 2021, we saw one example of a company needing to settle a particular case[4]:
-A hacker stole the personal data of more than 100 million people in 2019 from Capital One and its cloud services provider, Amazon Web Services, in 2019.
-Capital One agreed, in 2021, to pay $190 million to settle a class action lawsuit filed by these customers.
-In 2020, Capital One agreed to pay $80 million to settle regulators’ claims that it lacked proper cybersecurity procedures as it began to use cloud storage technology.
The settlements make the headlines, but think of the costs of time, the costs of legal fees, the turnover in certain employees that may happen?while it may never be possible to have 100% protection from all hackers, the case is clear for a focus on preventative measures.
The Demand for Cybersecurity Solutions should be Relatively Constant
We must remember that certain trends are already in place that may not be very sensitive to changes in interest rate policy. One is a shift from ‘on-premise’ hardware to cloud computing, where many companies can realise efficiencies and cost benefits. These shifts require different, updated security packages, and they are expected to continue through 2022. The key risk, as we see it, is that many cloud-focused cybersecurity companies delivered unbelievable share price returns in recent years and these firms may see their valuations adjust as interest rates rise?even if their revenue growth continues. Thinking beyond simply the returns of 2022 could be important when thinking about the cybersecurity megatrend.
To learn more about Cybersecurity, please visit: wisdomtree.eu/cyber
To access a list of relevant Megatrends products within the AJ Bell Youinvest platform, please visit: AJ Bell Youinvest - Megatrends
This material is prepared by WisdomTree and its affiliates and is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are as of the date of production and may change as subsequent conditions vary. The information and opinions contained in this material are derived from proprietary and non-proprietary sources. As such, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by WisdomTree, nor any affiliate, nor any of their officers, employees or agents. Reliance upon information in this material is at the sole discretion of the reader. Past performance is not a reliable indicator of future performance.
[1] Source: Crowdstrike Corporate Overview, December 2021 version, using International Data Corporation Estimates.
[2] Source: Crowdstrike, December 2021.
[3] Source: Crowdstrike, December 2021.
[4] Source for Bullets: Nguyen, Lananh. “Capital One Settles a Class-Action Lawsuit for $190 Million in a 2019 Hacking.” The New York Times. 23 December 2021.
