The world has become more connected than ever before, but the nature of its connections has changed in a fundamental way. The process of digitalisation has given way to a new era of global flows with the digital trade now generating more economic value than the global goods trade. Despite, the exponential growth of digitalisation, it hasn’t come without its problems. Cyber-attacks and cybercrime have emerged, partly caused by a lack of high-quality cyber security, the complexity of data making it hard to secure and easy access to personal information.
Cybercrime has created a new dimension where companies and individuals can affect,
disrupt and demolish systems that comprise our entire day-today life. Both cyber-attacks and cybercrime have increased in both intensity and frequency, with hackers typically attempting to gain access to personal or businesses information with a purpose to exploit.
Recent data suggests that globally, cyber-attacks are now the fastest growing type of crime, with the average overall impact of an attack costing a company US$3.86m. Organisations
have subsequently incurred significant losses in terms of loss of revenue, brand reputation, unplanned workforce reduction, and business disruptions due to data breaches.
Therefore, the need for cyber security has never been greater with data reports suggesting that combined spending within the cyber security sector will total US$172bn 2022. Following a steady increase over the last five years, as individuals and institutions have ramped up the intensity of spending on security, with the aim to create a robust and safe online system which is extremely difficult to get into.
Fuelled by a need to double down on system control post the COVID-19 pandemic, the move to remote working has acted as a catalyst for firms investing in software. At the start of the breakout, employees used personal devices for business work while connecting through private Wi-Fi or anonymous networks, putting the company’s security at risk.
As such, several organisations adopted cyber security solutions that manage and secure the
increased number of devices used while also getting protection from network threats. As a result of strong industry tailwinds, certain data sources are suggesting that by 2025 there will be over 3.5m new job openings within cyber security, a 350% increase in eight years.
Thus, it may come as little surprise that many investors have labelled 2022 as the start of the ‘Golden Age’ for cyber security stocks, with industry leaders such as IBM, McAfee and Check Point all showing double-digit share price growth for the year with very strong financial performance too.
Contributing to the success of many of the businesses within the industry comes from core
technology provision, systems that can understand uncertain activities and trials and identify and detect uncertain threats. These systems have played a crucial role in limiting some of the most advanced hackers from gaining access to data. Further developments in software engineering have spiked excitement across the world as new products look to provide a new way of tackling cybercrime. An example of this includes both artificial intelligence and blockchain.
Blockchain has possibly been one of the biggest developments last year having revolutionised areas within cyber security. It is a database that securely stores information in digital blocks which are connected through cryptography, allowing information to be collected, but not edited or deleted. Therefore, it can be used to secure systems or devices, create standard security protocols, and make it almost impossible for hackers to penetrate databases. The method comes with great benefits to businesses, including better user privacy, reduction of human error, greater transparency, and cost savings by removing the need for third party
verification.
However, it doesn’t come without its faults, due to its early-stage development and the complexity of blockchain, and the cost and inefficiency of the technology that have hindered
its ability to be onboarded to companies at a large scale.
Despite global stocks and shareholders experiencing a tough year in 2022, cyber security companies have seemingly gone against the grain, providing better than average returns to investors. That being said, the idea that the sector could continue its momentum in 2023 and beyond is a compelling one, structural tailwinds and advanced development of new systems could continue to push these companies in the right direction. It certainly will be interesting to see how the industry performs in 2023.
This article was taken from the
December 2022 issue of Market Insight. To subscribe to our investment publications, please visit
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Please note that this communication is for information only and does not constitute a recommendation to buy or sell the shares of the investments mentioned. The value of investments and any income derived from them may go down as well as up and you could get back less than you invested.