Why cybersecurity could be set for years of growth

If you attended the recent Melbourne Grand Prix or tuned in on television, you might’ve noticed an increasing number of sponsorships by companies such as CrowdStrike, Darktrace, Bitdefender, DTEX, and Arctic Wolf. But what are these firms? All five companies are cybersecurity companies, and it’s big business.When valuable assets are stored anywhere, it inevitably attracts the attention of criminals. Cybercrime is no different. In fact, many of the most prevalent cybercrimes, such as fraud, scams, theft, and extortion, are simply old crimes delivered via a new medium – the internet.

Cybersecurity offers huge opportunities

According to estimates from Statista, there are approximately 30 billion devices connected to the internet around the world today¹ – more than three for every person alive. That’s 30 billion opportunities for criminals to commit cybercrimes.

Based on recent data from the Australian Cyber Security Centre (ACSC), cybercrime reports increased by nearly 13% in Australia during FY22, with one report made approximately every seven minutes².

These crimes have a real cost, to individuals, corporates, governments, and the economy. The ACSC also reported that medium-sized businesses in Australia lost an average of $88,407 per reported incident in FY22. Looking at a wider scale, global cybercrime is projected to cost US$10 trillion per annum by 2025³.

To combat this, organisations are spending increasing sums on cybersecurity each year – an estimated US$150 billion in 2021. However, large areas of the market remain under-served, with estimates suggesting that segments such as cloud security are reaching just 1 to 5 percent of their total addressable market⁴ . This demonstrates both the size of the risk to organisations, and the opportunity for cybersecurity firms.

Global cybersecurity market size and penetration (US$ trillions)

Source: McKinsey Cyber Market Map 2022.

The need to outsource

As cybercrime becomes more prevalent, cybersecurity companies are becoming increasingly important. They provide essential protection for individuals, businesses, and governments, helping to safeguard sensitive data and prevent cyber-attacks. These companies use a variety of techniques to secure their clients’ networks and systems, including threat detection, incident response, and penetration testing. Some even offer more advanced solutions like artificial intelligence and machine learning to stay ahead of evolving threats.

While some would surely like to manage these threats in-house, a shortage of talent means that many organisations are forced to outsource to service providers⁵. Perhaps this goes some way to explaining why cybersecurity services providers now appear on half the cars on the Formula 1 grid.

The digital ‘arms race’

In today’s digital age, cybersecurity is no longer an optional expense, but rather a necessity. As such, companies are investing heavily in cybersecurity measures to protect their business and their customers.

What’s resulted is something of a digital ‘arms race’, as both cybercriminals and cybersecurity experts aim to continuously improve their methods and outsmart each other. Recently this battle has stepped up, with the prevalence of generative AI (such as OpenAI’s ChatGPT) offering new tools to both sides.

With cybercrime showing no signs of slowing down, it appears that the need for cybersecurity will continue to grow.

Investors can seek to benefit from the forecast growth of the cybersecurity industry via the HACK Global Cybersecurity ETF . HACK aims to track the performance of an index (before fees and expenses) that provides exposure to the leading companies in the global cybersecurity sector – a sector that is heavily under-represented on the ASX.

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  Global Cybersecurity ETF

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References:
1. Source: Statista
2. Source: ACSC Annual Cyber Threat Report 2022
3. Source: 2022 Cybersecurity Almanac: 100 Facts, Figures, Predictions And Statistics
4. Source: McKinsey
5. Source: McKinsey