Cybersecurity vs cybercriminals: Fighting fire with fire

On the back of greater accessibility to artificial intelligence and due to a structural undersupply of private cybersecurity professionals, we are seeing a growing reliance on outsourced cybersecurity solutions driving growth in the companies underlying the cybersecurity industry.

Fighting back with AI

Leading cybersecurity software company Check Point demonstrated the potential of AI to be used in every stage of a cyberattack, from crafting convincing phishing emails to writing malware and embedding it in documents. Check Point believes the lowering barrier to creating cyber threats will lead to a greater number of and more sophisticated cyberattacks, that in turn will lead to a rise in corporate cybersecurity budgets.

According to Gartner, information security spending is expected to grow by 11.3% in 2023 to reach $187 billion, as companies invest in AI-augmented security tools to counter evolving cyberattack techniques.

Companies like CrowdStrike, a global cybersecurity leader, are already utilising AI to fight back. CrowdStrike introduced Charlotte AI in 2023, a generative AI cybersecurity analyst, available to businesses subscribed to their Falcon platform. Charlotte AI aims to democratise security and enable users, regardless of their skill level, to enhance their ability to detect, investigate, and respond to various security events, including advanced threat detection and remediation. By combining AI with human intelligence, CrowdStrike believes it can deliver unmatched security and business outcomes.


Source: CrowdStrike.

Cybersecurity companies set to benefit

The sophistication of cybersecurity software offered by specialist companies is creating a growing desire for businesses to outsource to these solutions. Implementing in-house AI-powered security systems can be expensive and requires specialised hardware, software, and skilled professionals to develop and maintain the systems.

Not only is this not feasible within a lot of companies’ budgets, there is also estimated to be a shortage of 3.4m cybersecurity professionals globally. 85% of organisations already outsource some or all cybersecurity operations to third party service providers with this reliance forecast to grow1.

The confluence of these factors and growing threat of cyber attacks has security software at the top of global companies spending budgets. Security software ranked number one in Morgan Stanley’s Q1 2023 CIO survey for the projects that will see the largest spending increase in 2023 and for the IT projects least likely to get cut.


Source: Morgan Stanley 1Q2023 CIO Survey. Percentage of total responses.

Closer to home, as highlighted in this AFR article, Australian companies became increasingly vocal about their security spending following the high-profile breaches at Optus and Medibank. Brad Banducci, CEO of Woolworths, stated cybersecurity budgets had already doubled over the past three years, with $60m expected to be spent in the 2023 fiscal year alone.

Tighter financial conditions and the potential for economic deterioration in 2023 means more scrutiny will be placed on discretionary corporate spending by investors and companies alike. Despite this, the cybersecurity industry appears well placed and may display relatively defensive attributes by maintaining resilient revenues over the business cycle.

Implementation

HACK Global Cybersecurity ETF provides exposure to leading pure-play companies in the global cybersecurity industry – across hardware, software, threat intelligence, and services – including Check Point and CrowdStrike.

Due to the nature of its underlying holdings, HACK’s performance has historically responded positively to significant cyber incidents and geopolitical events potentially proving a good proxy for investors to growing cyber threats and the companies defending against them.


Source: Source: CIBR and Bloomberg. Notable hacks are based on the number of search results after the hack as well as Google trends data. Past performance is not an indication of future performance.  Returns in AUD. See HACK’s webpage for further performance information.

HACK is rated ‘Recommended’ by Lonsec. You can request the research reports from your BDM or by filling in the form under the following link.

For more information on Betashares ETF platform availability please use the following link.

For financial intermediary use only. Not for distribution to retail investors.

There are risks associated with an investment in HACK including concentration risk, cybersecurity companies’ risk, market risk, and currency risk. The Fund’s returns can be expected to be more volatile (ie vary up and down) than a broad global shares exposure. An investment in HACK should only be considered as a part of a broader portfolio, taking into account the investor’s particular circumstances, including their tolerance for risk. For more information on risks and other features, please see the Product Disclosure Statement and Target Market Determination, both available at www.betashares.com.au
The Lonsec Ratings (assigned 26 October 2022) presented in this document is published by Lonsec Research Pty Ltd ABN 11 151 658 561 AFSL 421 445. The Rating is limited to “general advice” (as defined in the Corporations Act 2001) and based solely on consideration of the investment merits of the financial product. Past performance information is for illustrative purposes only and is not indicative of future performance. It is not a recommendation to purchase, sell or hold any Betashares fund, and you should seek independent financial advice before investing in this product. The Rating is subject to change without notice and Lonsec assumes no obligation to update the relevant document following publication. Lonsec receives a fee from the Betashares for researching the product using comprehensive and objective criteria. For further information regarding Lonsec’s Ratings methodology, please go to http://www.lonsecresearch.com.au/research-solutions/our-ratings
This is not a recommendation to buy units or adopt any particular strategy. You should make your own assessment of the suitability of this information. Past performance is not an indication of future performance. No assurance is given regarding the future performance of HACK. Investing involves risks, and the value of investment can go up as well as down. Betashares Capital Ltd (ACN 139 566 868 AFS Licence 341181) (“Betashares”) is the issuer of HACK. This is general information only and does not take into account any person’s particular circumstances. Investors should read the  PDS and Target Market Determination (TMD)  (at www.betashares.com.au) before deciding to buy or hold units. To the extent permitted by law Betashares accepts no liability for any loss from reliance on this information. Future outcomes are inherently uncertain. Actual outcomes may differ materially from those contemplated in any opinions, estimates or other forward-looking statements given in this information.
1. Deloitte, The future of cyber survey 2019
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Tom Wickenden

Betashares – Investment Strategist. CFA level 2 candidate. Enthusiastic about markets and investing.

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