When it comes to the various disruptive technology themes that have captured investors’ attention in recent years, it’s fair to say that on a comparative basis, artificial intelligence is displaying staying power.
The other side of that coin is that market participants’ have shown short attention spans for other tech themes. Think about it. It wasn’t that long ago that 3D printing was all the rage and it seems like only yesterday that fintech had captured market participants’ hearts and minds. One of the largest fintech exchange traded funds has nearly tripled in value over the past three years to little fanfare.
Speaking of lack of notoriety, whatever happened to healthcare innovation and internet of things? They’re still around, but sure it feels as though investors aren’t discussing these themes with fervor comparable to what was heard five years ago.
Cybersecurity is somewhere in the middle. It hasn’t been garnering AI-level media or investor attention, but it remains as relevant as ever.
AI Actually Boosts Case for Cybersecurity Investing
Hackers are increasingly emboldened, organized and willing to target big-name businesses they know are guardians of sensitive customer data. In simple terms, these bad actors are extorters. They attempt to get targeted companies to pay or risk seeing their customers’ information sold on the dark web. Interestingly, there are intersections between AI and cybersecurity – some negative and some with potentially attractive investment implications.
“Artificial intelligence has transformed cyber threats, amplifying the need for robust cybersecurity solutions,” according to First Trust research. “Today, AI tools may be utilized by hackers to identify potential security flaws or improve social engineering, making ‘phishing’ or ‘deepfake’ attacks more difficult to detect. For instance, a deepfake scam targeting a UK company in 2024 convinced staff to transfer $25 million to fraudsters impersonating the CFO on a video call. ”
The issuer sponsors the $9. 7 billion First Trust Nasdaq Cybersecurity ETF (NASDAQ: CIBR), which is one of the oldest and largest cybersecurity ETFs. It returned 75. 4% over the past three years. That performance confirms markets are pricing in an impressive trajectory of cybersecurity spending over the next several years – an accurate anticipation.
(Chart Courtesy: First Trust)
As noted above, AI can be a force for evil when it comes to cyberthreats, but it can also be a key fortifier of cyber defense and an increasingly mandatory one at that.
“For example, Palo Alto Networks’ Precision AI monitors 7. 6 petabytes of data per day, using advanced AI and machine learning to recognize historical cyberattack patterns to identify and respond to new cyberattacks,” adds First Trust. “As AI escalates threats and defenses, we believe investment in cybersecurity will grow, creating opportunities for companies addressing this dual dynamic. ”
Cybersecurity Thesis Intact for Long-Term
The union with AI is just one reason why the cybersecurity investment thesis is fortified for the long-term. In addition the expected potency of the AI agent/cybersecurity combination, there are other demand drivers bolstering the case for investing in purveyors of cyberdefense services and software.
Consider soaring global defense budgets and that cybersecurity represents a steadily increasing slice of that multi-trillion-dollar pie. Don’t forget new regulatory demands being placed on businesses and corporations, some of which include incentives to do the right thing when it comes to boosting cybersecurity protocols.
“The U. S. Securities and Exchange Commission has enacted rules that govern how public companies must disclose material cybersecurity incidents and cover their cybersecurity risk management, strategy, and governance in annual filings,” concludes First Trust. “Taken together, these new regulations and rules compel organizations to invest regardless of economic conditions, pushing companies to maintain spending on training and security tools to avoid hefty fines and lawsuits. ”
