Intensifying concerns about cybersecurity are fueling major gains on Wall Street for technology firms that diagnose and protect against corporate hacks.
Security companies such as CyberArk, Palo Alto Networks and FireEye are seeing their stock values rise as nervous corporate executives seek advice and software that will protect against data breaches.
This area of the tech world is expanding rapidly, with global spending on cybersecurity projected to rise to $77 billion.
{mosads}In one sign of that growth, the first exchange-traded fund for cybersecurity increased in value by nearly 17 percent in February after debuting at the end of last year.
The health of the fund, known by the ticker symbol HACK, is considered a bellwether for the cyber field and investors’ interest in it.
“I think cyber is a once-in-a-multi-decade investment opportunity because you only have about 8 percent of enterprises and governments worldwide that have upgraded to next-generation security,” said Daniel Ives, an analyst with FBR Capital Markets.
“Given the threat level and the amount of data that is exposed in the cloud, we view this as the early days of this trend playing out,” Ives said.
While interest in cybersecurity stocks has existed for years, it took a string of high-profile hacks for the conversation to go mainstream.
Now, rather than a niche investment for a few elites, cyber shares have become a must-buy for amateur traders and a frequent subject of advice by research clearinghouses.
Experts pointed to the 2014 Sony Pictures hack as the event that ignited the market and brought FireEye, the firm hired to clean up the mess, to the forefront.
The company’s revenue grew by nearly 150 percent during the fourth quarter and 163 percent compared to last year, an increase that observers called “staggering.” Its stocks jumped by more than 10 percent on the day of its fourth-quarter report last month.
“Cybersecurity is a rapidly growing market, and FireEye is right at the center of it. Growth is set to slow down, but only because FireEye has grown to a size where doubling revenue every year simply isn’t possible,” Timothy Green with Motley Fool wrote on Feb. 12.
Most are hoping to get into the cyber market before the next major hack raises prices further.
Developments in Washington are also beginning to affect stocks’ movement.
Before President Obama signed an executive order on cyber threat sharing, the HACK fund was reportedly up 4.7 percent. The progress of legislation on Capitol Hill could also affect prices, though perhaps less dramatically, experts said.
Investment advisers’ main focus is on firms offering “next generation” cybersecurity solutions.
Gone are the days when basic anti-virus software was enough, experts say. Now entrepreneurs are competing to find the most cutting-edge ways to anticipate and disrupt hackers.
“It’s a huge paradigm shift,” said Ives. “Protecting user data has become a Herculean task. … There is so much riding on protecting the network. And even though there has been a lot of hype, CIOs have really underspent on cybersecurity in the last five years.”
Ives predicts that the market for sophisticated cybersecurity software tools, including those that rely on big data, will be $15 billion to $20 billion over the next three years.
C-suite officers across the private sector are taking notice. In a recent survey by BDO USA, 67 out of 100 CFOs said they have increased cyber spending in the last 12 months. Of that group, 90 percent implemented new software.
Still, not every cyber stock is on a growth rampage, at least not without market corrections.
Late last month, JPMorgan downgraded its rating of CyberArk’s stock from “neutral” to “underweight.”
The privileged account security firm had seen shares skyrocket after its debut session last fall, and the adjustment caused stocks across the cyber sector to slump.
“When we look at the broad technology sector, we see the shares on average are about 10 percent overvalued,” said Jeremy Glaser, markets editor for investment management firm Morningstar.
“That is certainly higher than the broader market, which is about 3 percent undervalued. Tech is one of the more overvalued sectors, though we’re not looking at the kind of valuations that we saw during the dot-com bubble. That’s because most of these companies have real earnings,” he said.