Cybersecurity Stocks To Watch

You may think the time is right to move into cybersecurity stocks amid a flurry of high profile hacking incidents. Also, buzz surrounding artificial intelligence is driving investor interest in cybersecurity stocks.

↑ X NOW PLAYING Cybersecurity Breaches Are A Concern For Executives. This Is 'Critical' As They Prepare.

The "Salt Typhoon" Chinese hacking incident in 2024 could drive higher spending on cybersecurity, analysts say. The attack targeted U.S. telecom companies.

Meanwhile, U.S. regulators and lawmakers are proposing new rules to protect hospitals from cyberattacks in 2025 after a bruising year of hacks and software outages. A bipartisan bill proposed in the Senate in November would add stricter cybersecurity requirements to the Health Insurance Portability and Accountability Act, including mandates for multifactor authentication and regular audits.

As of Jan. 5, the Computer Software-Security group ranked No. 96 out of 197 industry groups that IBD tracks. In 2024, the cybersecurity group under-performed versus the S&P 500. But some cybersecurity stocks posted solid gains.

Also, Fortinet (FTNT) ranks No. 25 in the IBD 50 roster of growth companies.

Further, Palo Alto Networks (PANW) out-performed. Palo Alto stock gained 23% in 2024.

In an interview with IBD,  Palo Alto Chief Executive Nikesh Arora talked about how his platformization strategy will drive long-term growth for Palo Alto stock.

Some Wall Street analysts tout cybersecurity stocks with cloud-based platforms as the most likely market share gainers.  Many companies aim to consolidate purchasing by buying from fewer security vendors, analysts say.

CrowdStrike Stock: In Or Out Of Doghouse?

Further, CrowdStrike Holdings (CRWD) posted a roller-coaster year in 2024. CRWD stock fell on a murky near-term outlook following its third-quarter earnings report. In the wake of a widespread IT outage in July, caused by the cybersecurity firm's defective software update, Wall Street is focused on a key financial metric — annual recurring revenue. And, Delta Airlines (DAL) has sued CrowdStrike over the incident.

Another top gainer has been Cloudflare (NET). Started in 2009, Cloudflare speeds up and provides security for web applications routed through its intelligent global network. Cloudflare has been featured as a New America story.

Cybersecurity Stocks: 2025 IPO, M&A Outlook

TD Cowen analyst Shaul Eyal in a report expects consolidation to continue. He noted media reports that Qualys (QLYS), Rapid7 (RPD) and Tenable Holdings (TENB) are engaged in discussions to be acquired. Private equity buyers again loom.

In addition, Rapid7 and Qualys specialize in vulnerability management services.

"From an investment opportunity perspective, we see an imbalance between a consolidating group of public market participants and a dearth of public market entrants," Eyal said in the report. "We anticipate a period of rising market entrants which should ease this imbalance."

Also, Google's talks to acquire well-funded startup Wiz  fell apart. Wiz plans to focus on hitting $1 billion in annual recurring revenue and preparing for an eventual initial public offering. A Wiz IPO would likely be the biggest ever in cybersecurity.

Among other possible cybersecurity IPOs, Cato Networks recently reached the $200 million mark in annual recurring revenue. And, Netskope reportedly plans an IPO in 2025. Meanwhile, Ping Identity has approached $800 million in ARR, analysts say.

Analysts say a new wave of startups is taking share from industry incumbents.  Analysts say startups to watch include Snyk, Vectra AI, Artic Wolf, Versa Networks, Noname Security and Illumio. The startups pressure incumbents into higher research and development spending.

Meanwhile, Mastercard (MA) acquired Recorded Future for $2.65 billion.

Cybersecurity Stocks: Identity Security

Meanwhile, research firm IDC forecasts big growth in identity security. The Identity and Access Management market will double from $23.5 billion in 2024 to $47.1 billion in 2028, according to IDC. Growth is expected to be driven by the increasing awareness of the critical nature of identity security in organizations, said a JPMorgan report, which sees upside in privileged access management for firms such as CyberArk (CYBR).

Public cloud deployment of identity security solutions will account for 83% of the market in 2028, up from 72% in 2024, said IDC.

One of the fastest growing markets for cybersecurity stocks — Secure Access Service Edge, or SASE, — has slowed down, says Dell'Oro Group.

Further, CrowdStrike and Palo Alto Networks are players in the cloud security market, which incudes Cloud Native Application Protection Platform (CNAPP) products and services.

Gartner currently estimates the CNAPP market will be $7 billion in 2024, and will grow at an annual compound rate of 25% $17.1 billion in 2028.

Microsoft is the largest vendor in CNAPP, followed by Palo Alto at No. 2, said a KeyBanc Capital report, with Wiz and CrowdStrike jockeying for third place.

Cybersecurity Stocks: Microsoft Competition

The cybersecurity stocks have thrived despite growing competition from cloud computing giant Microsoft. Microsoft aims to integrate artificial intelligence tools into its security platform. Called Microsoft Security Copilot, the platform uses a new AI assistant.

Microsoft has named Jay Parikh, the former CEO of Lacework, to its leadership team. Fortinet acquired Lacework.

The recent hacks on UnitedHealth Group and casino operators MGM Resorts (MGM) and Caesars Entertainment (CZR) underlined worries that generative AI will increase ransomware attacks.

Also, some computer security firms could get a boost from new federal government initiatives.

Meanwhile, the Securities and Exchange Commission has new disclosure rules for public companies. The rules require companies to report  hacking incidents within four business days if they have a material impact on operations.

The Cyber Incident Reporting Act of 2023 requires agencies, federal contractors and critical infrastructure operators to notify the Department of Homeland Security when a data breach is detected, a significant step in building security.

Meanwhile, both computer security firms and hackers are expected to make use of generative AI tools. Here's a look at the AI cybersecurity battle.

Cybersecurity firms expect generative AI tools to help reduce the time to detect and respond to many forms of computer hacking. Also, they see generative AI automating more functions in security operations centers to help companies deal with a shortage of software engineers.

Cybersecurity Stocks: Wide Range Of Products

Further, it behooves an investor to know which cybersecurity stocks address ransomware, phishing or other kinds of cyberattacks.

CyberArk specializes in privileged access management, part of the identity and access management market. IBD featured CyberArk stock in its New America section.

Also, Fortinet competes with Palo Alto Networks and others in the firewall security market. Firewalls reside between private networks and the internet. They block unauthorized traffic and check web applications for malware.

As large companies shift to off-premise cloud computing services, one view is that firewall technology will play a lesser role. Fortinet has targeted software-defined wide area networks, or SD-WANs, an emerging computer networking technology.

Also, many fast-growing cybersecurity firms are in the endpoint market. Their tools detect malware on laptops, mobile phones and other devices that access corporate networks.

In addition, Zscaler (ZS) is the biggest provider of cloud-based web security gateways that inspect customers' data traffic for malware.

Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on 5G wireless, artificial intelligence, cybersecurity and cloud computing.

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