Finest Cybersecurity Shares & Funds of 2023

Cybersecurity spending has soared because the COVID-19 pandemic started. Organizations have been confronted with new safety challenges as cloud computing and distant work have turn out to be important. Consequently, many cybersecurity shares had been prime performers in 2020 and 2021, boosted by robust demand for next-gen safety software program. A bear market in 2022 put a damper on a few of the highest flyers, however cybersecurity stays a prime funding theme.


In accordance with the Id Theft Useful resource Heart, the variety of information breaches set a brand new report in 2021, with the variety of incidents leaping 68% from 2020 and up 23% from the earlier excessive in 2017. Knowledge breaches had been up one other 14% year-over-year in the course of the first quarter of 2022. Total, cybercrime is on the rise at a double-digit proportion tempo.

It shouldn’t be shocking that world spending on cybersecurity is predicted to exceed $170 billion in 2022 (up about 13% from 2021) and can doubtless proceed to be a high-growth trade for years. Cybersecurity shares are a red-hot area of interest of the tech trade, so understanding tips on how to put money into them can yield some huge returns within the decade forward.

High cybersecurity shares in 2023

Listed here are a few of the prime cybersecurity shares to personal in 2023 and past:

Knowledge supply: YCharts. Market cap as of January 19, 2023.
Firm Market Capitalization Description
CrowdStrike Holdings (NASDAQ:CRWD) $23.2 billion One of many largest cybersecurity corporations by market cap and a pacesetter in endpoint safety software program.
Zscaler (NASDAQ:ZS) $15.8 billion Cloud computing and web safety software program supplier.
Okta (NASDAQ:OKTA) $10.7 billion Cloud-based identification and entry administration.
SentinelOne (NYSE:S) $3.9 billion Latest IPO and CrowdStrike competitor.
Palo Alto Networks (NYSE:PANW) $42.6 billion Largest impartial cybersecurity firm by complete annual gross sales.
Fortinet (NASDAQ:FTNT) $38.0 billion Giant safety firm with best-in-class {hardware} for information heart safety.
Splunk (NASDAQ:SPLK) $14.3 billion Chief in information analytics, providing new capabilities akin to cloud observability and safety orchestration.
Datadog (NASDAQ:DDOG) $21.4 billion Splunk competitor that has additionally made a foray into safety monitoring capabilities.
Akamai (NASDAQ:AKAM) $13.7 billion One of many largest web infrastructure corporations that helps safe net content material.

Cloud safety, identification administration, and legacy safety distributors

As cloud computing has shortly grown into an trade value lots of of billions per 12 months, gross sales of safety software program that’s cloud-native (in-built and for the cloud) have skyrocketed. These leaders within the area have a few of the most long-term potential:

1. CrowdStrike Holdings

A cloud-native software program firm, CrowdStrike Holdings (CRWD 3.82%) supplies endpoint safety — safety for gadgets akin to laptops, PCs, and servers, and some other gadget linked to a community. As a result of it’s cloud-based, CrowdStrike is especially well-suited for supporting distant work.

CrowdStrike’s software program makes use of machine studying (a sort of synthetic intelligence) to detect safety breaches and seek out threats. It’s additionally straightforward to deploy to the hundreds of thousands of individuals working from dwelling and the billions of machines linked to the web. The corporate has steadily elevated the variety of modules on its platform to assist its prospects, and it has new integration agreements with different tech corporations to make information safety extra constant throughout a company’s IT infrastructure.

The premium-priced inventory has been hit arduous in 2022, however CrowdStrike’s gross sales have been booming nonetheless. It’s additionally extremely worthwhile as measured by free money circulate. In an more and more cell world with extra gadgets regularly coming on-line, CrowdStrike is poised to proceed rising at a brisk price.

2. Zscaler

One other cloud-native safety vendor, Zscaler (ZS 3.64%), works in tandem with endpoint safety companies to assist preserve information safe. The corporate has been growing its gross sales at a fast tempo and is one other of the biggest pure-play cybersecurity shares as measured by market cap — though the inventory itself has bought off some 50% in 2022.

Zscaler received began with a software-as-a-service product designed for cloud computing safety, however it has since added new web safety and end-user monitoring merchandise. Finish-user monitoring is growing with so many individuals now working from dwelling. And with world spending on cloud computing anticipated to exceed $1 trillion yearly this decade, Zscaler is well-positioned to revenue from this huge secular progress development.

3. Okta

Okta (OKTA 2.45%) is a pioneer of identification and entry administration, which rethinks conventional safety by utilizing what’s known as zero-trust structure. Such a identification administration continually requires verification of a person earlier than permitting entry to information and functions. If legacy safety is a fortress with a wall and a moat, then zero-trust safety acts extra like a counterspy company.

In an more and more cell and cloud-based world, Okta’s identification administration software program has been in excessive demand. Companies typically have a sophisticated net of stakeholders, together with workers, third-party contractors, suppliers, and prospects. The sheer dimension and complexity of web-based functions has pushed Okta’s progress story and attracted some consideration, too. Fellow identification administration firm ForgeRock (FORG 0.71%) had a profitable public debut in 2021.

Okta is firmly within the lead on this department of safety. Nonetheless, a cyberattack in January 2022 affected two of its prospects, serving to to speed up the decline of its inventory in the course of the bear market. Even so, Okta stays in progress mode as new prospects undertake its software program to handle identification and entry safety.

4. SentinelOne

SentinelOne (S 7.63%) is one other latest pure-play cybersecurity firm to be publicly listed. Its preliminary public providing (IPO) in June 2021 raised $1.2 billion in money and valued the corporate at $10 billion, making SentinelOne’s IPO the biggest ever for a cybersecurity firm. Nonetheless, a tough go for the inventory market in 2022 and slowing income progress at SentinelOne has despatched the inventory beneath its IPO worth.

Regardless of the slowdown, this small firm continues to be greater than doubling its gross sales year-over-year in the course of the first half of 2022. Because of its fast enlargement, SentinelOne can also be making regular progress in direction of turning a revenue. It operates a cloud-based endpoint safety platform, which places it in competitors with CrowdStrike. Its means to robotically detect and resolve cybersecurity threats is being well-received available in the market.

5. Palo Alto Networks

Hailing from an period that predates cloud know-how, Palo Alto Networks‘ (NYSE:PANW) specialty is rooted in firewalls — gadgets that shield site visitors into and out of bodily areas akin to workplaces and information facilities. Whereas its legacy companies nonetheless expertise loads of demand, the true progress is within the cloud.

The corporate’s extremely worthwhile platform has helped it to accumulate greater than a dozen smaller cloud-native companies prior to now few years. Consequently, Palo Alto Networks has given its safety operation a critical makeover. Administration says its acquisition spree is over for now, and it predicts double-digit proportion income progress within the years forward. This regular progress and market management has helped make its inventory probably the greatest performers amongst cybersecurity corporations in 2022.

Palo Alto Networks is the biggest pure-play cybersecurity operation by income and market cap. Now additionally a number one cloud safety supplier, this legacy enterprise is extremely aggressive within the cybersecurity trade. Shares commerce for a relative worth in comparison with its youthful, high-flying, cloud-native rivals. The corporate additionally accomplished a 3-for-1 inventory break up in September 2022.

6. Fortinet

One other legacy safety software program supplier, Fortinet (FTNT 0.43%) can also be one of many largest cybersecurity corporations on this planet by income and market cap. Like its peer Palo Alto Networks, it has maintained double-digit proportion progress and is extremely worthwhile. However, in contrast to Palo Alto Networks’ acquisition spree, Fortinet has invested in its natural growth of cloud safety to stay aggressive.

One in every of its developments is a lately introduced software-based web safety product being constructed and deployed with one in every of Europe’s main telecom suppliers, Telefónica (TEF -0.12%). The corporate additionally lately introduced a partnership with Singapore’s Quantum Engineering Programme to develop next-gen safety for quantum computing.

Fortinet can also be a prime supplier of firewalls. Its best-in-class {hardware} continues to generate extra income as many organizations flip to Fortinet for assist when constructing new information facilities and 5G cell networks. It additionally accomplished a inventory break up this 12 months, initiating a 5-for-1 break up in June 2022. For buyers searching for a great stability of each gross sales and profitability progress, Fortinet is among the greatest safety shares in the marketplace.

Do you know?

As a high-growth section of the tech trade, cybersecurity affords buyers a lot of upside within the decade forward.

Infrastructure monitoring and content material supply networks

Cloud computing creates, makes use of, and shops extra digital information, and a company’s IT infrastructure can shortly turn out to be extra advanced by an order of magnitude. Corporations that monitor these cloud-based operations are crucial to cybersecurity, as are corporations that handle the online content material and apps themselves. Listed here are some prime names to think about:

1. Splunk

An extended-time chief in information analytics, Splunk (SPLK 3.16%) supplies software program that helps corporations sift via logs of knowledge, monitor digital exercise, and orchestrate responses to information breaches. Though its platform predates cloud know-how, the corporate has been migrating prospects to newer cloud-based variations of its software program.

Knowledge analytics is a fast-growing section of IT administration, and Splunk is a central a part of many organizations’ safety and monitoring efforts. The corporate expects its annualized recurring income to develop at a double-digit price over the subsequent couple of years.

Nonetheless, Splunk has quite a few opponents, some with newer and extra nimble software program for as we speak’s cloud computing wants. However, with its transition to cloud tech nonetheless in progress, Splunk is a price inventory, particularly when contemplating the corporate’s fundamentals akin to income and profitability. A brand new CEO took over in the summertime of 2022 — Gary Steele, founder and former CEO of Proofpoint, which was acquired by a personal fairness agency in 2021.

2. Datadog

Datadog (DDOG 6.9%), a cloud-native platform, is constructed to gather, monitor, and yield insights on cloud-based information and operations. The corporate makes use of AI to assist automate the method of monitoring giant and complicated units of knowledge, relieving a few of the burden of busy IT groups. It’s additionally been steadily increasing its platform’s capabilities with new modules that embrace cloud-based safety and information monitoring.

Knowledge analytics software program is a big and fast-growing section of the tech world, which bodes effectively for Datadog. In addition to Splunk, Elastic (ESTC 3.1%) and Dynatrace (DT 4.67%) are two different promising software program makers to think about on this area.

3. Akamai

As a content material supply community (CDN), Akamai (AKAM 1.54%) ensures that information securely arrives at its meant vacation spot. With the quantity of knowledge touring throughout the web steadily on the rise, CDNs have gotten more and more necessary. Extra individuals than ever are utilizing the online for every thing from leisure to work. To bolster its community safety choices and shield its prospects from ransomware assaults, Akamai acquired Israel-based Guardicore in 2021 and cloud infrastructure platform Linode in early 2022.

CDNs are web infrastructure that keep the web “freeway” on which information travels. Akamai is a pacesetter on this sector and can also be a developer of edge computing know-how, which pulls information away from centralized information facilities and nearer to finish customers.

Cloudflare (NET 4.4%) and Fastly (FSLY 3.92%), that are newer CDN suppliers, have a better deal with edge computing and are opponents to Akamai value contemplating.

High cybersecurity ETFs in 2023

For those who’d somewhat not have to decide on amongst particular person cybersecurity shares, you may take into account a number of exchange-traded funds (ETFs) that allow buyers to take part within the progress of the cybersecurity trade as a complete.

Our prime picks for cybersecurity ETFs embrace:

1. First Belief NASDAQ CEA Cybersecurity ETF

With $4.8 billion of property beneath administration in mid-2022, First Belief NASDAQ CEA Cybersecurity ETF (CIBR 1.62%) is the biggest of its type. The ETF consists of 37 shares within the cybersecurity trade and has an annual expense ratio of 0.6%, making it an inexpensive choice.

2. ETFMG Prime Cyber Safety ETF

Additionally notable on this sector is the ETFMG Prime Cyber Safety ETF (HACK 1.95%). Holding 60 shares, the ETF invests in lots of comparatively small corporations within the cybersecurity trade. The fund manages $1.5 billion of property and in addition has an expense ratio of 0.6%.

3. World X Cybersecurity ETF

A newcomer to the cybersecurity ETF area, the World X Cybersecurity ETF (BUG 3.27%) launched on the finish of 2019. The fund managed $1.1 billion of property in mid-2022 and has an expense ratio of 0.5%. The World X Cybersecurity ETF can also be extra concentrated, with solely 25 shares in its portfolio. Since its inception, the fund has outperformed its opponents on this record.

Associated investing matters

Easy methods to put money into cybersecurity shares

When contemplating tips on how to determine the perfect cybersecurity shares, keep in mind that cloud-native corporations have a pure aggressive benefit with the most recent software program know-how. Nonetheless, legacy corporations generate ample revenue margins and have the money to make updates. Corporations that monitor cloud-based operations, in addition to those who handle net content material and apps, are additionally more and more necessary to the net safety of an organization.

Cybersecurity ETFs are one other nice choice and could be bought together with your favourite cybersecurity shares. For your entire investments, keep centered on the long-term potential of those fast-growing corporations. Know-how that helps the digital world to remain protected is quickly evolving and proliferating, and cybersecurity corporations will reap the monetary advantages accordingly.

Nicholas Rossolillo has positions in Cloudflare, CrowdStrike, Dynatrace, Elastic, and Fortinet. The Motley Idiot has positions in and recommends Cloudflare, CrowdStrike, Datadog, Elastic, Fastly, Fortinet, Okta, Splunk, and Zscaler. The Motley Idiot has a disclosure coverage.

Leave a Reply

Your email address will not be published. Required fields are marked *