By Jeff Reeves
As with many areas of the economy, enterprise technology spending was hurt by the Covid-19 pandemic. According to consulting firm Gartner, worldwide IT spending declined 3.2% last year to mark a rare rollback in this category.
One important exception was cybersecurity spending, which grew 6.4% in 2020. And this year the segment continues to grow at an above-average rate as Gartner estimates global spending on information security and risk management services will top $150 billion — up 12.4% from last year, and about double the 6.2% growth rate for worldwide IT spending as a whole.
The reason for this extra cash flowing into security should be obvious. From high-profile events, like the second wave of cyberattacks in May from the hackers that targeted SolarWinds to the all-too-familiar warnings we get from our phone or laptop about potential phishing schemes, we are surrounded by cyber risks in 2021. And the problem is not going away.
Many investors have jumped into cybersecurity stocks in recent years to capitalize on this trend. However, it’s important to note that even if the overall pie is growing, there are some companies that have a decidedly bigger piece of that pie — or at least a bigger appetite than the competition.
Here’s a look at a few entrenched stalwarts and a few hungry upstarts to watch in the cybersecurity space, and their outlook for the future in this high-growth area.
CrowdStrike Holdings Inc. /zigman2/quotes/212513426/composite CRWD -0.56% is a $60 billion cybersecurity leader that has both size and momentum on its side.
The stock has had a pretty good run over the past year, with shares rising about 90% in the prior 12 months compared with about 30% for the broader S&P 500 Index /zigman2/quotes/210599714/realtime SPX -1.32% . That’s in large part because of projections for roughly 60% revenue growth this fiscal year and almost 40% next year despite an already impressive scale.
CrowdStrike is thriving because of its sophisticated Falcon technology, cloud-supported artificial intelligence platform that analyzes information in real time to detect and ultimately prevent cybersecurity attacks. According to internal information, this platform manages trillions of events every week — which in addition to being a staggering amount of crises averted, is also represents a huge amount of raw material to make its platform even smarter.
Admittedly, there’s a lot to like about this stock right now. But it’s hardly alone, as you’ll see from other names on this list. In fact, analysts at Morgan Stanley recently sounded a warning about how the increasing pressures of competition could post a risk. That said, in the near-term its hard to argue with either the share price or fundamentals of this leader.
Representative of this kind of competition from smaller and hungry firms, CyberArk Software Ltd. /zigman2/quotes/206810080/composite CYBR -0.24% has risen sharply lately on the heels of a strong third-quarter report and encouraging forward guidance — including an impressive bounty of 230 new customers added on the quarter.
Specifically, its move toward building a more reliable business is paying off as CyberArk posted an all-time best performance from its software-as-a-service offerings and its largest-ever sequential increase in the subscription portion of its annual recurring revenue.
CyberArk is certainly not a sure thing, of course. It is barely operating on the right side of profitability, without a lot of room for error as it invests in the future. But it is running with a tremendous track record of more than 12 consecutive quarters of earnings surprises to show it makes a habit of beating Wall Street expectations.
Investors need to expect volatility, as evidenced by plenty of ups and downs in share price over the past few years. That said, when things move in the right direction it can really pay off — as it has since spring, when CYBR stock nearly doubled from about $105 at their 52-week low to current levels around $200 per share.
Riding high after its recent earnings report, Cloudflare Inc. /zigman2/quotes/214109260/composite NET -3.34% is another dominant cybersecurity name that protects business-critical technology infrastructure for its clients. Particularly as the global workforce has been decentralized in the wake of the Covid-19 pandemic, these services are in greater need than ever before — and NET stock has surged roughly 10-fold since its 2019 IPO.