Cybersecurity shares
With geopolitical risk already heightened, the world will see heightened manipulation of news, data and images as critical 2024 elections get underway across the US, Europe, India and elsewhere (see Geopolitics and elections, page 24). Hacks and attempts to infiltrate the devices and files of political candidates have been a key tool for opposition research and malicious actors to add chaos to these democratic rituals. The continued growth of AI will bring with it ever-more sophisticated tools to be weaponized for pattern recognition and decryption. Thankfully, these technologies are also available for the “good guys,” with AI being deployed to improve cyber threat detection and prevention.
Citi Research’s survey of Chief Technology Officers³ ³ Citi CIO Survey: IT budgets further stabilize with uptick in transformation projects, October 13, 2023 at large US firms continues to indicate that spending on cybersecurity remains a top item in information technology budgets ( FIGURE 3 ). When choosing the right solution for combating cyber threats, companies increasingly choose to contract with outside vendors to substantially augment in-house capabilities. The Nasdaq CTA Cybersecurity delivered 14% earnings growth as October 31, 2023 (versus -0.4% for the S&P 500 as a whole). That’s on top of a 36% increase in earnings per share (EPS) in 2022.⁴ ⁴ Factset as of December 31, 2022.
Cybersecurity shares have failed to keep pace with this consistent, market-beating earnings growth. Valuations are hovering near early pandemic lows ( FIGURE 4 ). As we look to 2024, we see cybersecurity shares rerating to be a source for reliable profits growth in an otherwise uncertain world.
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