Cyber attacks are becoming an increasingly serious problem for companies. To protect yourself against security attacks, product solutions from cybersecurity developers are often advisable. Analysts at Bank of America expect demand for security measures to increase this year. These stocks could benefit from the cybersecurity boom.
• Cybersecurity spending expected to increase in 2024
• Platformization as a new trend
• Cybersecurity stocks not entirely protected from crises
Bank of America: Cybersecurity as a “top issue” for 2024
Few industries are immune to economic downturns, geopolitical conflicts and other uncertainties. However, one sector that should always benefit from sufficient demand is cybersecurity, according to strategists at the major US bank Bank of America according to “MarketWatch”. “Cybersecurity is a very justifiable area of IT spending and should remain a top topic for technology and software investors in 2024, especially since companies’ security budgets are expected to increase in the next twelve months,” explained the experts led by Managing Director Tal Liani.
Higher expenses expected
In times of attacks on the IT structure of companies and authorities, their own security concept must be regularly tested, regardless of the state of the economy, according to analysts according to MarketWatch. After all, while it’s too late to improve network security once an attack has already occurred, doing so can potentially prevent costly damage.
According to a business survey conducted by Bank of America, cybersecurity funding among companies is expected to increase in 2024. 85 percent of those surveyed said they would increase the budget for security precautions in the IT sector this year. 13 percent are expected to stick with their current spending, while only two percent will reduce funding.
The trend is towards platformization
In addition to setting up and expanding IT security mechanisms, Bank of America experts also see platformization as a major opportunity in the industry. According to the bank’s data, companies have an average of 50 to 70 security products from different providers, some of which overlap or hinder each other. If these products and providers are consolidated, the tools could be used more effectively. “Since companies have been under pressure to reduce their IT spending while ensuring the security of their networks, the value proposition of platformization, i.e. using one platform provider instead of multiple individual products, has become increasingly common,” concluded the bank’s experts together.
Bank of America recommends these cybersecurity stocks
The experts at Bank of America also have some stock recommendations ready: The companies Fortinet, CyberArk, CrowdStrike, Okta, Zscaler, Palo Alto Networks, and Microsoft can already shine in this area. Some of the IT specialists already offer security solutions on just a single platform.
Fortinet shares ahead of expected recovery
Fortinet shares in particular could be worthwhile for investors, according to Liani, according to an article on “Seeking Alpha”. The Sunnyvale, California-based software developer could benefit from expected improvements in firewalls and thus increase its business momentum in the second half of 2024. The stock has recently suffered a bit, but this development will soon be a thing of the past. “We believe that the reasons for Fortinet’s recent underperformance are temporary, as the firewall market is undergoing a period of digestion after several years of strong preemption demand,” Liano and his colleagues say. “In our view, the stock should rebound once the company overcomes the current negative growth cycle and begins to demonstrate growth acceleration and traction for its new products, and we model a base case scenario that implies 33% upside potential .”
Fortinet shares were last traded on the NASDAQ at $62.44 (closing price on January 12, 2024). Over the last twelve months, the stock rose by 27.77 percent, but there was a price collapse in August 2023, from which the share has not yet recovered.
CyberArk shares also in view
Analysts are also fundamentally positive about CyberArk shares. Here too, the Bank of America experts identified strong business dynamics, but compared to competitors, the paper also recently had to absorb some losses. Nevertheless, there is a light at the end of the tunnel, after all, the information security company from Newton, Massachusetts is the Privileged Access Management market leader. “We model our base case based on management targets, but in our view the free cash flow target in 2027 is of [375 Mio. USD]”, which implies an FCF margin of 23%, is not high enough when you take into account the growth opportunities for the company and the subsequent leverage in the model,” Seeking Alpha quoted from the analysis. This means that it remains to be seen what the future balance sheets of the company will be.
In NASDAQ trading, CyberArk shares are currently available for $224.09 (closing price on January 12, 2024). Over the course of one year, it has already increased by 86.87 percent.
CrowdStrike stock, Zscaler stock and Okta stock
Bank of America’s other top picks include shares of CrowdStrike and Zscaler, but there is a “growing valuation risk” for 2024. The identity and access management specialist Okta also has high upward potential, but recently there has been a lack of implementation of the corporate strategy and the quality of key business indicators.
Not completely crisis-proof
Despite all the praise, the cybersecurity industry also comes with some challenges, Liani and his team explained, according to MarketWatch. The experts believe that the current trend towards platformization makes sense, but its scope is exaggerated. And despite all their resilience to crises, the IT manufacturers’ solutions could still be affected by cost reductions by business partners. “The weak macroeconomic conditions are leading to longer sales cycles, increased scrutiny of procurement processes and a decline in contract terms,” warned Bank of America experts.
In addition, a large proportion of stocks have increased in value over the last two years to such an extent that overvaluations in this area are possible.
Editorial team finanzen.net
This text is for informational purposes only and does not constitute an investment recommendation. finanzen.net GmbH excludes any claims for recourse.
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