Cybersecurity remains one of the strongest investment themes out there, next to chip making and artificial intelligence, but as we have seen this year, it can also come with an epic serving of volatility.
Industry leader CrowdStrike Holding NASDAQ:CRWD literally broke the Internet in August for all the wrong reasons when outages triggered by the company’s upgrades ended up affecting the Windows systems of large corporate users and causing work disruptions worth millions of dollars. And yet, judging by the share price, all seems to be forgiven and forgotten.
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Impressive 5-year performance
| Company | Year to date performance | 5 year performance |
| CrowdStrike | +47.77% | +616.92 |
| Paolo Alto Networks | +39.50% | +434.10 |
| Datadog | +41.94% | +354.89 |
| Elastic | +4.68% | +74.70 |
| Sentinel One | -3.79% | -44.18 |
| Fortinet | +70.40% | +375.19% |
If your mind boggles at how a technology provider like CrowdStrike, which provides technology that is meant to keep companies safe from Internet-based threats, can get away with causing the biggest IT outage in history and still finish the year trading higher than most of its peers, the explanation is simple.
CrowdStrike’s technology, and this goes for most of the top cybersecurity providers, is so deeply enmeshed in many mission-critical operations of business users through the Windows system that the losses they could potentially incur without security would outweigh the damage done by the outage.
Personal data, credit card details and sensitive business information would all be at risk without a system in place to ward against potential threats. This goes for many other providers such as Paolo Alto Networks NASDAQ:PANW, Cisco NASDAQ:CSCO, Fortinet NASDAQ:FTNT and CyberArk NASDAQ:CYBR.
The cybersecurity theme will become even more pertinent over the coming few years as the use of AI becomes more pervasive. During 2024 we could already see more and more businesses integrating AI into all aspects of their daily operations and subtly changing how we exchange information. This will intensify in ways that we are not aware of yet and will increase the need to keep both business and personal information safe. It will affect a broad range of service providers from banks, airlines and telecoms companies to delivery firms and online shopping platforms.
Liquidity and volatility
The rapid growth in the value of cybersecurity stocks over the last five years means that these stocks are now like mini celebs – they attract a lot of attention and sometime overinflated expectations. If they then underperform even by a small margin against those high expectations they are punished by a forceful selloff, such as in the case of the US identity protection company Okta NASDAQ:OKTA. Okta’s shares dropped 24% in August after the company said that its growth is beginning to slow down.
There is an argument here to approach cybersecurity investment with some caution, by for instance, investing in a wrapper rather than individual stocks. Cybersecurity ETFs aim to track a basket of relevant companies, and this diversification helps spread risk.
 | Artificial Intelligence UCITS ETF | Theme: Artificial Intelligence Ticker: LON:INTL Currency: USD | Buy Here   |
| Cybersecurity UCITS ETF | Theme: Cybersecurity Ticker: LON:WCBR Currency: USD | Buy Here |
