The importance of cybersecurity for investors

Just as oil powered the 20^th century, data is sometimes described as the fuel of the 21^st century, driving innovation and economic growth. Data is key, for example, to the advance of the technologies in which Allianz Technology Trust (ATT) is investing. These include artificial intelligence (AI), which is transforming manufacturing and many other areas of business, as well as our everyday lives.

That’s because the power of AI lies in its ability to learn and make decisions from processing vast amounts of data. The more data the algorithms that underpin AI can access, the better they become at making predictive decisions. The race to develop self-driving cars, for example, is consuming vast amounts of data, enabling those vehicles to constantly improve their ability to navigate hazardous roads.

Data has thus become a valuable commodity, inevitably attracting the attention of criminals intent on stealing it. The digitalisation of the economy and, in particular, of financial services means many consumers and businesses have already become victims of cybercriminals. That is fuelling demand for cybersecurity solutions. An estimated 53.35 million American citizens were affected by cybercrime in the first half of 2022, for example, while Americans lost US$6.9 billion to cyber-related crimes in 2021. Across the Atlantic, the UK had the highest number of cybercrime victims per million internet users, at 4783 in 2022 – up 40% over the 2020 figure.¹

The figures for businesses are just as shocking. Half of UK businesses experienced some form of cyberattack in 2023, while 41% of US small businesses fell victim to a cyberattack in the same year, up from 22% in 2021.^2,3

The cybersecurity threat is also a key element of national security: in July, for example, the UK, the US and South Korea warned that North Korean hackers were trying to steal nuclear and military secrets from governments and private companies around the world.⁴ AI and cybersecurity is another key concern. Unsurprisingly, US President Joe Biden has identified cybersecurity as a core national security challenge, citing attacks on US businesses that have disrupted the lives of many Americans.

The frequency and sophistication of cyberattacks is growing, says the IMF (International Monetary Fund), and poses a threat to the stability of the global financial system.⁵ Certainly, the impact on economies and societies if businesses and individuals lose confidence in banks and other financial institutions is incalculable.

The advance of technology is thus increasingly dependent on the ability of cybersecurity to protect the software and data upon which these systems rely. And the increasing need for cybersecurity represents a promising and growing market. Global spending on cybersecurity reached around US$80 billion in 2023 and is expected to exceed US$87 billion in 2024.⁶

As the threat from cybercriminals expands, it also constantly evolves, as hackers and security businesses battle to counter each other’s tactics. The result is a game of whack-a-mole, where one side gets better at defending and the other improves at attacking. That maintains the pressure on businesses and government entities to ensure they have the latest security measures at their disposal, which inevitably means spending on cybersecurity will continue to rise strongly.

The growth of the cybersecurity industry represents a significant long-term investment opportunity, which Allianz Technology Trust aims to benefit from by taking positions in several cybersecurity firms.

In addition, the essential nature of cybersecurity to the advance of technology lends an element of stability to revenues, helping to offset the intrinsically volatile market nature of many technology stocks. Rapid changes in technology and high market expectations can lead to significant fluctuations in stock prices even for the very largest companies in a technology investment trust. The share-price performance of cybersecurity-focused businesses, by contrast, should prove much more stable.

Many of the cybersecurity companies are to be found among mid-cap and large-cap stocks, the area that we regard as the sweet spot for long-term growth in tech investment trusts. These companies aren’t necessarily as well researched as the mega cap tech stocks like Apple and Alphabet, meaning we believe that there can be good opportunities to invest in cybersecurity for portfolios built on skilled stock picking, such as Allianz Technology Trust.

Investing in technology firms that provide cybersecurity solutions is part of Allianz Technology Trust plc’s successful long term investment strategy of identifying secular themes (long-term drivers of stock prices) that are driving the expansion of the technology sector. Our tech industry investments target the medium-sized to large technology companies best placed to benefit from those trends. Allianz Technology Trust holdings also selects companies that we believe should create shareholder value through the introduction of a new product or new technologies in this area.

¹ https://aag-it.com/the-latest-cyber-crime-statistics/
² https://aag-it.com/the-latest-cyber-crime-statistics/
³ https://www.insurancebusinessmag.com/us/news/cyber/despite-awareness-small-businesses-still-highly-vulnerable-to-cyber-attacks-474678.aspx#:~:text=Additionally%2C%2041%25%20of%20small%20businesses,over%20the%20past%2012%20months
⁴ https://www.bbc.com/news/articles/cjl6p3wj52no
⁵ https://www.weforum.org/agenda/2024/05/financial-sector-cyber-attack-threat-imf-cybersecurity/
⁶ https://www.statista.com/statistics/991304/worldwide-cybersecurity-spending/