The Growing Long-Term Investment Opportunities in Cybersecurity

For as long as the internet has existed, we’ve needed cybersecurity to safeguard our digital presence. What began in the 1980s as an early form of encryption to protect personal data has today become a $200 billion industry, set to grow at roughly 12% per year¹. This growth presents an opportunity from which the Allianz Technology Trust (ATT) hopes to benefit.

All around the world, cyberattacks are rising sharply. 2022 saw a 38% rise from 2021, attributed to more agile hackers and the rapid digitisation of many academic institutions following the pandemic. It is an industry in which demand far exceeds supply. In other words, there are many more people who work online than there are people with cybersecurity expertise.

Firms may spend time implementing top security on the ground, making sure no one can break into their buildings, but if someone infiltrates their network, the whole firm can be held hostage in moments. If companies want to meet their customers digitally, they must consider how to mitigate the chance of a digital security breach.

US President Joe Biden has identified cybersecurity as a core national security challenge, citing several attacks on high-profile US businesses which disrupted the lives of many Americans. Cybersecurity has almost become a toll on businesses; it’s a necessary cost, and the budgets are only going to grow. Making the issue one of America’s top priorities presents any business which can help protect people with a great opportunity.

ATT is run by Mike Seidenberg and his team from their office in San Francisco. The trust aims to identify and invest in listed tech winners with the capacity to drive innovation and growth for many years to come. The current driving themes for the technology sector include the large-scale movement of legacy IT systems to cloud architecture and cybersecurity in the face of criminals’ efforts to steal or disrupt. Of the 42 holdings in ATT’s portfolio, there are several cybersecurity firms, including US behemoth, Palo Alto Networks. Mike described the firm as offering a comprehensive suite of solutions that both provide protection and offer operational efficiencies, and this double benefit is one of the factors that established its place in ATT’s portfolio.

Palo Alto has next-generation firewalls, but through development and acquisition they’ve added on extra cybersecurity services. Now they’re a scale business, which means if a consumer buys a Palo Alto product, they probably could exit some smaller vendors’ products. This isn’t because the quality from the smaller vendor is less good, it’s simply a question of reducing operational expense by consolidating systems and suppliers. Palo Alto may not sell the very best product in every sector, but this is offset by the operational efficiencies they offer consumers.

US software security vendor, CrowdStrike, is another ATT holding at the cutting edge of innovation in cybersecurity. The company is emerging as a leader in the next-generation ‘endpoint security’ market, and their security solutions are particularly relevant for the new distributed workforce seen in many businesses today.

Tech stocks declined dramatically in 2022. Though 2023 saw some recovery, starting valuations now look much more reasonable, particularly when considering the sector’s superior long-term growth prospects. Exciting tech themes, such as cybersecurity, are all well represented in ATT’s portfolio and have the potential to deliver solid investment returns for many years to come.

¹ https://www.grandviewresearch.com/industry-analysis/cyber-security-market#:~:text=Report%20Overview,12.3%25%20from%202023%20to%202030