Cyber ​​security stocks are quietly hot, regulators tighten data privacy requirements

According to foreign media reports, when many large technology companies are facing detailed investigations of data privacy issues by regulators, cyber security, a sub-sector of the technology sector, has begun to become a big hit in the securities market.

Since the beginning of this year, ETFMG Prime Cyber ​​Security ETF (ETFMG Prime Cyber ​​Security ETF, hereinafter referred to as "HACK"), the most popular transaction fund in the cyber security industry, has risen by 18%. The fund was established in November 2014 as a new way to profit from the increasing number of cyber attacks and data breaches that plagued American companies.

Since Equifax, a US credit reporting giant, admitted in September 2017 that hackers had stolen the private information of more than 145 million US citizens, the cumulative increase in HACK has reached 31%, more than double the increase in the S&P 500 over the same period. "Corporate chief information security officers are spending more and more of their budgets on the most critical parts of the network," said Shaul Eyal, a senior analyst at Oppenheimer, an investment bank.

As companies begin to adopt a more platform-based approach to information security, cybersecurity spending has increased since 2016, but such investments did not start to accelerate until mid-2017. Since then, more and more organizations have transferred sensitive proprietary data to cloud-based networks. As companies seek to protect these data, this trend has promoted the market size of the entire network security field.

"Many of HACK's heavy holdings are also our preferred stocks in the security and storage sectors," said Andrew Nowinski, a senior analyst at investment bank Piper Jaffray. HACK's stocks include Palo Alto Networks, ForTInet, FireEye, Juniper Networks, CyberArk Software, Symantec and Cisco. Among these companies, some have released first-quarter 2018 financial reports with strong performance growth. Although the rise in the stock prices of these companies can be traced back to mid-2017, many market analysts believe that their stock prices only began to rise in mid-February.

Palo Alto released its third-quarter financial report with strong performance growth in June this year. The financial report shows that the company's product revenue increased by 31% year-on-year, and its turnover increased by 33% year-on-year.

At the same time, since the Equifax incident was exposed, ForTInet's stock price has risen by 66%; CyberArk's stock price has risen by 50%. Evercore ISI software research analyst Kenneth Talanian (Kenneth Talanian) said: "I think this reflects the willingness of the investment community to provide these stocks with long-term investment opportunities to take greater risks."

Taranian also pointed out that network security companies have been listed recently, which has contributed to the overall rise of the network security sector. Among these listed companies are Carbon Black and Zscaler. Their first quarterly earnings reports exceeded market analysts’ expectations.

Market research company Gartner recently predicted that this year's cyber security spending will increase by 7% from last year's 86.4 billion US dollars to reach 93 billion US dollars. Gartner also predicts that the loss of cybercrime in 2021 will be as high as $6 trillion, more than double the $3 trillion in 2015.

Dan Ives, Chief Strategy Officer of GBH Insights, said in a recent research report: “For those security vendors who have solutions to protect important cloud information, in the next 12 to 18 months, cloud The security field will have a major opportunity to seize market share."

The EU’s "most stringent" data protection regulation "General Data Protection Regulation" (The General Data Protection Regulation, GDPR) was officially implemented last month, and investors have also seen it as a catalyst for the strengthening of the cyber security sector. The General Data Protection Regulation extends beyond Europe and applies to any company that provides goods to EU citizens. Therefore, most companies will rely on network security tools to better protect consumer information.