In an interview with Business Insider, Paul Marino, the Chief Revenue Officer of GraniteShares, highlighted the robustness of the cybersecurity industry. Despite market fluctuations, the sector remains well-positioned to deliver consistent returns to investors. GraniteShares, an asset management and investment firm, oversees assets worth $5.2 billion, demonstrating its significant presence in the investment landscape.
Resilience in the Face of Market Volatility
Compared to regular software companies, cybersecurity firms rarely experience a drop in demand. This is because both the private sector and governments prioritise the secure storage of critical data, such as financial and medical records, in the cloud. The 2023 Data Breach Report from the Identity Theft Resource Center underscores the gravity of this need, reporting thousands of cybersecurity attacks and nearly 343 million victims globally. Marino stated, "As long as we are putting data in the cloud, this will continue to be an issue. There are certain things that companies must spend on, and cybersecurity is non-negotiable. Every single company has to protect their data and their client's data."
The cybersecurity sector remains unfazed by volatile markets as government entities continuously work to protect sensitive data amidst rising cybersecurity attacks, geopolitical tensions, and conflicts. "A lot of times, geopolitical tensions will force companies to pull back. The one place that you can never retreat is on your security set. You actually may even dig in there when times get tough," Marino added. He also noted that the frequency of cyberattacks between governments and foreign entities compels significant investment in cybersecurity measures.
Investment Opportunities in Cybersecurity
Marino recommended four cybersecurity stocks for investors seeking exposure to this resilient industry. These stocks are all constituents of the GraniteShares Nasdaq Select Disruptors ETF.
CrowdStrike (Nasdaq: CRWD)
CrowdStrike is a leading cybersecurity firm that leverages AI and threat intelligence to provide ultra-accurate detections and automatic remediation of enterprise risks around identity, data, and cloud storage. The stock has surged over 58% year-to-date (YTD), closing at $386.76 on June 25. For the quarter ending April 30, CrowdStrike posted a record 33% year-over-year (YoY) growth in annual recurring revenue (ARR) to $3.65 billion, with $211.7 million in net new ARR added during the quarter. The company's free cash flow also increased to $322.5 million, accounting for 35% of overall revenues of $921 million, up 33% YoY.
In the quarterly earnings release, George Kurtz, CrowdStrike's President and CEO, emphasised the company's competitive advantage, saying, "The Falcon platform's differentiated architecture creates a wide competitive moat and uniquely enables CrowdStrike to solve the industry's biggest cybersecurity, IT, and data problems. Customers of all sizes are standardising on the Falcon platform to achieve better security outcomes." CrowdStrike CFO Burt Podbere added, "The CrowdStrike team delivered another exceptional quarter driven by strong execution and platform adoption as customers increasingly consolidate on the Falcon platform."
During the quarter, CrowdStrike unveiled new cloud and data security innovations and strengthened partnerships with Amazon Web Services (AWS) and Google Cloud to enhance cybersecurity consolidation and minimise breaches across multi-cloud environments. CrowdStrike also partnered with Nvidia to deliver the chipmaker's AI computing services on the CrowdStrike Falcon XDR platform. For Q2, the management expects quarterly revenues between $958.3 million and $961.2 million.
Zscaler (Nasdaq: ZS)
Zscaler specialises in cloud security, focusing on zero-trust connectivity. The firm posted a 32% YoY revenue growth to $553.2 million for the quarter ending April 30, driven by increasing client interest in its Zero Trust Exchange platform. "We delivered an outstanding quarter driven by growing customer interest in our Zero Trust Exchange platform," said Zscaler CEO Jay Chaudhry. "As threat actors evolve and continue to exploit firewall-based security, Zero Trust security remains a top IT priority, and an increasing number of enterprises are adopting our platform."
Zscaler's stock price has gained over 11% in the past month, closing at $182.52 on June 25. The company has been actively acquiring other firms to enhance its capabilities. It recently acquired Avalor Technology to improve AI innovations by integrating its data repository with Avalor's Data Fabric for Security, enabling proactive vulnerability tracing. Additionally, Zscaler acquired Airgap Network to combine its Zero Trust SD-WAN with Airgap's agentless segmentation technology, enhancing Zero Trust Segmentation for IoT devices and critical infrastructure.
Zscaler also introduced a new AI assistant, ZDX Copilot, to its Zscaler Digital Experience service. This assistant can swiftly evaluate and harness knowledge from over 500 trillion data points, providing valuable insights to IT operations, service desk, and security teams. For the next quarter, Zscaler's leadership anticipates revenue between $565 million and $567 million.
Fortinet (Nasdaq: FTNT)
Fortinet has seen significant growth, with its stock rising over 280% in the last five years, closing above $58 on June 25. The global networking cybersecurity leader reported a 7.2% YoY revenue increase to $1.35 billion for the quarter ending March. Despite a 6.4% YoY decline in billings to $1.41 billion, management expects billings to rise to $1.55 billion in the next quarter, with revenue guidance between $1.375 billion and $1.435 billion.
"We are diligently executing our strategy to leverage our scale, go-to-market capabilities, customer-first focus, and engineering expertise to capitalise on the fast-growing Unified SASE and Security Operations markets," said Fortinet CEO Ken Xie. He highlighted the company's Unified SASE offering as the most comprehensive in the industry, leveraging AI innovation and product integration across its FortiOS operating system.
Fortinet recently deployed FortiAI, the first IoT Security Generative AI Assistant, across its networking and security products. This assistant supports customers in over 30 languages. The company announced its acquisition of cloud security firm Lacework, expected to close later this year. This acquisition will integrate Lacework's CNAPP (cloud-native application protection platform) capabilities into Fortinet's Unified SASE offering, providing clients with a comprehensive, full-stack AI-driven cloud security platform.
Palo Alto Networks (Nasdaq: PANW)
Shares of Palo Alto Networks have gained over 11% YTD, reaching above $322 this week. The cybersecurity giant posted a 15% YoY increase in total revenues to $2 billion. GAAP net income for the quarter also rose YoY to $278.8 million from $107.8 million. "We have remained disciplined in our execution while investing in go-to-market and innovation," said Dipak Golechha, CFO of Palo Alto Networks. "We delivered consistent, profitable growth yet again in Q3 and look forward to executing against our strategic goals and financial targets as we close out the year."
CEO Nikesh Arora emphasised the company's long-term strategy of platformisation to address the increasing sophistication and volume of threats. Palo Alto Networks has been aggressive in developing solutions for AI-based cyber attacks, recently rolling out products that secure AI by design. Its proprietary offering, Precision AI, uses machine learning, deep learning, and generative AI to protect networks and infrastructure.
In May, Palo Alto Networks bolstered its partnership with Accenture to help companies adopt AI securely. This partnership combines Palo Alto Networks' Precision AI technology with Accenture's secure generative AI services, fortifying clients' AI environments throughout the AI lifecycle. The company also partnered with IBM to deliver AI-powered security outcomes, streamlining operations, halting threats at scale, and accelerating incident remediation. This collaboration includes acquiring IBM's QRadar SaaS assets and migrating QRadar SaaS clients to Cortex XSIAM, Palo Alto Networks' next-gen security operations platform with advanced AI-based threat protection capabilities.
For the next quarter, Palo Alto Networks expects total revenues between $2.15 billion and $2.17 billion, implying a YoY growth of 10% to 11%.
