Could Cybersecurity Stocks Be Next In-Line to Emulate the Success of 2023’s Semiconductor Boom?

Published on
Product Minting

Cybersecurity stocks enjoyed a strong 2023 off the back of a generative AI boom that has posed new challenges to the industry as a whole. As rapidly advancing artificial intelligence brings fresh problems and solutions for online privacy and safety, could we see cybersecurity stocks emulate the astonishing success of semiconductor firms like Nvidia over the year ahead?

Today, online businesses are having to counter increasingly sophisticated threats. Forbes data suggests that global cyberattacks have grown between 40% to 45% in 2023, with major breaches striking Las Vegas hotel operators MGM Resorts and Caesars Entertainment as well as genomics and biotech firm 23andMe.

The severity of cyberattacks, buoyed by advancing technologies like AI, has prompted a widespread increase in cybersecurity spending among businesses. According to Gartner data, worldwide end-user spending on security and risk management is set to reach $215 billion in 2024, representing a 14.3% increase over last year.

This heightened emphasis on cybersecurity spending has led some Wall Street analysts to suggest that the industry is next in line for a growth spurt, with generative AI growth helping to pave the way for more sophisticated defensive solutions for leading players.

“Cybersecurity is becoming increasingly important as enterprises and organizations rely more on technology,” explains Maxim Manturov, head of investment advice at Freedom Finance Europe. “The rise in cybercrime has led to an increased demand for cybersecurity products and services, and it is expected that this demand will continue to grow in 2024.”

In 2023, the emergence of generative AI, sparked by OpenAI’s launch of ChatGPT, paved the way for a significant market rally that saw semiconductor stocks undergo major market rallies, with Nvidia [NASDAQ: NVDA] stock returning more than 220% over the calendar year. Could the growing need for security solutions push cybersecurity stocks into similar territory over the year ahead?

Emulating the 2023 Semiconductor Boom

The underlying reason why semiconductor stocks like Nvidia and AMD [NASDAQ: AMD] were so popular in 2023 was that they were quickly identified as the firms best placed to facilitate the widespread adoption of generative AI solutions.

Semiconductor manufacturers had the power to produce chips to support Large Language Models for businesses seeking to embrace GenAI, and investors decided to bet big on the revenues that this would bring.

iShares Stock Price

iShares Stock Price

As we can see from the iShares Semiconductor ETF [NASDAQ: SOXX], the industry as a whole enjoyed significant growth in 2023 that nearly doubled that of the S&P 500 over the year.

With both Nvidia and AMD posting triple-digit gains, it’s clear that investor appetite for generative AI was focused largely on semiconductors.

First Trust Price

First Trust Price

Using the First Trust NASDAQ Cybersecurity ETF [NASDAQ: CIBR] as an example, we can see that the cybersecurity industry enjoyed strong growth that also outperformed the S&P 500. But could there be room for online security to take center stage in 2024?

Security Risks and Opportunities of GenAI

Forecasts suggest that generative AI will become omnipresent across enterprises in the future. As much as 69% of public sector companies have reported that they are or will soon be using Large Language Models (LLMs) as part of their operations, with 57% expressing the same intentions.

While generative AI adoption is widely regarded as a powerful disruptive force across a vast range of industries, there are also many concerns surrounding the security threats they could pose.

The adoption of LLMs raises concerns about the risks of using third-party models and their capabilities in a largely unregulated space.

This rapid growth of generative AI is pushing more organizations into ramping up their artificial intelligence initiatives without sufficient guidelines or regulations in place to ensure that both AI and LLMs are safe and ethically sound.

While this means that embracing AI at scale could be seen as a threat, it also offers fresh ways for companies to combat cybercrime.

With many small businesses and startups incapable of building security teams to counter threats, defensive AI can offer all organizations a valuable framework to keep cybercriminals at bay.

“As AI crosses a new threshold, security predictions at scale are becoming more tangible,” suggests Sridhar Muppidi, CTO at IBM Security. “Although early security use cases of generative AI focus on the front end, improving security analysts’ productivity, I don’t think we’re far from seeing generative AI deliver a transformative impact on the back end to completely reimagine threat detection and response into threat prediction and protection.

“The technology is there, and the innovations have matured. The cybersecurity industry will soon reach a historic milestone, achieving prediction at scale.”

Innovative Cybersecurity to Bring Wall Street Growth

As generative AI presents more sophisticated risks to online businesses, cybersecurity firms that embrace artificial intelligence can be best placed to combat threats more effectively and consistently.

This will invariably present new opportunities to investors on Wall Street, with leading cybersecurity stocks already working on comprehensively embracing AI solutions.

With this in mind, three cybersecurity stocks could be well placed to emulate the success of leading semiconductor firms on Wall Street should investors turn their attention to AI defences in 2024:

1. Fortinet Inc [FTNT]

Fortinet Stock Price

Fortinet Stock Price

\Fortinet is no stranger to parabolic growth on Wall Street, having made spectacular gains in the wake of the pandemic-driven push towards digital transformation in recent years.

The firm has seen much of its growth emerge from the firewall market, which analysts believe has been steadily improving over the second half of 2023.

The beauty of Fortinet is that analysts led by Tal Liani, managing director at Bank of America, believe that the stock is trading at a “significant discount” in comparison to the firm’s bull and bear scenarios, which still implies a 4% upside in a worst-case scenario.

2. CrowdStrike [NASDAQ: CRWD]

Crowdstrike Stock Price

Crowdstrike Stock Price

CrowdStrike became one of the most impressive cybersecurity performers in 2023 and is readily embracing generative AI solutions to add further strength in the future.

The firm is a leading resource for endpoint security and specializes in antivirus, detection, response, and combatting malware.

In May 2023, CrowdStrike introduced Charlotte AI, a generative AI security analyst that provides automated detection and response to assist users of all skill levels to identify and stop breaches in a more simplified manner. The LLM will also enable customers to ask questions in dozens of languages to receive more accurate and intuitive responses from the CrowdStrike Falcon platform.

3. Microsoft [NASDAQ: MSFT]

Microsoft Stock Price

Microsoft Stock Price

Tech giant Microsoft always has the power to enter industries and become a market leader, and the recent in-roads the firm has been making in cybersecurity could help its stock to become recognized as a prominent force in the sector.

Having recently implemented a new AI assistant within the Microsoft Security Copilot platform, Microsoft’s cybersecurity capabilities are continuing to grow thanks to artificial intelligence solutions.

In November 2023, Microsoft announced what the company termed “the next major step in this industry-defining vision: combining the power of leading solutions in security information and event management (SIEM), extended detection and response (XDR), and generative AI for security into the first unified security operations platform.”

This AI-driven security upgrade for Microsoft Security Copilot further underlines the stock’s position as a key innovator in the field of cybersecurity.

Can Cybersecurity Emulate the Semiconductor Boom?

The semiconductor industry benefitted from having a strong relationship with generative AI due to its key role in implementing the technology.

While the GenAI boom was a rare instance that brought floods of investor optimism and growth to global markets, it’s reasonable to expect cybersecurity to experience growth as the implications of the technology place a greater emphasis on security.

Although emulating Nvidia’s significant 2023 rally may prove to be a little on the ambitious side, generative AI will likely ensure that cybersecurity innovators remain more relevant than ever in the future.

Discussion (20)

Not yet any reply