The cybersecurity megatrend is set to continue in 2022 as demand for cybersecurity solutions remain “relatively constant” after some “major hacks” in 2021, according to Christopher Gannatti, global head of research at WisdomTree.
However, he warned that investors should expect that a rising interest rate environment may affect returns, as the valuations of cybersecurity firms “adjust”.
Gannatti identified that there is growth potential in cloud computing, particularly infrastructure-as-a-service (IaaS) and platform-as-a-service (PaaS).
It is estimated that in 2020, spending on IaaS and PaaS was $106.4 billion (£78.2 billion), and that this is expected to grow to $217.7 billion (£160 billion) by 2023.
In addition, Gannatti said that cloud workloads must also be protected. In 2020, while $1.2 billion (£883 million) was spent on the cybersecurity element of cloud workloads, in 2023 it is expected to grow to $2 billion (£1.4 billion).
In 2023, it is possible that spending on cloud security will be less than 1% of spending on cloud services, according to WisdomTree’s Gannatti.
However, he said that the estimated ‘security spend’ should be closer to a figure between 5% and 10% of a given information technology budget.
As a result, it would be more reasonable to see around $12.4 billion of spending on cloud security in 2023, which would be a magnitude of growth of about 10x relative to the estimate for 2020 spending.
Gannatti said there is no guarantee that spending would reach this level, but the idea that firms must take the topic more seriously is being discussed.
Preventative measures are also key in cybersecurity, he added, given that a lack of cybersecurity procedures can lead to additional time costs, the cost of legal fees, as well as employee turnover.
Capital One is one example of a company that saw a major loss, after a hacker stole the personal data of over 100 million people in 2019 from the company and its cloud services provider, Amazon Web Services.
The incident led Capital One to pay $190 million to settle a class action lawsuit filed by customers. In 2020, Capital One agreed to pay $80 million to settle regulators’ claims that it lacked cybersecurity procedures as it began to use cloud storage technology.
“While it may never be possible to have 100% protection from all hackers, the case is clear for a focus on preventative measures,” said Gannatti.
Governments are also acting on cybersecurity through data protection and infrastructure protection, given that consumers are becoming more aware of data use and storage, and governments want to protect individuals’ personal data, he said.
Gannatti has also observed a shift from ‘on-premise’ hardware to cloud computing, where many companies can realise efficiencies and cost benefits.
These shifts will require updated security packages and are expected to continue throughout 2022.
“The key risk, as we see it, is that many cloud-focused cybersecurity companies delivered unbelievable share price returns in recent years and these firms may see their valuations adjust as interest rates rise—even if their revenue growth continue,” said Gannatti.
“Thinking beyond simply the returns of 2022 could be important when thinking about the cybersecurity megatrend.”
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