Best Cybersecurity Stocks & Funds of 2024 – The Motley Fool

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Cybersecurity spending has soared since the COVID-19 pandemic began. Organizations have faced new security challenges as cloud computing and remote work have become essential. As a result, many cybersecurity stocks were top performers in 2020 and 2021, boosted by strong demand for next-gen security software.

A bear market in 2022 clobbered some of the highest-flying stocks. However, cybersecurity bounced back in 2023, and the industry remains a top investment theme for 2024 and the decade ahead.

Digital padlock illustrating cybersecurity.

Image source: Getty Images.

Should you invest?

Why should you consider investing in cybersecurity stocks?

According to the Identity Theft Resource Center, the number of data breaches set a new record in 2023, with the number of incidents jumping 71% from the previous high in 2021 and up 78% from a modest slowdown in 2022. The total number of individual victims affected decreased by 16% in 2023, reflecting a shift from mass attacks to more targeted frauds and scams.

It shouldn’t be surprising that global spending on cybersecurity was expected to exceed $200 billion in 2023 (up about 12% from 2022) and will likely continue to be a high-growth industry for years, according to research from IDC. Cybersecurity stocks are a red-hot niche of the tech industry, so knowing how to invest in them can yield some big returns in the decade ahead.

Top cybersecurity stocks in 2024

Top cybersecurity stocks in 2024

Here are some of the top cybersecurity stocks to own in 2024 and beyond:

Data source: YCharts. Market cap as of April 18, 2024.
Company Market Capitalization Description
CrowdStrike Holdings (NASDAQ:CRWD) $71.1 billion One of the largest pure-play cybersecurity companies by market cap and revenue and a leader in endpoint security software
Zscaler (NASDAQ:ZS) $25.9 billion Cloud computing and internet security software provider
Okta (NASDAQ:OKTA) $15.7 billion Cloud-based identity and access management
SentinelOne (NYSE:S) $6.4 billion Recent IPO and CrowdStrike competitor
Palo Alto Networks (NYSE:PANW) $90.8 billion Largest independent cybersecurity company by total annual sales
Fortinet (NASDAQ:FTNT) $48.9 billion Large security company with best-in-class hardware for data center security
Datadog (NASDAQ:DDOG) $41.5 billion Cloud-native platform built to collect, monitor, and yield insights on cloud-based data and operations
Akamai (NASDAQ:AKAM) $15.3 billion One of the largest internet infrastructure companies that helps secure web content

Cloud-native security software leaders

Cloud security, identity management, and legacy security vendors

As cloud computing has quickly grown into an industry worth hundreds of billions annually, sales of cloud-native (built-in and for the cloud) security software have skyrocketed. The leaders in this space have some of the best long-term potential:

1. CrowdStrike Holdings

A cloud-native software company, CrowdStrike Holdings (CRWD 0.39%) provides endpoint security — protection for devices such as laptops, PCs, smartphones, and any other device connected to a network. Because it’s cloud-based, CrowdStrike is particularly well suited for supporting remote work.

CrowdStrike’s software uses machine learning (a type of artificial intelligence, or AI) to detect security breaches and hunt down threats. It’s also easy to deploy to the millions of people working from home and the billions of machines connected to the internet.

The company has steadily increased the number of modules on its platform to help its customers. It also has new integration agreements with other tech companies to make data protection more consistent across an organization’s IT infrastructure.

The premium-priced stock was hit hard in 2022, but CrowdStrike’s sales have been booming nonetheless, and the AI-driven stock soared 143% in 2023. It’s also highly profitable as measured by free cash flow. In an increasingly mobile world with more devices continually coming online, CrowdStrike is poised to continue growing at a brisk rate.

2. Zscaler

Another cloud-native security vendor, Zscaler (ZS -3.33%), works in tandem with endpoint security services to help keep data secure. The company has been increasing its sales at a rapid pace and is another of the largest pure-play cybersecurity stocks as measured by market cap. The stock sold off 65% in 2022, only to double in 2023.

Zscaler started with a software-as-a-service product designed for network protection in the modern cloud computing era, but it has since added new internet security and end-user monitoring products. End-user monitoring is increasing with so many people now working remotely. And with global spending on cloud computing expected to exceed $1 trillion annually this decade, Zscaler is well positioned to profit from a massive secular growth trend.

3. Okta

Okta (OKTA -1.03%) is a pioneer of identity and access management, which rethinks traditional security by using zero-trust architecture. This type of identity management constantly requires user verification before allowing access to data and applications. If legacy security is a castle with a wall and a moat, zero-trust security acts more like a counterspy agency.

In an increasingly mobile and cloud-based world, Okta’s identity management software has been in high demand. Businesses often have a complicated web of stakeholders, including employees, third-party contractors, suppliers, and customers.

The sheer size and complexity of web-based applications have driven Okta’s growth story and attracted some attention, too. Private equity firm Thoma Bravo acquired three identity and access management companies in 2022, finalizing some of these deals in 2023: ForgeRock, SailPoint, and Ping Identity.

Okta is in the lead in this branch of security. However, a cyberattack in January 2022 affected two of its customers, helping to accelerate the decline of its stock during the bear market. Even so, Okta remains in growth mode as new customers adopt its software to manage identity and access security.

4. SentinelOne

SentinelOne (S -3.28%) is another recent pure-play cybersecurity company to be publicly listed. Its initial public offering (IPO) in June 2021 raised $1.2 billion in cash and valued the company at $10 billion, making SentinelOne’s IPO the largest ever for a cybersecurity company.

A rough go for the stock market in 2022 and slowing revenue growth at SentinelOne sent the stock below its IPO price, and an 88% price jump in 2023 was not enough to regain the IPO level. Despite the slowdown, this small company still more than doubled its sales in 2022, followed by a 47% increase in 2023.

It’s expecting about a 31% increase in sales in 2024. As a result of this rapid expansion, SentinelOne is also making steady progress toward turning a profit. It operates a cloud-based endpoint security platform, which puts it in direct competition with CrowdStrike. Its ability to automatically detect and resolve cybersecurity threats is well received in the market.

5. Palo Alto Networks

Hailing from an era that predates cloud technology, Palo Alto Networks‘ (NYSE:PANW) specialty is rooted in firewalls — devices that protect traffic into and out of physical locations such as offices and data centers. While its legacy services still experience plenty of demand, the real growth is in the cloud.

The company’s highly profitable platform has helped it acquire more than a dozen smaller cloud-native businesses in the past few years. As a result, Palo Alto Networks has given its security operation a serious makeover.

Management predicts double-digit percentage revenue growth in the years ahead for its next-gen security portfolio geared for the cloud era. This steady growth and market leadership helped make its stock one of the best performers among cybersecurity companies in 2022 and again in 2023.

Palo Alto Networks is the largest pure-play cybersecurity operation by revenue and market cap. Now also a leading cloud security provider, this legacy business is highly competitive in the cybersecurity industry. Shares trade for a relative value compared to its younger, high-flying, cloud-native rivals. The company also completed a 3-for-1 stock split in September 2022.

6. Fortinet

Fortinet (FTNT 0.34%), another legacy security software provider, is also one of the world’s largest cybersecurity companies by revenue and market cap. Like its peer, Palo Alto Networks, it has maintained double-digit percentage growth and is highly profitable. But, unlike Palo Alto Networks’ acquisition spree, Fortinet has invested in its organic development of cloud security to remain competitive.

One of its developments is a recently announced software-based internet security product being built and deployed with one of Europe’s leading telecom providers, Telefónica (TEF -2.63%). The company also announced a partnership with Singapore’s Quantum Engineering Programme to develop next-gen security for quantum computing.

Did you know?

As a high-growth segment of the tech industry, cybersecurity offers investors lots of upside in the decade ahead.

Fortinet is also a top provider of firewalls. Its best-in-class hardware continues generating more revenue as many organizations turn to Fortinet for help building new data centers and 5G mobile networks. It also completed a 5-for-1 stock split in June 2022. For investors looking for a good balance of sales and profitability growth, Fortinet is one of the best security stocks on the market.

Infrastructure monitoring and CDNs

Infrastructure monitoring and content delivery networks

Cloud computing creates, uses, and stores more digital data, and an organization’s IT infrastructure can quickly become more complex by order of magnitude. Companies that help monitor these cloud-based operations are critical to cybersecurity, as are companies that manage the web content and apps themselves. Here are some top names to consider:

1. Datadog

Datadog (DDOG 4.34%) is a cloud-native platform built to collect, monitor, and yield insights on cloud-based data and operations. The company uses AI to help automate the process of monitoring large and complex data sets, relieving some of the burden of busy IT teams.

It’s also been steadily expanding its platform’s capabilities with new modules that include cloud-based security and data monitoring. Data analytics software is a large, fast-growing segment of the tech world, which bodes well for Datadog. Elastic (ESTC -1.22%) and Dynatrace (DT -1.48%) are two other promising software makers to consider in this space.

2. Akamai

As a content delivery network (CDN), Akamai (AKAM 0.44%) ensures data securely arrives at its intended destination. With the amount of data traveling across the internet steadily on the rise, CDNs are becoming increasingly important.

More people than ever are using the web for everything from entertainment to work. To bolster its network security offerings and protect its customers from ransomware attacks, Akamai acquired Israel-based Guardicore in 2021 and cloud infrastructure platform Linode in early 2022.

CDNs are internet infrastructures that maintain the internet “freeway” on which data travels. Akamai is a leader in this sector and is also a developer of edge computing technology, which pulls data away from centralized data centers and closer to end users.

Cloudflare (NET -2.27%) and Fastly (FSLY -2.35%), which are newer CDN providers, have a greater focus on edge computing and are competitors to Akamai worth considering.

A smart city operating with the help of multiple interconnected wireless devices in the Internet of Things.

Image source: Getty Images.

Top cybersecurity ETFs in 2024

Top cybersecurity ETFs in 2024

If you’d rather not have to choose among individual cybersecurity stocks, you can consider several exchange-traded funds (ETFs) that enable investors to participate in the growth of the cybersecurity industry as a whole. Our top picks for cybersecurity ETFs include:

1. First Trust NASDAQ CEA Cybersecurity ETF

With $6.6 billion of assets under management in the spring of 2024, First Trust NASDAQ CEA Cybersecurity ETF (CIBR -0.64%) is the largest of its kind. The ETF is comprised of 30 stocks in the cybersecurity industry and has an annual expense ratio of 0.6% (or $6 in annual fees for every $1,000 invested), making it an affordable option.

2. ETFMG Prime Cyber Security ETF

Also notable in this sector is the ETFMG Prime Cyber Security ETF (HACK -0.86%). Holding 24 stocks, the ETF invests in many relatively small companies in the cybersecurity industry. The fund manages $1.7 billion of assets and has an expense ratio of 0.6%.

3. Global X Cybersecurity ETF

A relative newcomer to the cybersecurity ETF space, the Global X Cybersecurity ETF (BUG -1.31%) launched at the end of 2019. The fund managed $718 million of assets in early 2024 and has an expense ratio of 0.5%. The Global X Cybersecurity ETF is also rather concentrated, with only 26 stocks in its portfolio.

Related investing topics

How to invest

How to invest in cybersecurity stocks

When considering how to identify the best cybersecurity stocks, remember that cloud-native companies have a natural competitive advantage with the latest software technology. However, legacy companies generate ample profit margins and have the cash to make updates. Companies monitoring cloud-based operations and those managing web content and apps are also increasingly important to companies’ online security.

Cybersecurity ETFs are another great option and can be purchased with your favorite cybersecurity stocks. For all your investments, stay focused on the long-term potential of these fast-growing companies since individual stock prices can be highly volatile. Technology that helps the digital world stay safe is rapidly evolving and proliferating, and cybersecurity companies will reap the financial benefits accordingly.

FAQ

Investing in cybersecurity stocks FAQ

Is it worth investing in cybersecurity stocks?

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It’s a smart move. Cybersecurity is like the unsung hero of the tech world — it’s always needed. With every leap in technology, there’s a surge in demand for robust security measures as the threats grow more dangerous. Investing in cybersecurity stocks might just be a savvy strategy. The industry is already gigantic and growing.

What is the best long-term cybersecurity stock?

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Selecting the best long-term cybersecurity stock isn’t a one-size-fits-all answer. It depends on individual investment goals and risk tolerance. You should consider companies that consistently innovate and adapt to the changing landscape of threats. Look for firms with strong fundamentals, growth in revenue, and strategic positioning in emerging technologies.

If choosing individual stocks feels daunting, cybersecurity ETFs offer a way to gain broad exposure to the sector without having to bet on a single company’s future prospects.

Is cybersecurity going away?

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Not at all. The idea of cybersecurity becoming obsolete is like imagining a world without the internet. As technology embeds itself deeper into our daily lives, the importance of cybersecurity only grows. Security threats simply come with the territory as bad actors always try to grab other people’s property — with more and more advanced technology at their side.

It’s a field expanding as fast as technology itself, ensuring it will remain relevant and crucial for safeguarding our digital future.

Anders Bylund has positions in Fastly. The Motley Fool has positions in and recommends Cloudflare, CrowdStrike, Datadog, Elastic, Fastly, Fortinet, Okta, and Zscaler. The Motley Fool has a disclosure policy.

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