Will an Impending Recession Affect the Cybersecurity Sector?
Disclaimer: This is not financial advice.
Si vis pacem, para bellum — If you want peace, prepare for war. This ancient wisdom once again proves its accuracy amid the worldwide supply chain reorganization, increased defense spending, and likely recession.
Interestingly enough, while technology businesses suffer losses and resort to massive layoffs, cybersecurity companies have been experiencing positive dynamics in the face of uncertainty. So, is this the case when the worse it is for everyone else, the better it is for the cyber sector?
Cybercrime Increases During Recession
The statement above was proved correct during 2008’s Great Recession [1]. At the same time, the threat landscape has increased significantly over the past few years. The total rate of malware production increased from 6,368 malware pieces per month in 2005 [2] to more than 17 million a month in 2022 [3].
80% of companies expected to increase or keep steady their tech spendings over the next year
CEOs are increasingly reassessing their spending and putting strategic plans on hold. Bloomberg’s [4] survey conducted before the Russian invasion of Ukraine shows that 87% of respondents marked cybersecurity as an important concern in the next 3–5 years, 53% saw an increase in threats, and 80% of companies expected to increase or keep steady their tech spendings over the next year.
Another mid-year survey [5] shows that only 9% of respondents think the war in Ukraine will have no material impact on their enterprise. Meanwhile, 90% are worried about associated cyberattacks, and 76% expect a recession or believe it is happening right now. Digital transformation continues to be a top priority for 58% of respondents. That’s why it’s possible to suggest that companies will continue improving their cyber defenses, also given the increased risks of post-pandemic remote culture and new SEC rules on cybersecurity disclosure [6]. As a result, the confidence of cybersecurity companies is somewhat visible in the latest stock market trends.
Cybersecurity Stocks: Best Performers
Even this month, the cybersecurity industry has been immune from industry-wide market losses [7]. However, an overall economic downturn calls for some extra precaution.
Reduced nominal interest rates after 2008 have been fueling a so-called “capital as a strategy” [8], an irrationally exuberant approach seeking unprecedented profits. Technology was among sectors that attracted lots of money and, unfortunately, the one where certain companies have been lately losing their valuation the quickest (tech-heavy NASDAQ dipping 29% [9]), following the dramatic fall of IPO markets at the beginning of 2022 [10].
Best-Performing Cybersecurity Stocks as of Q3 2022
The largest market cap is shown by Palo Alto Networks with $52.3 billion and CrowdStrike Holdings with $43 billion.
You might be wondering why we included defense stocks in the comparison. The reason for that is simple. The companies you see above have been actively working in cyber defense. They might be gaining slow but steady profits from long-term contracts with the government amid mounting tensions. The example below shows a quite obvious uptrend.
Example: Lockheed Martin’s and Raytheon’s growth dynamics from the end of 2021 to the beginning of 2022. Notice how the price grows along with the development of the war in Ukraine.
The Bureau of Economic Analysis will release an Advance Estimate of Gross Domestic Product [11] for the 2nd Quarter of 2022. If they confirm a downward movement in GDP evaluation for the 2nd quarter in a row, it will officially mean a recession.
This event might lead to enterprises increasingly cutting their expenses. However, surveys show that executives still recognize cybersecurity budgets as highly prioritized. Generally, they do not plan to significantly reduce budgets for cyber defense as it might cause undesirable consequences, such as increased exposure to threats and failure to comply with regulations. These might be the primary reasons for the cybersecurity sector’s economic resilience in recession times, resulting in positive stock market dynamics.
While the cybersecurity sector has been more recession-proof than other tech industries, it still needs to employ a strategic approach to sustainable IT industry development. Security must be an integral part of digital infrastructures, not an insurance policy. As we approach this slowdown, finance leaders will demand smarter spending from their teams, exploring options that will potentially provide more value while saving money. Access to SOC Prime’s Detection as Code platform helps save hundreds of hours on research and rules coding, while automation of deployment and technical support maximize the efficiency of security operations workflow.
Works Cited
[1] A Not-So-Common Cold: Malware Statistics in 2022, DataProt, 9 May 2022, https://dataprot.net/statistics/malware-statistics/. Accessed 6 July 2022.
[2] Malware Evolution: 2005, Securelist, 8 February 2006, https://securelist.com/malware-evolution-2005/36070/. Accessed 6 July 2022.
[3] Rush, Howard, et al., Crime Online. Cybercrime and Illegal Innovation, NESTA, July 2009
[4] Webb, Alex., Cybersecurity a Likely Focus for Tech Spending, CTOs Say, Bloomberg.com, 8 April 2022, https://www.bloomberg.com/news/articles/2022-04-08/cybersecurity-a-likely-focus-for-tech-spending-ctos-say#xj4y7vzkg. Accessed 6 July 2022.
[5] Survey: Global C-Suites Feel the Strain of War in Ukraine, with Most CEOs Now Predicting Recession and Fears over Cyber Attacks Escalating, PR Newswire, 17 June 2022, https://www.prnewswire.com/news-releases/survey-global-c-suites-feel-the-strain-of-war-in-ukraine-with-most-ceos-now-predicting-recession-and-fears-over-cyber-attacks-escalating-301570328.html. Accessed 6 July 2022.
[6] Modi, Kruti, SEC Proposes New Cybersecurity Disclosure Rules — WSJ, The Wall Street Journal, 13 April 2022, https://deloitte.wsj.com/articles/sec-proposes-new-cybersecurity-disclosure-rules-01649771802. Accessed 7 July 2022.
[7] Here are some of the tech stocks taking the biggest losses, The Hill, 24 May 2022, https://thehill.com/policy/technology/3499555-here-are-some-of-the-tech-stocks-taking-the-biggest-losses/. Accessed 6 July 2022.
[8] Janeway, William H., and Robert Johnston, Capital Is Not a Strategy by William H. Janeway, Project Syndicate, 6 January 2022, https://www.project-syndicate.org/commentary/attracting-nontraditional-capital-is-not-a-business-plan-by-william-h-janeway-2022-01?barrier=accesspaylog. Accessed 6 July 2022.
[9] Daniel, Will, and Taylor Locke, 2022 market meltdown looks like dot-com crash 2.0. Recession next?, Fortune, 22 May 2022, https://fortune.com/2022/05/22/why-crypto-tech-stocks-crash-recession-dotcom-bubble/. Accessed 6 July 2022.
[10] Go, Paul, EY Global IPO Trends Q2 2022 EY, 29 June 2022, https://www.ey.com/en_gl/ipo/trends. Accessed 6 July 2022.
[11] Release Schedule | US Bureau of Economic Analysis (BEA), Bureau of Economic Analysis, https://www.bea.gov/news/schedule. Accessed 6 July 2022.
