While the threat of cybercrime continues to compel a growing number of organizations across industries worldwide to invest in cybersecurity, cyber stocks aren’t receiving the same frenzy from investors as a few years back. Some analysts, such as Brent Thill of UBS, believe the U.S. software cybersecurity “super cycle” is on its last legs, reports Investor's Business Daily. (See also: On Guard: Cybersecurity Roundup.)
In a research report on Thursday, Hill indicates the cybersecurity industry’s highest growth days may be over. “We are three years-plus into the cybersecurity spending ‘supercycle,’ where indiscriminate budgets and ‘binge buying’ seen in 2014/2015 appear to be firmly behind us,” Hill stated in the report.
Looking Ahead to Next-Gen Cybersecurity
After news headlines filled with high-profile data breaches, a rush of companies invested in threat-detection technology and the installation of firewalls that protect private networks from the internet.
The UBS analyst suggests that in this next stage of market growth, competitors may face price competition from incumbents, particularly perimeter-security vendors, who will resort to discounting. Despite hinting at upcoming pressure on the spending cycle, Hill predicts that industry leaders Palo Alto Networks Inc. (PANW), Symantec Corp. (SYMC) and CyberArk Software Ltd. (CYBR) are well-positioned as spending shifts to more cutting-edge technology in “data, app, endpoint, identity and behavior analytics initiatives.”
Although the International Data Corp. predicts overall corporate spending on IT to slow or stay flat, the cloud security segment is targeted to increase at a rate of 6% year-over-year. As cybersecurity customers move business workloads over to cloud computing service providers, most notably Amazon.com Inc.’s (AMZN) Amazon Web Services, there’s less of a need for legacy products and a growing demand for cloud security.
Since cloud providers currently outsource to third party providers, old guard tech players have a huge incentive to nudge into the cloud-based security market. Industry giants such as Symantec looked to ink deals with major cloud providers in order to secure a share of the budding industry. (See also: Symantec, VMware in Strategic Deal.)
Upcoming Earnings to Indicate Industry Direction
With earnings season coming up, investors will have better insight into the prospects of a next-gen cloud security shift. Fortinet Inc. (FTNT) saw its stock crash 10% on Wednesday, recovering 1.7% on Thursday after lowering its Q3 consensus estimates. Barracuda Networks Inc. (CUDA), on the other hand, reported better-than-expected Q3 earnings late on Tuesday, as its stock stood up over 11% in pre-market trading on Wednesday. After slightly cooling off, Barracuda is trading up almost 9% from its price before its Q3 report, at Thursday’s closing price of $25.36. (See also: Fortinet Q3 Warn Sent Security Stocks Down.)