Coop, one of Sweden’s biggest supermarket chains, had to temporarily close hundreds of stores after last weekend’s cyberattack on Kaseya software blocked access to its checkouts.
ALI LORESTANI/TT NEWS AGENCY/AFP via Getty Images
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Last weekend’s large-scale cyberattack on security software provider Kaseya exposed what some analysts say will be a growing and evolving threat, boosting their expectations for spending on cybersecurity to the benefit of stocks in the sector.
Increasingly, cybercrime is trending toward targeting service providers and supply chains, since hackers know they can affect a large group of people with a single attack. The $70 million ransomware attack last weekend, which struck between 800 to 1,500 businesses that used Kaseya’s services, is the latest sophisticated cyberattack following the Colonial Pipeline hack attack last month.
Irvin Liu, an analyst at equity research firm Evercore ISI, says such breaches are likely to become more common as information technologies shift to the cloud and to accommodate hybrid work, among other things. These changes introduce “a higher number of potential attack surfaces for threat actors to target,” he says. “As a result, we expect security spend to continue to increase a percentage of total IT spend.”
Spending on information security and risk management technology is expected to grow 12.4% in 2021 to $150.4 billion, according to research firm
Gartner.
In general, however, only a small portion of companies’ IT budget is allocated toward security spending. Raymond James research, for instance, shows that security spending accounts for only 4% of IT budgets across all industries.
That leaves room for growth, and security-software analysts at Raymond James believe the breach could boost prospects for the likes of
Fortinet
(ticker: FTNT),
Palo Alto Networks
(PANW),
Okta
(OKTA), and
Rapid7
(RPD). It rates each as Outperform.
Raymond James analysts believe the attack will not only bolster security spending on traditional products, but “should also drive transformational spend on new [cybersecurity] solutions.”
Evercore, for its part, concurs with the idea that ransomware and other breaches should “provide tailwinds for security vendors with products/solutions that directly address ransomware.” In addition to Palo Alto Networks and Fortinet, Evercore analysts like some of the security solutions provided by
Check Point Software Technologies
(CHKP) and
Cisco Systems
(CSCO).
One way to invest in a cybersecurity boom would be through one of several exchange-traded funds focused on the sector. The
First Trust Nasdaq Cybersecurity ETF
(CIBR), for instance, was recently trading around $48, up 8% year to date, and the
ETFMG Prime Cyber Security ETF
(HACK) was recently around $61.50, up 7.2% year to date. Both are near their 52-week highs.
Cybersecurity companies have already been seeing strong demand.
CrowdStrike Holdings
(CRWD), one of the largest IT security companies by market capitalization, has seen its stock grow 25% year to date and had a strong showing in the first quarter, topping earnings and revenue estimates. The company’s CEO,
George Kurtz,
emphasizes that increased attention on cybersecurity needs to begin at the board level as well as in audit committees. “It’s a very specialized field and there isn’t one security company that can do it all,” he said.
Experts are attributing the Kaseya attack to Russian ransomware group REvil, which was previously linked with the $11 million ransomware attack on meat producer JBS (JBSAY). This most recent incident carries a particularly hefty price tag, at $70 million, and would be the most expensive ransomware attack to date, almost doubling the record-setting $40 million paid by
CNA Financial
(CNA) in March.
Kaseya provides IT software to small and midsize businesses, and the attack was carried out through what seemed to be a routine software update that compromised Kaseya’s VSA software.
With so many people working from home during Covid, cybercriminals are now targeting intermediary players like managed service providers that help manage technology for many endpoint businesses ranging from mom-and-pop shops to national grocery chains.
“The attacker is effectively leveling the security and business operations of many organizations with a single blow to one company,” Derek Manky, chief of security insights and global threat alliances at Fortinet’s FortiGuard Labs, said in an email.
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