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There are likely to be many areas of the stock market that do well over the next decade. For example, cloud computing companies, artificial intelligence (AI) businesses, and electronic payment firms should all prosper as the world becomes more digital. I’m wondering, however, if the best stocks to buy for the next 10 years could be cybersecurity plays? To my mind, this area of the market has enormous potential.
Cyberattacks can be devastating
The Co-op and Harrods have been hit, but the ongoing cyberattack issues at Marks and Spencer have shown how vulnerable firms are today. This ‘ransomware’ attack has left the retailer in a mess. Believe it or not, M&S hasn’t been taking online orders for over two weeks now. In the first half of its current financial year, online orders represented a third of its sales.
Now, this is a £8bn market cap FTSE 100 company we’re talking about here. And it clearly didn’t have a robust-enough cybersecurity strategy in place. This makes me wonder how unprepared smaller businesses are? There would have to be millions of businesses globally that are far less protected than M&S.
10-fold market growth?
This leads me to believe that the cybersecurity industry has huge growth potential over the next decade. Realistically, this industry is probably still in its infancy. It’s worth noting that analysts at McKinsey see the global addressable market climbing to $2trn in the not-too-distant future. That’s more than 10 times the amount spent on cybersecurity in 2024.
Defensive in nature
It’s not just about the long-term growth potential though. The beauty of this industry is that it’s also defensive in nature. If we see an economic slowdown in the months ahead, some areas of software will probably be impacted. For example, businesses that specialise in digital marketing solutions will probably see less growth. I doubt that any company is going to pause, slow, or cancel its cybersecurity spending though. The risks of not being fully protected are just too high.
Investing in cybersecurity
When it comes to investing in cybersecurity, there are many companies that offer exposure to the theme. Most of the big players are listed in the US, however.
Last year, I invested in CrowdStrike (NASDAQ: CRWD). It offers a sophisticated cloud-native cybersecurity platform and is one of the fastest growing companies in the industry.
One thing I like about this company is that it enjoys a ‘network effect’. The more customers it signs, the smarter its AI-powered system gets – which then attracts more customers.
I also like the fact that the company is founder-led (founder George Kurtz is the CEO). Founder-led companies are often great investments in the long run as management tends to take a long-term strategic view.
Of course, this is the company that caused the global IT outage last year. And further technical issues like this are a huge risk.
To mitigate stock-specific risk, I’ve taken small positions in three other cybersecurity stocks in recent weeks – Fortinet, Palo Alto Networks, and Zscaler.
I believe all of these cybersecurity stocks are worth considering today (especially if they pull back in market weakness). None of them are cheap. And all are likely to be volatile in the years ahead. But taking a 10-year view, I see huge growth potential.
