By: Spencer Israel
As more details about the hack of IT company SolarWinds continue to emerge by the day, it’s becoming clearer that the full scope of the attack, purported to be by Russia, may not be known for some time, if at all. Microsoft disclosed it was victimized, as has FireEye, Cisco, Equifax, and others.
But what we do know is that investors are running, not walking, into cybersecurity names as a result.
Since news of the breach first broke on December 8, shares of the largest cybersecurity stocks have blasted off. FireEye, which initially stepped forward that day as the first victim of the attack, has seen its shares rebound 31% as it became clear that they were not the primary victim.
Shares of CrowdStrike, Palo Alto Networks, Proofpoint, Fortinet, Qualys, Rapid7, Splunk, and Zscaler have also all rallied between 12-26% over that span, as investors anticipate a growing need for cybersecurity infrastructure in response (SolarWinds, as you would imagine, is down 31% since the hack was made public).
Enthusiasm is also high for cybersecurity ETFs. The four cybersecurity-specific ETFs have experienced massive inflows in recent days to go along with strong performance.
|ETFMG Prime Cyber Security ETF (HACK)||$185.37 million||up 17%|
|First Trust NASDAQ Cybersecurity ETF (CIBR)||$40.14 million||up 10%|
|iShares Cybersecurity and Tech ETF (IHAK)||$26.13 million||up 10%|
|Global X Cybersecurity ETF (BUG)||$19.47 million||up 8%|
The sell-side has also taken notice. Analysts at Wedbush, Keybanc, Mizuho, and William Blair have all given upgrades and raised price targets on the industry in the last week.
Many will remember this isn’t the first time a data breach has sent these stocks higher. The 2014 Sony hack, in addition to causing a similar response from investors, also jumpstarted interest in the HACK ETF in the first place.
The attack has been a directional event in what has been an otherwise divided year for the cybersecurity trade. Some stocks have proven huge winners, like CrowdStrike and Zscaler, which have both more than tripled in 2020. Others, like Proofpoint and Check Point Software, have underperformed dramatically, moving in-line with the S&P 500.
The author is long the S&P 500 in his retirement accounts.
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