Are these the best cybersecurity stocks to watch?

As the world goes increasingly digital, cybersecurity is becoming ever more important. Cyber threats — such as phishing and hacking — are ever-evolving, and companies are investing heavily in safeguarding their data and systems.

AAG IT data shows that between 2022-2023, 32% of UK businesses reported a cyber-attack or breach, and this figure rises to 69% at larger companies. The average cost for each breach against was £4,960 for large businesses, and 82% of boards or senior management in UK businesses see cyber security as a high priority.

For context, phishing was the most common cyber threat facing UK businesses in 2022, accounting for 83% of identified attacks. This was also identified as the most disruptive form of cybercrime, as it implicitly threatens companies with impersonators.

It’s not hard to see why the cybersecurity industry is flourishing — and these nine companies could be some of the key beneficiaries. However, most are US-based; the country has long been a centre of cyber expertise.

Top cybersecurity stocks to watch

1. CrowdStrike Holdings

CrowdStrike is a popular software company that specialises in endpoint security, protecting devices like laptops, PCs, and smartphones connected to networks — particularly business networks.

Leveraging machine learning for threat detection, CrowdStrike's software has seen booming sales and profitability. A key advantage is that its cloud-based approach makes it well-suited for remote workers who need to securely access their company’s intranet. CrowdStrike is continuously expanding its platform and integrating with other tech companies to ensure its data protection remains consistent.

2. Zscaler

Zscaler is another prominent cloud-native security, that is a competitor to CrowdStrike in some areas, providing network protection and end-user monitoring solutions.

Its software-as-a-service product caters to modern cloud computing needs, and it has added new internet security and end-user monitoring products over the years. With a diverse customer base amid the rapid growth of cloud computing, Zscaler is poised for significant future expansion.

3. Okta

As a pioneer in identity and access management, Okta employs a zero-trust architecture for continuous user verification. Its software is highly sought after in a mobile and cloud-based world where businesses manage complex networks of employees, contractors, suppliers, and customers.

Despite a well-published cyberattack affecting its reputation in mid-2022, Okta remains on a growth trajectory as new customers adopt its software for identity and access security.

4. SentinelOne

SentinelOne is a pure-play cybersecurity company, which like CrowdStrike operates a cloud-based endpoint security platform. Despite stock fluctuations, it has experienced substantial sales growth over the past few years and is expected to continue this momentum through 2023.

The company's advanced threat detection and resolution capabilities have earned it a positive reputation in the market — and leaves it with projected sales growth of about 50% in 2023.

5. Palo Alto Networks

Palo Alto Networks is world-renowned for its expertise in firewalls and has now successfully transitioned to become a leading cloud security provider.

The company has acquired more than a dozen smaller cloud-native businesses in recent years, transforming its security operations. Management predicts double-digit percentage revenue growth for its next-gen security portfolio — and the company remains in high demand after completing a 3-for-1 stock split in September 2022.

6. Fortinet

Fortinet is one of the largest cybersecurity companies worldwide, focusing on organic cloud security development. With a diversified range of services and a strong track record of growth, Fortinet offers stability and growth potential for investors.

Its hardware is a significant revenue driver as many organizations turn to Fortinet for help when building new data centers and 5G mobile networks. The company also completed a stock split last year, initiating a 5-for-1 split in June 2022.

7. Broadcom

Broadcom is primarily known as a chipmaker in the semiconductor industry and expanded into cybersecurity after acquiring Symantec.

With about 22% of its revenue derived from cybersecurity and significant operating income in the sector, Broadcom provides a way to invest in cybersecurity with some diversification. Its acquisition of Symantec has supplemented its existing mainframe security offerings, making it a notable player in the cybersecurity industry.

8. Check Point Software Technologies

Check Point Software Technologies is an Israel-based network infrastructure company that offers security gateways and software platforms for managing internal networks and applications.

It is solidly profitable, making it an attractive choice for investors looking for established cybersecurity companies. The company's services are highly valued by business for their ability to manage internal networks, applications, and data loads effectively.

9. Cisco Systems

Cisco is one of the largest enterprise technology stocks globally, and a major player in cybersecurity. Its solutions protect numerous networks, mailboxes, and customer endpoints worldwide.

With significant revenue derived from its cybersecurity segments, Cisco's performance in the cyber space is crucial to its stock performance. Notably, the company has substantial cash reserves, meaning it may be able to buy up smaller quality cybersecurity stocks driven down by the tighter monetary environment.

For those looking for wider exposure to the cybersecurity sector, there are many ETFs to consider.

However, First Trust Nasdaq Cybersecurity UCITS ETF is widely considered the largest cybersecurity ETF, holding 35 stocks from within the industry. This ETF boasts an affordable expense ratio of 0.6% and holdings which cover both the established cybersecurity giants, alongside promising growth companies.

However, while you can benefit from diversification within the sector, you may miss out on some of the growth of the best individual cybersecurity stocks — and there is no protection from a wider sector downturn.

But with increasingly sophisticated AI attacks, cybersecurity — and therefore cybersecurity companies — are expected to continue to top business agendas.