Are Cybersecurity stocks still seductive in 2023?

Cybersecurity industry

After rising in popularity due to the recurring news around severe cyber attacks worldwide, are cybersecurity stocks in 2023 as seductive as they have been in the last years?

The cybersecurity industry is dominated by prominent international players growing exponentially by increased demand fueled by fast-rising damaging attacks performed worldwide.

Everybody knows how important it is today to protect our computers and mobile from viruses and malware. What is less known is the impact cybersecurity attacks can have on people, companies, organizations, and governments around the world.
With the growth of IoT devices and the implementation of 5G, cybersecurity risk is only set to escalate further.

As explained below, strong demand does not yet translate into profitability and high stock returns, showing that the market is probably too crowded and characterized by intense competition among players.



We think the demand for solutions that enable application delivery and secure applications has solid and durable tailwinds. According to Omdia, a global technology research company, 32% of organizations plan strategic investments in managed security services.

The global cyber security market is projected to grow from $165.78 billion in 2021 to $366.10 billion in 2028 at a CAGR of 12.0%. The increasing adoption of enterprise security solutions from manufacturing, banking, financial services, insurance, and healthcare is expected to drive growth in the forthcoming years.

The rising number of e-commerce platforms and advancements in artificial intelligence, cloud, and blockchain have augmented internet security solutions in a connected network infrastructure. Most companies with an online presence will have to secure their organizations from cyber threats. There is high demand for advanced IT security solutions also by governments for their need to secure a massive volume of confidential data and information.

The market is divided into solutions and services, with the latter segment expected to grow at the fastest pace owing to the rising demand for consultancy, updating, and maintenance services.  

While North America is likely to dominate the market, the rest of the world is expected to grow at a notable compound annual rate over the next decades.


Over the last 30 years, the technologies behind cyber-attacks and the ensuing preventative measures have advanced rapidly. During 2020, the world witnessed unprecedented cyber-attacks against organizations across all industries, carried out as large-scale, multi-vector mega attacks, inflicting significant damage on businesses and their reputations. As a result, heavy fines were levied in some cases where companies failed to protect sensitive data.

The security deployed by most businesses is generationally behind and incapable of protecting against such attacks. Specifically, while the world faces the 5th generation of attacks, most enterprises possess only 2nd or 3rd generation security. 5 Generation are fast-moving attacks, so detection-only is not enough.


The COVID-19 pandemic created a tectonic shift in IT environments. With the rapid transition to more cloud instances, the popularity of network-connected smartphones, and the shift to remote work, organizations had to ensure ‘anywhere and everywhere’ security, including safe connection to remote places. The “new norm” workspace has expanded organization perimeters.
Business data continually transfers between Bring-Your-Own-Devices (BYOD), SaaS applications such as, and running on multi-cloud environments, in clouding AWS and Azure public clouds. With remote work as the new standard, remote employees can be prone to careless behaviour and non-compliance to corporate policies.

Cybersecurity stocks

An organization’s attack surface has also become much broader, creating a “Perfect Storm” and the surge of sophisticated 5t h generation cyberattacks. As organizations have adapted to remote work and all its digital implications, cybercriminals have seized the global crisis to launch large-scale cyber exploits with clear characteristics of a Cyber Pandemic.


The Software & IT Services cybersecurity industry is characterized by prominent established players and a multitude of small privately held companies often unknown to the general public.

All IT companies, in general, are characterized by high operating leverage because fixed costs such as personnel and infrastructures are, in % of revenue, substantially larger than variable costs; with more scalability, though come also higher break-even points and thus more vulnerability to downtimes.

Nevertheless, most of the companies under screening show modest financial leverage and very high-interest cover.

The Software & IT service cybersecurity industry is far less concentrated than the Communication & Networking market, where only a few established players compete in a relatively steady-slow growing business. We expect the market to become more concentrated in the future, and the recent merger between Fortinet and Avast – the new company was named GenDigital – is a testament to that.

After screening several direct and indirect competitors, we pulled together 27 peers with similar business models to obtain a meaningful comparison. Whilst the peers’ underlying business is seldom homogenous and easily comparable, this approach can give a good sight of the sub-industry as a whole.

symbolnamepriceexchangeno. of employeesindustryMkt Cap
CSCOCISCO SYSTEMS, INC. (XNAS:CSCO) $    46.7 Nasdaq Stock Market            83,300.00 Communications & Networking$191,438,767,020
JNPRJUNIPER NETWORKS, INC. (XNYS:JNPR) $    29.4 New York Stock Exchange            10,901.00 Communications & Networking$9,453,934,596
EXTREXTREME NETWORKS, INC. (XNAS:EXTR) $    16.8 Nasdaq Stock Market              2,643.00 Communications & Networking$2,167,034,760
ANETARISTA NETWORKS, INC. (XNYS:ANET) $  156.7 New York Stock Exchange              3,612.00 Communications & Networking$48,009,095,226
ABSTABSOLUTE SOFTWARE CORPORATION (XTSE:ABST) $    10.5 Toronto Stock Exchange                 740.00 Software & IT Services$555,753,077
ATENA10 NETWORKS, INC. (XNYS:ATEN) $    14.3 New York Stock Exchange                 575.00 Software & IT Services$1,055,873,842
PANWPALO ALTO NETWORKS, INC. (XNAS:PANW) $  183.6 Nasdaq Stock Market            13,932.00 Software & IT Services$55,564,862,598
CHKPCHECK POINT SOFTWARE TECHNOLOGIES LTD. (XNAS:CHKP) $  126.9 Nasdaq Stock Market              5,805.00 Software & IT Services$16,383,599,958
FFIVF5, INC. (XNAS:FFIV) $  130.8 Nasdaq Stock Market              7,089.00 Software & IT Services$7,906,403,399
VRNSVARONIS SYSTEMS, INC. (XNAS:VRNS) $    23.6 Nasdaq Stock Market              2,143.00 Software & IT Services$2,590,273,257
FTNTFORTINET, INC. (XNAS:FTNT) $    63.3 Nasdaq Stock Market            12,595.00 Software & IT Services$49,607,874,801
QLYSQUALYS, INC. (XNAS:QLYS) $  112.4 Nasdaq Stock Market              2,143.00 Software & IT Services$4,153,683,280
RDWRRADWARE LTD. (XNAS:RDWR) $    19.8 Nasdaq Stock Market              1,203.00 Software & IT Services$868,072,219
NETCLOUDFLARE, INC. (XNYS:NET) $    60.3 New York Stock Exchange              3,217.00 Software & IT Services$20,005,756,540
GENGEN DIGITAL INC. (XNAS:GEN) $    17.5 Nasdaq Stock Market              2,700.00 Software & IT Services$11,181,570,602
CYBRCYBERARK SOFTWARE LTD. (XNAS:CYBR) $  123.5 Nasdaq Stock Market              2,768.00 Software & IT Services$5,072,242,565
CRWDCROWDSTRIKE HOLDINGS, INC. (XNAS:CRWD) $  123.3 Nasdaq Stock Market              7,273.00 Software & IT Services$29,074,955,280
ZSZSCALER, INC. (XNAS:ZS) $    93.2 Nasdaq Stock Market              4,975.00 Software & IT Services$13,517,937,315
OKTAOKTA, INC. (XNAS:OKTA) $    70.4 Nasdaq Stock Market              6,013.00 Software & IT Services$11,357,886,876
SSENTINELONE, INC. (XNYS:S) $    16.9 New York Stock Exchange              2,100.00 Software & IT Services$4,871,922,480
SPLKSPLUNK INC. (XNAS:SPLK) $    86.4 Nasdaq Stock Market              8,000.00 Software & IT Services$14,294,235,000
DDOGDATADOG, INC. (XNAS:DDOG) $    70.7 Nasdaq Stock Market              4,800.00 Software & IT Services$22,768,631,064
AKAMAKAMAI TECHNOLOGIES, INC. (XNAS:AKAM) $    79.6 Nasdaq Stock Market              9,800.00 Software & IT Services$12,421,500,000
ZSZSCALER, INC. (XNAS:ZS) $    93.2 Nasdaq Stock Market              4,975.00 Software & IT Services$13,517,937,315
RPDRAPID7, INC. (XNAS:RPD) $    48.7 Nasdaq Stock Market              2,623.00 Software & IT Services$2,937,677,017
VRNSVARONIS SYSTEMS, INC. (XNAS:VRNS) $    23.6 Nasdaq Stock Market              2,143.00 Software & IT Services$2,590,273,257
RBBNRIBBON COMMUNICATIONS INC. (XNAS:RBBN) $      2.4 Nasdaq Stock Market              3,394.00 Communications & Networking$409,536,600
Cybersecurity Stocks as of 26 Apr 2023

Aggregate revenues of our selected stocks showed a positive increase almost every year since 2013, growing from ~$60Bln to more than 100Bln in 11 years.
The Software & IT service cybersecurity industry revenue grew at the fastest rate striking a CAGR of about 21.6% in the same period; sales saw a sharp rise in 2021 and 2022 when overall average growth stood above 23% per annum.
On the other hand, Communication & Networking stocks, being part of a more mature and stable business, have been growing only at about 1.8%.

Cybersecurity stocks 2023, Year on Year revenue growth
Cybersecurity stocks 2023, Year on Year revenue growth

The peer group is characterized by a few players holding between 15% and 25% market share, with most of the others generating from 1% to 5% of total group revenue.

Despite the positive trend, about one-fourth of the group is still loss generating whilst some well-known key players show tiny net margins usually because of high sales and general and administrative expenses.

We believe that the fastest growing stocks, like Fortinet or Palo Alto Networks, have been increasing their market share to become the largest players at the detriment of profit margins; looking at their fundamentals, it becomes apparent how these enterprises are not generating the same level of profits as other smaller players, because of higher sales and marketing expenses, aggressively discounted prices or a combination of both.

We see the industry as partially fragmented, characterized by significant barriers to entry due to high development costs, intellectual property, and insight knowledge, and with no specific player able to exert greater pricing power. We think product differentiators have more to do with user experience and after-sale support rather than technical features such as speed or efficiency of malware detections, as long as the zero-trust architecture in place fully defends the customer from criminal attacks.
Companies that want to strive within this sector must be able to renovate and catch new digital and technological trends before others.

Questions & Answers

Why is the cybersecurity market expected to grow exponentially in the following decades?

The increase in the use of cloud-based systems, the Internet of Things, and 5G, together with geopolitical tensions among global superpowers as well as tensions among private companies spying on each other to steal copyright and inventions, are the most significant factors that will fuel demand in cybersecurity services and solutions.

What is the largest cybersecurity stock in 2023?

Palo Alto Networks (PANW) is the largest Software and IT Services cybersecurity stock.

Cisco (CSCO) is the largest Communication and Networking stock indirectly involved in cybersecurity.

What is the fastest-growing cybersecurity stock in 2023?

Crowdstrike Holdings (CRWD) is the fastest-growing Software and IT Services cybersecurity stock.

Arista Networks (ANET) is the fastest-growing Communication and Networking stock.

Is it worth investing in cybersecurity stocks or ETFs in 2023?

Investing in cybersecurity ETFs in 2023 is probably not a good idea, as most of these stocks are either overvalued, poor performing, or highly leveraged. That’s why, in line with the teaching of the Intelligent Investing theory, we deem it much more efficient and less risky to invest only in a few strong selected stocks (see why here).

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As shown in this article, sometimes companies of the most seductive industries, like cybersecurity or solar energy, can be in poor financial health status, have issues with cash generation or – in most cases – be ridicolously overvalued.
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