Key Sector to Watch in the Stock Market in the Second Half: Cybersecurity

Introduction

The U.S. stock market keeps rising, led by tech stocks, but which industry could be the next big thing? With all the attention on AI-related stocks right now, is there a sector that might still be worth investing in, even at a premium, without hitting its peak yet? I firmly believe that sector is “Cybersecurity“.

Why Should I Watch the Cybersecurity Sector?

People expect that as AI technology advances, AI services will become part of our daily lives, significantly boosting productivity for both businesses and individuals, leading to amazing human progress. That’s the optimistic view. The AI ecosystem is going to become more complex and diverse.

But let’s consider the downside. What if AI is used in ways that harm humanity? Imagine if someone used GenAI(Generative AI) online to deceive others, steal money, intercept sensitive information, or even control critical systems for their own benefit.

Cybersecurity is super important because it deals with highly destructive threats that aren’t widely known, making them easy to overlook. It requires the latest technology and significant investment, which means it’s not something just anyone can attempt. Therefore, In the age of AI, cybersecurity is essential.

 

Why the Need for AI Cybersecurity is Growing

Geopolitical Tensions Increase Cybersecurity Risks

Cyber attacks usually happen for two main reasons: political power and financial gain. These attacks are attractive because they offer high anonymity, making it easy for perpetrators to deny their crimes. As geopolitical tensions rise, cyber attacks are increasingly being used as a tool of statecraft.

Cyber attacks targeting other countries’ governments or institutions have become more frequent and sophisticated lately. The ongoing Russia-Ukraine war has heightened NATO-Russia conflicts, while the tech and trade tensions between the US and China have put the world on high alert for widespread cybersecurity issues.

Here are some infamous fake news examples created using GenAI to stir political chaos:

• The fake announcement of President Zelensky’s surrender in Ukraine(left)
• The false reports of a fire at the US Pentagon(right)

 

In particular, Russia and China are known to be actively collaborating with hackers to launch cyber attacks. Many European countries are raising their threat levels and investing heavily in cybersecurity.

 

The Rise of GenAI Boosts the Need for Cybersecurity

The widespread use of GenAI has lowered the barrier to entry for sophisticated cyber threats, making it easier to create content for political information operations. Crowdstrike has revealed real cases where large language models (LLMs) were used in malicious computer network operations (CNO).

“In February 2023, CrowdStrike Services responded to an INDRIK SPIDER incident involving BITWISE SPIDER’s LockBit RED ransomware. During this incident, INDRIK SPIDER exfiltrated credentials from cloud-based credential manager Azure Key Vault. Logs show that INDRIK SPIDER also visited ChatGPT while interacting with the Azure Portal.”
– CRWD Global Threat Report, 2024 – 

ChatGPT isn’t just for students doing their homework or employees writing reports, running Excel, or coding at work. LLMs like ChatGPT can also help increase the efficiency  and speed of cyber threats, and even help obscure the unique traits of hackers.

When GenAI is used maliciously, we need to defend against it with GenAI. Cyber threat methods are becoming more sophisticated with GenAI, making it harder to distinguish them from normal activities. This means we need to adopt the most advanced security technologies that can monitor and protect our systems in real-time, faster, wider, and smarter.

 

Most Vulnerable Industries to Cyber Attacks

What types of cyber threats are private companies in different sectors facing the most?

Below are the results from PwC’s survey of over 3,500 executives worldwide from 2022 to 2023, where they identified the top threats and explored the motivations behind these threats through case studies. It turns out that industries across the board are exposed to various cyber threats, including:

• Business email compromise / account takeovers
• Ransomware
• Attacks against cloud management interfaces
• Hack-and-leak operations
• Third-party breaches

 

There’s a high demand for cybersecurity in sectors that are prime targets for cyber attacks. When looking at threat actor motivations, there are certain industries where cybercrime (for financial gain) and espionage (for political or military advantage) are particularly concentrated.

• Motivations – Cybercrime
  • Automotive
  • Construction
  • Retail
  • Sports & Entertainment
  • Financial Services
  • Healthcare

• Motivations – Espionage
  • Aerospace & Defense
  • Education
  • Government
  • Energy
  • Telecommunications
  • Technology

 

With geopolitical tensions on the rise, the sectors that are most likely to adopt the latest cybersecurity technologies, and thus become the primary customers for cybersecurity companies, are “Aerospace & Defense,” “Telecommunications,” and “Government.”

 

Top Cybersecurity Threats Private Companies Fear the Most

We’re going to use AI services more and more in our daily lives, and the amount of data we store with software companies and in the cloud will keep growing. Cybersecurity systems are essential not just for public institutions but also for private companies.

 

1. The biggest concern for companies is cyber attacks related to the cloud.

Businesses use cloud service providers for software (SaaS), building databases (DaaS), and developing applications (PaaS). They also adopt multi-cloud strategies, integrating various third-party solutions in a cloud environment. This means that in the cloud, the security vulnerabilities of third parties can significantly increase the risk of data breaches and leaks.

2. The next major worry is attacks on connected devices. 

Corporate cloud networks are linked to numerous devices, both within the company and from many users. According to PwC’s 2024 Global Digital Trust Insights, the scale of damage from data breaches is increasing (the proportion of losses exceeding $1 million rose from 27% in 2023 to 36% in 2024). The share of cybersecurity budgets within the overall IT/automation budget is also growing (from 11% in 2023 to 14% in 2024), and about 79% of responding companies plan to increase their cybersecurity spending over the next year.

Companies across various sectors recognize the importance of cyber threats. They will increasingly adopt cybersecurity technologies utilizing GenAI and invest more in cybersecurity. Demand for cybersecurity technologies, especially related to “cloud security” and “endpoint security,” is expected to be high.

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Key Points:

1. As AI grows, more data means a greater need for cybersecurity.
2. Geopolitical tensions make cybersecurity crucial for “Aerospace & Defense,” “Telecommunications,” and “Government.”
3. Private companies are most worried about “cloud” and “endpoint” attacks, driving high demand for cybersecurity tech.