Cybersecurity: Cutting-edge innovation and high stakes

The online world has become both more interconnected and more dangerous. Even before recent events upended how many people work and access information, companies were already ramping up spending on cybersecurity and increasing their reliance on cloud-based networks. Now, rising geopolitical tensions have put renewed focus on cybersecurity and identity protection.

There may be opportunity to capitalize on the growth of money being spent to combat these rising threats. The Nasdaq-100 Index, which Invesco QQQ tracks, contains some of the most innovative companies in cybersecurity—and offers a potential way to benefit from this rapidly changing landscape.

For some of the world’s largest tech companies—and top QQQ holdings—cybersecurity is increasingly driving a higher share of revenue. For example, in 2022 Alphabet, Google’s parent company, spent $5.4 billion to acquire cybersecurity company Mandiant. It was one of Alphabet’s largest acquisitions ever and is designed to support security in its key Google Cloud business.¹

Separately, Microsoft’s Intelligent Cloud business is a huge revenue generator for the software giant. The 2022 launch of Microsoft’s Modern Log Management Program was created to help improve the ability of its federal agency customers to detect, investigate and remediate cyber threats.²

Among more niche players, CrowdStrike is an example of a QQQ holding that’s focused exclusively on cybersecurity. CrowdStrike, which went public in 2019, helps companies protect themselves against cyberattacks and provides remediation assistance when companies suffer a breach.

Interconnectedness comes with a cost

The price tag to fight cybercriminals keeps growing. Revenue in the cybersecurity market is expected to grow at annual compounded rate of over 10% to $273.5 billion by 2028.³ A recent study found that there is a hacker attack every 39 seconds on average, affecting one in three Americans every year.⁴

Hacking and ransomware are just two examples of rising cybersecurity threats. Businesses are being hit with almost constant ransomware attacks, which are growing more sophisticated, often shutting down entire networks and stealing intellectual property and data.

In this environment, there is tremendous demand for companies that can protect information and networks. For example, the annual estimated cost of cybercrime worldwide is expected to rise to $13.8 trillion by 2028.⁵

The impact of geopolitical tensions

The potential for cyberattacks following Russia’s invasion of Ukraine has been on the rise. In 2022, the U.S. Cybersecurity and Infrastructure Security Agency warned organizations to step up their vigilance and capabilities because disruptive cyberattacks against Ukraine may spill over into other countries.⁶ The Biden administration has also warned of the potential for Russia to engage in malicious cyber activity against the U.S. and has urged companies to take steps to protect themselves.

Accessing cybersecurity with QQQ

Invesco QQQ provides access to some of the world’s most innovative companies, and several QQQ components have large cybersecurity businesses or are exclusively focused on the area.

In addition to Alphabet, Microsoft and Crowdstrike, top cybersecurity stocks in QQQ include Fortinet, Zscaler, Palo Alto Networks, Splunk and Marvell Technology. These firms are known for their sticky customer bases and range of products that allows for cross-selling to existing clients.

Investing with QQQ is one way to gain exposure to the thriving cybersecurity sector, while also gaining access to innovative companies leading the charge in other markets.