Focus on the growth of US cybersecurity vendors in the fourth quarter of 2021

Monthly Flash ODDO BHF Artificial Intelligence

In this new monthly flash ODDO BHF Artificial Intelligence, we wish to develop our exposure to the cybersecurity sector, via leading North American publishers in the field; this at a time when we are witnessing an acceleration in the growth of this market on all continents.

Cyber-attacks: we are witnessing an acceleration of history

Target in 2013 (tens of millions of bank cards had been hacked), Equifax in 2017 (3 months that ruined the reputation of the American credit bureau), Solarwinds in 2020 (18,000 companies were affected, including Microsoft and Cisco) , the history of the 21st century is already paved with iconic cyber attacks. However, it seems that in this first quarter of 2022, we are gaining momentum. Almost in the same week, we learned that:

  1. the giant Toyota decided to stop its production sites in Japan (with a capacity of 13,000 vehicles per day) when one of its subcontractors declared itself the victim of a cyber-attack
  2. the American semiconductor leader Nvidia revealed that a viral attack, from an unknown source, paralyzed its key decision-making center for two days (without production having apparently been impacted).
  3. From the outbreak of the Russian-Ukrainian war, the information systems of the Ukrainian State were paralyzed by cyber-attacks, the origin of which does not seem to be in doubt.

A market whose growth continues to accelerate

The growth of American cybersecurity publishers (whose reach is global) not only shows no signs of slowing down but has in fact crossed several upward stages in a row. On an annualized basis, the growth in billings of the main American publishers went from the range of 15/20% in 2019, to 20/25% in 2020 to reach 25%/32% in 2021 according to the bank Morgan Stanley. The growing awareness of global companies on the subject is well established. The explosion of cybersecurity needs related to the passage of part of the information system in the public cloud, such as those related to teleworking either. We believe that the next expansion of the market for cybersecurity vendors will now come from US federal spending (estimated at around USD 20 billion by Morgan Stanley) but more generally from state spending in the context of geopolitical uncertainties. that we are going through.

The fund’s exposure to the cybersecurity theme

In our portfolio of around 40 stocks, we currently have two stocks from this sector in our portfolio:

  • Fortinet (title held for several years) is one of the leaders of the firewall which knew how to position itself first on the protection of the SD-WAN (a form of private network very used by the companies which have several sites); which has given it a long string of strong growth quarters. The group is a structural gainer of market share due to an attractive price positioning (compared to that of its direct competitors) with regard to the quality of its solutions.
  • Zscaler (stock entered into the fund more recently) which is the emblem of Zero-trust, a security approach that responds to the trend problem of companies moving part of their information systems to the public cloud. Zscaler is one of the very few companies in the US market that is “rule of 70” (meaning that the sum of its organic sales growth and its operating margin reaches 70). In its last quarterly conference, the group showed the market that the next leg of its growth will be the American administration; market whose penetration is just starting.

By the way, why cybersecurity in a fund on artificial intelligence?

Cybersecurity in all its variants (endpoint, firewall, SASE, identity management, Zero trust; etc.) has an increasing use of artificial intelligence and machine learning to detect ever more numerous and more elaborate intrusion attempts. The ultimate step should be quantum computing or neuromorphic computation, which will a priori be able to “crack” the most solid information systems. The only defense will then be cybersecurity tools based on artificial intelligence. Cybersecurity publishers (such as the American Sentinel One or DarkTrace in the United Kingdom) have placed artificial intelligence at the heart of their detection systems.

None of the companies listed above constitutes an investment recommendation.
Past performance is not indicative of future performance and is not constant over time.

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Focus on the growth of US cybersecurity vendors in the fourth quarter of 2021

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