Treasury Hack Has Us Hiking Our Price Target for This Holding
We continue to see cybersecurity as a key holding amid our increasingly connected world.
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As we begin the last full day of trading for 2024, we are facing a stark reminder of why we own shares of the First Trust Nasdaq Cybersecurity ETF CIBR in the portfolio: The U.S. Treasury Department was reportedly hacked by a state-sponsored Chinese operation. The group was able to access third-party software to tap into desktop computers of Treasury employees in what the department is calling “a major incident.”
Per reports, the Treasury was told by “a third-party software service provider, BeyondTrust, that a threat actor had gained access to a key used by the vendor to secure a cloud-based service used to remotely provide technical support for Treasury Departmental Offices (DO) end users.”
Our position is that because of our increasingly digital and connected world, investors must include cybersecurity in their portfolios. The dark side of artificial intelligence adoption is the likelihood that bad actors use the technology to develop new attack strategies and accelerate the use of existing ones. Recognizing this, we will continue to keep direct and indirect exposure to cybersecurity in the portfolio.
In addition to the diversified exposure we have with CIBR shares, the portfolio also has exposure through its positions in Elastic ESTC, Alphabet GOOGL, and Microsoft MSFT. In 2022, Google completed its acquisition of cybersecurity company Mandiant and folded it into Google Cloud. Exiting 2023, Microsoft commented its security business passed $20 billion in annual revenue in 2022, which suggests it’s a low double-digit revenue generator for the company.
The bottom line is the U.S. Treasury hack is only the latest high-profile cybersecurity incident to be reported. When we’ve seen headlines of such magnitude in the past, they have been a catalyst for cybersecurity stocks and the exchange-traded funds, like CIBR, that hold them. While we often report on incidents like this, it takes these high-profile attacks to remind folks about the growing threat of cyber attacks and the increasing spending to prevent them.
Ahead of this attack on Treasury, research firm Gartner had already forecast a 15% increase in global information security spending, totaling around $212 billion, with a “significant rise” in cybersecurity spending given the growing need to “secure generative AI (GenAI) technologies which will trigger a surge in required cybersecurity resources.”
The attack on Treasury likely means Gartner will be issuing a revised forecast in the coming months, and we would expect its expectation for cybersecurity spending increase.
We’ll get ahead of that by lifting our CIBR price target to $72 from $68. But this doesn’t quite offer enough upside to warrant boosting our rating on the shares to a "One" from "Two." As we can see in the chart above, CIBR shares have been holding their own against their 50-day moving average over the last few months. Should that pattern break and we see the shares successfully test their 100-day moving average that would give us sufficient upside to reconsider our "Two" rating. As the shares trend higher, we’ll look to lift our panic point, which is currently set at $55
The Pro Portfolio is long CIBR, ESTC, GOOGL, MSFT.
