The United States and United Kingdom have issued a grave warning against their common enemy: China. The heads of the MI5 and the CIA recently made an unprecedented joint statement highlighting how China was the “biggest long-term threat to our economic and national security.” Head of British MI5 noted that his agency had doubled the amount of work it was doing against Chinese activity, and would double it again. The FBI also warned that if China was to take Taiwan by force, it would lead to one of the world’s worst business disruptions. This is especially true considering that Taiwan is home to Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM), the world’s largest semiconductor foundry which serves big names such as Apple Inc. (NASDAQ:AAPL), Intel Corporation (NASDAQ:INTC), and NVIDIA Corporation (NASDAQ:NVDA), among others. Any disruption in the company’s operations would lead to a catastrophic global chip shortage.
As the West positions itself to counter the growing economic and political influence of China, Western governments are amping up spending on cybersecurity defense, a critical arena for 21st century warfare. IT companies were awarded a total of $71.6 billion in contracts from the US government in 2021, of which a $4.4 billion was spent on IT security and compliance, an increase of $1.5 billion from 2020. Leidos Holdings Inc (NYSE:LDOS) was the largest IT contractor with $3.3 billion, whilst CACI International Inc. (NYSE:CACI) also featured with $1.6 billion worth of contracts awarded by the US government in 2021. Both these companies provide cybersecurity services, among others, to national agencies.
The Russian attack on Ukraine in February also provided a boost to cybersecurity stocks. Heightened geopolitical tensions around the globe have proved beneficial for the cybersecurity space, and the growing prevalence of this industry looks set to persist in the long run as governments and businesses increasingly rely on digital infrastructure for their needs and operations.
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Cybersecurity Stocks to Buy as US-China Tensions Mount
10. Leidos Holdings Inc (NYSE:LDOS)
Number of Hedge Fund Holders: 19
Leidos Holdings Inc (NYSE:LDOS) is a Virginia-based company which provides a range of services to the defense industry in the United States, including cybersecurity. It stands to benefit within the current geopolitical setup as a unique company which counts as both a cybersecurity and a military defense play.
19 hedge funds from the Q1 database of Insider Monkey reported long bets on Leidos Holdings Inc (NYSE:LDOS), with combined positions worth $223.5 million. The firm’s largest shareholder was Ken Griffin’s Citadel Investment Group, which recently increased its stake by 197% to come in at roughly $68 million.
On May 4, Truist analyst Tobey Sommer raised the firm’s price target on Leidos Holdings Inc (NYSE:LDOS) to $120 from $108 and maintained a ‘Buy’ rating on the company shares. The analyst noted that he remains constructive on the potential growth acceleration for the firm in 2023.
Just like Apple Inc. (NASDAQ:AAPL), Intel Corporation (NASDAQ:INTC), and NVIDIA Corporation (NASDAQ:NVDA), Leidos Holdings Inc (NYSE:LDOS) is on the radar of investors on Wall Street.
9. CACI International Inc. (NYSE:CACI)
Number of Hedge Fund Holders: 25
CACI International Inc. (NYSE:CACI) deals in the provision of cybersecurity, enterprise IT, digital solutions, and mission support services to the United States government and its agencies. Whilst the S&P500 has slid more than 9% in the last 6 months, Virginia-based CACI has gained 7.07% over the same period.
On July 21, Baird analyst Peter Arment initiated coverage of CACI International Inc. (NYSE:CACI) with an ‘Outperform’ rating and a $335 price target, noting that he views the stock as a core long-term holding, especially in the current market volatility. Pointing to the Department of Defense’s multi-year IT modernization push, coupled with recent technology deals, Arment expects upside for growth and margins for CACI International Inc. (NYSE:CACI). The analyst also noted that the firm’s strong backlog, “solid” sales growth and healthy free cash flow act as the “the cornerstone of our bullish thesis.”
Out of all the hedge funds tracked by Insider Monkey, 25 reported bullish bets on CACI International Inc. (NYSE:CACI) at the end of the first quarter of 2022, down from 26 hedge funds a quarter earlier. The combined value of Q1 hedge fund holdings stood at $377.7 million. With a nearly $143 million stake, Horizon Asset Management was the most prominent shareholder of CACI International Inc. (NYSE:CACI) in the first quarter of 2022.
8. Check Point Software Technologies Ltd. (NASDAQ:CHKP)
Number of Hedge Fund Holders: 34
Check Point Software Technologies Ltd. (NASDAQ:CHKP) is an Israeli cybersecurity firm which offers a portfolio of network security, endpoint security, data security, and management solutions.
Hedge funds were recently seen loading up on Check Point Software Technologies Ltd. (NASDAQ:CHKP). 34 hedge funds reported ownership of positions in the company at the end of March, as compared to 31 hedge funds at the end of December. With a stake worth more than $218 million, Arrowstreet Capital was the largest stakeholder of Check Point Software Technologies Ltd. (NASDAQ:CHKP) in the first quarter of 2022.
On July 20, BofA analyst Tal Liani upgraded Check Point Software Technologies Ltd. (NASDAQ:CHKP) to ‘Buy’ from ‘Underperform’ with a price target of $140, up from $130, noting that the firm has seen revenue growth acceleration in the past few quarters. The analyst also assessed that the firm would be able to outperform in the near-term on a relative basis. Wedbush analyst Dan Ives on July 12 added Check Point Software Technologies Ltd. (NASDAQ:CHKP) to the firm’s ‘Best Ideas’ list, noting that he did not see any major growth slowdown for the cybersecurity space.
Here is what Diamond Hill Capital had to say about Check Point Software Technologies Ltd. (NASDAQ:CHKP) in its Q1 2022 investor letter:
“Check Point reported a solid Q4 as the company continues its lengthy transition towards a subscription-based sales model. We expect the firm to consistently repurchase shares with the substantial free cash flow it generates each year.”
7. SentinelOne, Inc. (NYSE:S)
Number of Hedge Fund Holders: 38
Up next is SentinelOne, Inc. (NYSE:S), a provider of cybersecurity services headquartered in California. Among the hedge funds tracked by Insider Monkey, a total of 38 hedge funds disclosed ownership of positions in the company at the end of the first quarter, with an aggregate value of $2.23 billion. This is in comparison to 39 hedge funds a quarter earlier.
On June 2, BTIG analyst Gray Powell reiterated a ‘Buy’ rating on SentinelOne, Inc. (NYSE:S) shares, and lowered the price target to $37 from $48 to reflect a contraction in multiples across software. The analyst noted that the company’s endpoint/EDR business remains strong as it continues to rapidly gain market share and make inroads with larger enterprise accounts as well.
As of the end of the first quarter of 2022, Third Point was the leading shareholder of SentinelOne, Inc. (NYSE:S), with a massive stake exceeding $1 billion. The company shares also represented 25.7% of Anchorage Advisors’ overall Q1 portfolio, with a position worth nearly $382 million.
ClearBridge Investments, an asset management firm, discussed SentinelOne, Inc. (NYSE:S) in its Q4 2021 investor letter, stating:
“We added six new positions in the fourth quarter. We see next-generation cybersecurity provider SentinelOne, although early in its growth lifecycle, as capable of taking share from legacy players in the antivirus and broader cybersecurity industry.”
6. Fortinet, Inc. (NASDAQ:FTNT)
Number of Hedge Fund Holders: 39
Fortinet, Inc. (NASDAQ:FTNT) has posted gains of 12.41% in the last 12 months as of July 25. The American company provides broad, integrated, and automated cybersecurity solutions to clients around the world.
Investors were seen piling into Fortinet, Inc. (NASDAQ:FTNT) during the first quarter of 2022. At the end of March, 39 hedge funds held $1.49 billion worth of combined positions in the company, as opposed to 31 hedge funds in the previous quarter with $1.32 billion in aggregate stakes. Jim Simons’ Renaissance Technologies was the biggest shareholder of Fortinet, Inc. (NASDAQ:FTNT) in the first quarter, with a stake worth approximately $320 million.
On July 12, Wedbush analyst Daniel Ives added Fortinet, Inc. (NASDAQ:FTNT) to the firm’s ‘Best Ideas List’, whilst reiterating an ‘Outperform’ rating along with a $76 price target. The analyst expressed confidence on the company’s ability to execute its long-term vision of continuing to gain market share, given that it is enjoying benefits from strong tailwinds and its proprietary ASIC technology.
Here is what ClearBridge Investments had to say about the prospects of Fortinet, Inc. (NASDAQ:FTNT) in its Q3 2021 investor letter:
“Performance among our cohort of IT and Internet companies was mixed, with enterprise software makers thriving while more consumer-oriented stocks faced headwinds. Cyber security software maker Fortinet benefited from a heightened awareness of the need to protect against sophisticated attacks. We are attracted to the recurring revenue nature of these software companies that are increasingly delivering their products on a subscription basis through the cloud. Software business models also tend to avoid many of the inflationary issues facing companies with a physical product or service.”
Along with Apple Inc. (NASDAQ:AAPL), Intel Corporation (NASDAQ:INTC), and NVIDIA Corporation (NASDAQ:NVDA), Fortinet, Inc. (NASDAQ:FTNT) is an exciting stock to consider in 2022.
5. Zscaler, Inc. (NASDAQ:ZS)
Number of Hedge Fund Holders: 39
Zscaler, Inc. (NASDAQ:ZS) is up next on our list of cybersecurity stocks to buy as US-China tensions mount. It is a cybersecurity firm which provides a cloud-based internet security platform called Zscaler Zero Trust Exchange.
At the end of May, Cowen analyst Shaul Eyal gave Zscaler, Inc. (NASDAQ:ZS) an ‘Outperform’ rating after the company beat Q3 estimates and raised 2022 guidance. The analyst pointed out that within a threatening cyber environment, awareness for the firm’s Zero Trust platform is growing, and its solid execution is powering deal expansion, top-line growth, and pipeline momentum. On July 22, Citi analyst Fatima Boolani lowered the firm’s price target on Zscaler, Inc. (NASDAQ:ZS) to $200 from $225 and maintained a ‘Buy’ rating on the company shares.
At the end of the first quarter of 2022, 39 hedge funds disclosed ownership of positions in Zscaler, Inc. (NASDAQ:ZS), up from 31 hedge funds a quarter earlier. D E Shaw, with a nearly $313 million stake, was the largest shareholder of the cybersecurity firm in Q1 2022.
4. Cloudflare, Inc. (NYSE:NET)
Number of Hedge Fund Holders: 44
Then there’s Cloudflare, Inc. (NYSE:NET), a provider of integrated cloud-based security solutions around the globe. In May, the company announced that it had joined the European Union’s Cloud Code of Conduct General Assembly, and received two new cloud security certifications as well. Under this agreement, Cloudflare, Inc. (NYSE:NET) will help companies adopt cloud services in compliance with the European Union’s regulations on data protection and privacy.
44 hedge funds were long Cloudflare, Inc. (NYSE:NET) shares at the end of the first quarter, with collective stakes worth $1.24 billion. Its largest shareholder was D E Shaw, with 1.53 million shares worth roughly $184 million.
On June 28, Evercore ISI analyst Amit Daryanani lowered the firm’s price target on Cloudflare, Inc. (NYSE:NET) to $65 from $110, and kept an Outperform rating on the company shares. The analyst lowered the price target owing to the current uncertainty in the macro environment.
Baron Funds, an asset management firm, talked about the market position and prospects of Cloudflare, Inc. (NYSE:NET) in its Q1 2022 investor letter. Here’s what was said:
“Cloudflare, Inc., another new purchase during the quarter, is a web infrastructure and website security provider. Cloudflare disrupts legacy networking vendors by enabling customers to rent their network solutions in the cloud (and pay for usage) instead of buying firewalls, load balancers and secure web gateway devices. Using a global network in over 100 countries, Cloudflare delivers content and security within 50 milliseconds of 95% of the internet-connected population in the world. Shares contributed 12bps to results on impressive fourth quarter earnings as it continues to successfully layer high-value services such as zero trust, network services, and edge programmability on top of its modern global network. The company is attracting a broader set of investors as Cloudflare now matches durable 50%-plus top-line growth (this was the fifth straight quarter of 50%-plus revenue growth, and 56% current bookings growth suggests strong durability into 2022) with positive operating margins and break-even free cash flow. We believe that Cloudflare will benefit from long-duration of growth disrupting a $100 billion addressable market across application services, network services, and zero-trust services.”
3. Okta, Inc. (NASDAQ:OKTA)
Number of Hedge Fund Holders: 46
Okta, Inc. (NASDAQ:OKTA) is a cloud-based cybersecurity company which specializes in identity access management. Its main platform is the Okta Identity Cloud, which offers businesses, government agencies and other entities a range of identity solutions.
On July 19, Bernstein analyst Peter Weed initiated coverage of Okta, Inc. (NASDAQ:OKTA) with a ‘Market Perform’ rating and a $94 price target. The analyst noted that the company is an “exciting” near 40% organic growth story since before Covid, through the pandemic and in 2022 as well. He noted that this growth does not account for the rapid growth generated by Okta’s acquisition of Auth0.
A detailed review of the 900+ hedge funds tracked by Insider Monkey showed that 46 hedge funds were bullish on Okta, Inc. (NASDAQ:OKTA) at the end of the first quarter, in comparison to 52 hedge funds a quarter earlier. With a stake consisting of 1.78 million shares worth nearly $270 million, SCGE Management was the biggest Q1 shareholder of Okta, Inc. (NASDAQ:OKTA).
Here is what investment firm Lakehouse Capital had to say about Okta, Inc. (NASDAQ:OKTA) in its Q2 2021 investor letter:
“The Fund held 20 positions as of the end of June and exited four during the year (including) Okta. The companies we exited were sold almost entirely on the basis of their valuations getting stretched well past their norms and to levels where the return profile no longer offered the asymmetric upside that led us to invest in the first place. We dislike selling on valuation as great growth companies are hard to find and letting winners run is an important facet of a winning growth strategy, however, we’re not gluttons for punishment either and in each of those cases we redeployed capital towards other high-quality growth companies with less demanding valuations.”
2. CrowdStrike Holdings, Inc. (NASDAQ:CRWD)
Number of Hedge Fund Holders: 80
CrowdStrike Holdings, Inc. (NASDAQ:CRWD) is a Texas-based company which offers managed security services, IT operations management, threat intelligence and hunting, Zero Trust identity protection, and log management.
With combined positions worth $5.55 billion, 80 hedge funds were long CrowdStrike Holdings, Inc. (NASDAQ:CRWD) at the end of the first quarter of 2022. This shows a positive trend from the previous quarter where 74 hedge funds held $5.23 billion worth of stakes in the cybersecurity firm. Tiger Global Management LLC was the largest Q1 shareholder of the firm, with a massive $2 billion stake.
On June 6, Morgan Stanley analyst Hamza Fodderwala upgraded CrowdStrike Holdings, Inc. (NASDAQ:CRWD) to ‘Overweight’ from ‘Equal Weight’ with a price target of $215, up from $195. He noted that the recent pullback offers an attractive entry point, and that the stock offers “defensive positioning” in an uncertain macro environment. Fodderwala noted that security demand remains durable as companies increase cybersecurity spending in a rising threat environment. According to the analyst, CrowdStrike Holdings, Inc. (NASDAQ:CRWD) is a leading beneficiary of growing secular trends within the cybersecurity industry.
“CrowdStrike (NASDAQ:CRWD), a security software platform designed to protect information technology assets and cloud workloads, delivered strong earnings results with solid recurring revenue, customer growth, and profitability. We expect strong demand to continue, largely in part due to the elevated cyber security threat environment as Russia may seek to attack governments and enterprises in retaliation for economic sanctions imposed in response to its attack on Ukraine.”
1. Palo Alto Networks, Inc. (NYSE:PANW)
Number of Hedge Fund Holders: 87
California-based network security provider Palo Alto Networks, Inc. (NYSE:PANW) has posted gains of 28.12% in the last 12 months as of July 25, highlighting its status as a leading cybersecurity company which stands to benefit in the current geopolitical environment.
Morgan Stanley analyst Hamza Fodderwala on June 30 kept an ‘Overweight’ rating on Palo Alto Networks, Inc. (NYSE:PANW) shares and reiterated the stock as a top pick, along with a $823 price target. He noted that the company shares are “materially mispriced” considering its 30% free cash flow growth and increasing stock buybacks.
87 hedge funds out of the 900+ tracked by Insider Monkey reported bullish bets on Palo Alto Networks, Inc. (NYSE:PANW) at the end of Q1 2022, with an aggregate worth of $3.9 billion. This shows vastly improving investor confidence in the company over the previous quarter where 73 hedge funds held PANW shares. Arrowstreet Capital, with a position worth more than $471 million, stood as the biggest shareholder of Palo Alto Networks, Inc. (NYSE:PANW) in the first quarter of 2022.
Here is what ClearBridge Investments had to say about Palo Alto Networks, Inc. (NYSE:PANW) in its Q1 2022 investor letter:
“The portfolio also saw solid performance from cybersecurity names Palo Alto Networks (NYSE:PANW) which is gaining prominence as the risk of global cyberattacks increases as part of the Russian offensive. On an individual stock basis, leading contributors to absolute returns in the first quarter included positions in Palo Alto Networks.”
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