In this article, we will be taking a look at the 11 best cybersecurity stocks hedge funds are buying.

Interest and Investments In Cybersecurity On The Rise

Cybersecurity has become a major concern for governments and corporations alike as the prevalence of cyber attacks and breaches has steadily been rising. Governments are becoming increasingly involved in the cybersecurity discourse because of an overall desire to protect national economies from competitors abroad. With wide ranging allegations of economic espionage by way of cyber attacks being made throughout American history, particularly in relation with China, it is evident that the US government considers the cybersecurity of its top companies of utmost importance. Even apart from governmental concerns, companies themselves feel the need to invest in cybersecurity to ensure the safety of not only precious trade secrets, but also employee and customer identities. As a result of these factors, we have been seeing an overall rise in corporate investments flowing towards the cybersecurity sector.

A report published by Moody’s on September 28 highlights how cyber budgets in major companies have been steadily growing in light of a higher prevalence of cyber attacks and breaches in recent years. The report mentions that between 2014 and 2020, in particular, the number of cyber breaches rose exponentially – although they do seem to have “plateaued” since then. The greatest prevalence of reported cyber attacks between 2013 and 2022 was seen in Europe, the Middle East, and Africa, however, this does not mean that the Americas were any less impacted by this plague.

Are Cybersecurity Stocks An Investment Worth Considering?

In light of these developments, the Moody’s survey found that between 2019 and 2023, companies and organizations grew their spending on cybersecurity by 70%. Among these respondents, corporates were reported to have increased their cybersecurity budgets the most – by 100%. At the same time, the report also highlighted the fact that those who were not insured for cyber attacks are now beginning to rush for this insurance. This is resulting in projections stating that the global cyber insurance market will grow to about $33 billion in premiums by 2027, as compared to its current value of about $12 billion in premiums.

Another interesting thing to note in the report is how organizations are seemingly only focused on basic cybersecurity measures at the moment – sometimes referred to as “cyber hygiene.” This is because many companies do not have the budget to implement more advanced security measures, which can put them at a disadvantage relative to other corporations that are willing to go the extra mile. However, the existence of pricier, more advanced cybersecurity solutions also means that as organizations become more aware of all the risks associated with cyber breaches, they will be further incentivized to make even bigger investments in their cybersecurity, all to the advantage of cybersecurity providers.

All of these developments go to show that the cybersecurity market is set to benefit from immense growth in the near future, especially as awareness of the risks of cyber breaches and attacks is also on the rise. As a result, companies heavily invested in the cybersecurity industry, such as Microsoft Corporation (NASDAQ:MSFT), SentinelOne, Inc. (NYSE:S), and Zscaler, Inc. (NASDAQ:ZS), are expected to profit immensely as more individuals, corporations, and governments sign on for their cybersecurity products and solutions. Investors can thus benefit from keeping a close eye on cybersecurity stocks in the market today, particularly those being backed by influential hedge funds and institutional investors. Since this is appearing to be an area of rapid growth in investments, now is the right time for investors to enter this space by adding a few exceptional cybersecurity stocks to their portfolios. In light of this, we have compiled a list of some of the best cybersecurity stocks in the market today. These include stocks of some of the fastest growing cybersecurity companies, alongside those that are veterans in this industry.

Our Methodology

We used Insider Monkey’s hedge fund data for the second quarter to find cybersecurity stocks that were popular among hedge funds in that quarter. We then ranked these stocks based on the number of hedge funds holding stakes in them, from the lowest to the highest number.

Best Cybersecurity Stocks Hedge Funds Are Buying

11. Akamai Technologies, Inc. (NASDAQ:AKAM)

Number of Hedge Fund Holders: 29

Akamai Technologies, Inc. (NASDAQ:AKAM) is an information technology company based in Cambridge, Massachusetts. The company offers cloud services for securing, delivering, and computing content, applications, and software over the internet. Its cloud solutions help protect users from cyberattacks and online threats.

A Strong Buy rating was reiterated on shares of Akamai Technologies, Inc. (NASDAQ:AKAM) on September 20 by Ivan Feinseth, an analyst at Tigress Financial. The analyst also maintained a price target of $132 on the stock.

There were 29 hedge funds long Akamai Technologies, Inc. (NASDAQ:AKAM) in the second quarter. Their total stake value in the company was $535.9 million.

Marshall Wace LLP was the largest shareholder in Akamai Technologies, Inc. (NASDAQ:AKAM) at the end of the second quarter, holding 1.6 million shares in the company.

Like Microsoft Corporation (NASDAQ:MSFT), SentinelOne, Inc. (NYSE:S), and Zscaler, Inc. (NASDAQ:ZS), Akamai Technologies, Inc. (NASDAQ:AKAM) is a cybersecurity stock that is highly popular among hedge funds today.

10. Rapid7, Inc. (NASDAQ:RPD)

Number of Hedge Fund Holders: 34

Fatima Boolani, an analyst at Citigroup, maintains a Neutral rating on shares of Rapid7, Inc. (NASDAQ:RPD) as of August 30. The analyst also raised her price target on the stock from $50 to $54.

Based in Boston, Massachusetts, Rapid7, Inc. (NASDAQ:RPD) is a systems software company. It provides cybersecurity solutions and a cloud-native insight platform that enables users to create and manage analytics-driven cybersecurity risk management programs.

Rapid7, Inc. (NASDAQ:RPD) was spotted in the 13F holdings of 34 hedge funds at the end of the second quarter, with a total stake value of $367 million.

9. SentinelOne, Inc. (NYSE:S)

Number of Hedge Fund Holders: 34

Anchorage Advisors was the most prominent shareholder in SentinelOne, Inc. (NYSE:S) at the end of the second quarter, holding 9.9 million shares in the company.

SentinelOne, Inc. (NYSE:S) is a cybersecurity provider based in Mountain View, California. The company offers a platform, the Singularity Extended Detection and Response Platform, that delivers artificial intelligence-powered autonomous threat prevention, detection, and response capabilities.

As of September 1, Taz Koujalgi, an analyst at Wedbush, holds an Outperform rating on shares of SentinelOne, Inc. (NYSE:S). The analyst also maintained a price target of $22 on the stock.

Our hedge fund data shows 34 hedge funds long SentinelOne, Inc. (NYSE:S) in the second quarter. Their total stake value in the company was $762.2 million.

8. Zscaler, Inc. (NASDAQ:ZS)

Number of Hedge Fund Holders: 45

We saw 45 hedge funds long Zscaler, Inc. (NASDAQ:ZS) in the second quarter, with a total stake value of $1 billion.

Zscaler, Inc. (NASDAQ:ZS) is another systems software company on our list. It offers the Zscaler Internet Access solution that provides secure access to externally managed applications, alongside Posture Control solutions that offer cloud security posture management. The company is based in San Jose, California.

A Buy rating was maintained on shares of Zscaler, Inc. (NASDAQ:ZS) by Fatima Boolani, an analyst at Citigroup, on September 19. The analyst also raised her price target on the stock from $175 to $190.

Here’s what Artisan Partners had to say about Zscaler, Inc. (NASDAQ:ZS) in its second-quarter 2023 investor letter:

“Along with AMD, Progressive and Neste, we trimmed our exposure to Zscaler, Inc. (NASDAQ:ZS). The company provides cloud-based Internet security solutions. Our view was that dual trends of rising security vulnerability and increased enterprise digitization would lead to sustained demand. While we continue to believe in the ongoing demand for effective cybersecurity options, Zscaler’s fundamental execution has been disappointing at a time when the competitive environment is intensifying, and as a result, we are harvesting the position.”

7. Fortinet, Inc. (NASDAQ:FTNT)

Number of Hedge Fund Holders: 49

Fortinet, Inc. (NASDAQ:FTNT) is a provider of cybersecurity and networking solutions across the globe. The company is based in Sunnyvale, California. It offers FortiGate hardware and software licenses providing various security and networking functions such as firewalls, intrusion prevention, anti-malware, and web filtering, among more.

Fortinet, Inc. (NASDAQ:FTNT) was seen in the portfolios of 49 hedge funds in the second quarter. Their total stake value in the company was $2.2 billion.

Stephen Bersey, an analyst at HSBC, initiated coverage on shares of Fortinet, Inc. (NASDAQ:FTNT) on September 29 with a Buy rating. The analyst also announced a price target of $75 on the stock.

Holding 7.7 million shares in the company, Viking Global was the largest shareholder in Fortinet, Inc. (NASDAQ:FTNT) at the end of the second quarter.

Conestoga Capital Advisors made the following comments about Fortinet, Inc. (NASDAQ:FTNT) in its first-quarter 2023 investor letter:

“Fortinet, Inc. (NASDAQ:FTNT): FTNT is the worldwide market share leader in network security firewalls (by units). During the quarter, FTNT reported solid earnings and put forth better-than-feared 2023 guidance as demand appears to be more resilient (and broad-based) than expected. The company has been able to ship more firewalls as supply chain issues (primarily semiconductor chips) have eased considerably. As the ‘attack surface’ increases with ever more devices connected to the internet, FTNT’s long-term opportunities remain bright.”

6. Splunk Inc. (NASDAQ:SPLK)

Number of Hedge Fund Holders: 50

On September 22, Joel Fishbein, an analyst at Truist Securities, maintained a Buy rating on shares of Splunk Inc. (NASDAQ:SPLK). The analyst also raised his price target on the stock from $130 to $157.

A total of 50 hedge funds held stakes in Splunk Inc. (NASDAQ:SPLK) at the end of the second quarter, with a total stake value of $1.5 billion.

Splunk Inc. (NASDAQ:SPLK) is an application software company based in San Francisco, California. The company develops and markets cloud services and licensed software solutions in the US and internationally. It offers unified security and observability platforms, such as the Splunk Security platform, that enables security leaders to fortify their organization’s digital resilience.

Like Microsoft Corporation (NASDAQ:MSFT), SentinelOne, Inc. (NYSE:S), and Zscaler, Inc. (NASDAQ:ZS), Splunk Inc. (NASDAQ:SPLK) is a stock many elite hedge funds are piling into this year.

Okta, Inc. (NASDAQ:OKTA)

Number of Hedge Fund Holders: 57

Okta, Inc. (NASDAQ:OKTA) is a provider of identity solutions for the management and security of user identities. The company is based in San Francisco, California.

Andrew Nowinski at Wells Fargo maintains an Overweight rating and a $95 price target on Okta, Inc. (NASDAQ:OKTA) as of August 31.

In total, 57 hedge funds were long Okta, Inc. (NASDAQ:OKTA) in the second quarter, with a total stake value of $905.3 million.

4. CrowdStrike Holdings, Inc. (NASDAQ:CRWD)

Number of Hedge Fund Holders: 65

CrowdStrike Holdings, Inc. (NASDAQ:CRWD) had 65 hedge funds long its stock in the second quarter, with a total stake value of $1.3 billion.

Based in Austin, Texas, CrowdStrike Holdings, Inc. (NASDAQ:CRWD) provides cloud-delivered protection. It offers corporate workload security, security and vulnerability management, and managed security services.

A Buy rating and a $185 price target were maintained on CrowdStrike Holdings, Inc. (NASDAQ:CRWD) by DA Davidson’s Rudy Kessinger on September 28.

3. Datadog, Inc. (NASDAQ:DDOG)

Number of Hedge Fund Holders: 78

Fatima Boolani at Citigroup maintains a Buy rating and a $125 price target on Datadog, Inc. (NASDAQ:DDOG) as of August 30.

Datadog, Inc. (NASDAQ:DDOG) operates an observability and security platform for cloud applications. It is based in New York.

In the second quarter, 78 hedge funds were long Datadog, Inc. (NASDAQ:DDOG). Their total stake value was $2.4 billion.

RiverPark Advisors said the following about Datadog, Inc. (NASDAQ:DDOG) in its first-quarter 2023 investor letter:

“Datadog, Inc. (NASDAQ:DDOG): DDOG was a top detractor in the quarter. The company reported strong 4Q results including 44% revenue growth and 30% earnings growth but gave cautious revenue guidance for 2023. Macroeconomic headwinds have caused clients to slow the transition of workloads to the cloud and instead to optimize current capacity. Despite this temporary slowdown, DDOG still expects revenue to grow nearly 25% in 2023.

As businesses have transitioned to cloud software infrastructure, much of which is in isolated data silos, it has become increasingly difficult for data engineers to monitor and analyze system performance. Datadog provides a SaaS software platform to monitor and analyze the system performance of software applications and IT infrastructure by giving users a single page view to observe their company’s technology stack. The company has quickly grown its revenue from $100 million in 2017 to $1.7 billion in 2022 and, we believe, should continue to grow revenue at more than 20% annually as it penetrates its $40 billion and fast-growing market. Less than 10% of software applications are currently monitored. The company’s dollar-based net retention rate has been 130%+ as existing customers continue to use an increasing number of products and the company continues to add new features. As of 4Q22, 81% of customers used 2+ products, while only 18% of customers used 6+ products (up from less than 1% two years ago). As an extremely capex light software business, DDOG already has significant free-cash-flow ($350m in 2022) and free-cash-flow margins (21% in 2022).”

2. Palo Alto Networks, Inc. (NYSE:PANW)

Number of Hedge Fund Holders: 83

Palo Alto Networks, Inc. (NYSE:PANW) is a provider of cybersecurity solutions worldwide. It is based in Santa Clara, California.

There were 83 hedge funds long Palo Alto Networks, Inc. (NYSE:PANW) in the second quarter, with a total stake value of $3.8 billion.

Citigroup’s Fatima Boolani maintains a Buy rating and a $285 price target on Palo Alto Networks, Inc. (NYSE:PANW) as of September 19.

1. Microsoft Corporation (NASDAQ:MSFT)

Number of Hedge Fund Holders: 300

Tyler Radke at Citigroup holds a Buy rating and a $420 price target on Microsoft Corporation (NASDAQ:MSFT) as of September 22.

At the end of the second quarter, 300 hedge funds were long Microsoft Corporation (NASDAQ:MSFT). Their total stake value was $69.8 billion.

Microsoft Corporation (NASDAQ:MSFT) is a big tech giant in the information technology industry. It offers a range of cloud security solutions such as Microsoft Defender, Microsoft Intune, and Microsoft Sentinel, among more.

ClearBridge Investments mentioned Microsoft Corporation (NASDAQ:MSFT) in its second-quarter 2023 investor letter:

“We initiated a small position in Microsoft Corporation (NASDAQ:MSFT) during the quarter, which may seem surprising given our concerns about index concentration. However, we seized the opportunity on a compelling entry point below our business value estimate, due to an anticipated acceleration of demand for Microsoft’s Azure cloud business and incremental revenues from integration of Microsoft’s AI Copilot program into its office platform. We believe this could support double-digit growth, while simultaneously solidifying Microsoft’s competitive position as an AI winner. Even as a small position, we believe Microsoft provides a large portfolio construction benefit given low correlation to the rest of the portfolio.”

See also 12 Most Advanced Countries in Cybersecurity and 12 Best Cybersecurity Stocks to Buy Now.

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Disclosure: None. 11 Best Cybersecurity Stocks Hedge Funds Are Buying is originally published on Insider Monkey.