Cybersecurity risks grow with Russia-Ukraine tensions

The Russia-Ukraine story is developing fast… Last week, Russia reportedly ramped up its troops around the Ukraine border. Just yesterday, the Russian defence ministry stated troops near Ukraine were being withdrawn after finishing military exercises.

The news was enough to send stocks back up — but governments remain cautious until troops are actually gone.

You don’t see the biggest threats coming…

Last month, Ukraine was the target of several cybersecurity attacks which disabled government computer systems via malware and defaced several government websites. Per WSJ, cybersecurity experts see a potential global contagion to other firms — similar to a 2017 attack on a Ukrainian accounting firm:

• The attack cost an estimated $10B in global damages.
• In the US, attack-related expenses cost Fedex $400M and Merck $670M, among others.

US officials warned against cybersecurity threats — urging companies to strengthen their security with global firms on high alert..

Cybersecurity threats have become more disruptive in recent years. An attack took down Colonial Pipeline for several days — a transporter of half the east coast’s oil supply. A SolarWinds attack exposed over 18,000 corporate customers — with a newly discovered Log4J vulnerability in December.

Unfavorable market for cybersecurity stocks…

Since November, some of the fastest-growing firms including CrowdStrike (NASDAQ:CRWD) and Sentinel One (NYSE:S) are down 35-45% —  the entire sector affected:

• The First Trust NASDAQ Cybersecurity ETF (NASDAQ:CIBR) — an ETF of some of the largest cybersecurity firms — is down 14%.
• Even so, $CIBR is outperforming the S&P 500 over 5-years with a 126% vs 90% total return.

Those with the highest valuations were hit the hardest — but many are recovering in recent weeks.

Industry moves: Even Microsoft is beefing up its cybersecurity offerings — buying two cybersecurity firms in 2021 and reportedly in talks to acquire Mandiant (NASDAQ:MDNT). As per Bloomberg, Microsoft’s moves could lead other tech firms like Google and Amazon to pursue similar cybersecurity acquisitions.

Investors: Strong earnings give hope

Cybersecurity firms reported strong earnings in recent weeks from Fortinet (NASDAQ:FTNT) and Tenable (NASDAQ:TENB) — with FTNT rising 17% since Jan. 27.

• Wedbush analyst, Dan Ives, sees Wall Street underestimating the massive industry strength and benefits of increased federal spending (via SA).
• Two top cybersecurity picks from Wedbush: Tenable and Palo Alto Networks (NASDAQ:PANW).

Research firm, Wolfe Research firm, also sees the strongest fundamentals in the cybersecurity sector (via CNBC).

Incoming earnings: $PANW on Feb. 22, $ZS on Feb. 24 and $CRWD on Mar. 9.