Our theme of Cyber Security Stocks has seen a sizable sell-off this year, declining by close to 35%, roughly in line with the broader Nasdaq-100. While high inflation and rising interest rates have hit most high-growth technology stocks, broader economic headwinds are beginning to hurt cybersecurity names. For instance, earlier this month CrowdStrike provided weaker-than-expected guidance for Q4, projecting that revenue could be as low as $619.1 million compared to a consensus estimate of close to $635 million, noting that smaller businesses were delaying purchases of security software as the economy faces a potential recession. However, there’s probably a good reason for investing in these stocks following the recent drawdowns.
Governments, critical infrastructure, and businesses remain key targets of state-sponsored cyber-attacks, as Russia potentially looks to retaliate against sanctions imposed by Western powers following the Russian invasion of Ukraine. Moreover, ransomware attacks have also risen this year. Considering this, we believe that cybersecurity-related spending will remain a priority for businesses and the government even if the economy heads into a recession. Cybersecurity players are also seeing increasing interest as acquisition targets. Private equity companies have been targeting players in this sector, given their relatively stable revenues and lowered valuations. For example, Thoma Bravo has acquired Ping Identity Holdings and recently agreed to buy ForgeRock, another cybersecurity player. Other companies in the sector could also be potential acquisition targets. Within our theme, Okta stock (NASDAQ:OKTA) has been the worst performer declining by almost 71% year-to-date. On the other side, Qualys (NASDAQ:QLYS) has been the strongest performer, with its stock declining by about 17% year-to-date.
|S&P 500 Return||-6%||-20%||71%|
|Trefis Multi-Strategy Portfolio||-7%||-23%||209%|
 Month-to-date and year-to-date as of 12/20/2022
 Cumulative total returns since the end of 2016