Technology

Cybersecurity Primer: Navigating the Digital Threat Landscape

By: Shaul Eyal, Hugh Cunningham, Michael Junghans, Roman Schweizer

Dec. 04, 2024 - 2 minutes 30 seconds

A person in front of a keyboard programming on a computer.

Overview:

In our full Cybersecurity Primer report, we dive deep into critical technologies, valuation, historical perspectives, M&A trends and emerging technologies.
Growth in the cybersecurity sector is driven by several means, chiefly cybersecurity's mission criticality, perennially elevated threat activity and tightening regulation.
Cybersecurity offers high-margin, highly recurring models and large, fast-growing markets.
Investors should monitor threat activity, Rule of 40 performance, and disruptive technologies.

The TD Cowen Insight

In sum, we believe the industry's mission criticality, growth and profitability metrics remain attractive. The ongoing market consolidation should not be ignored. Our full report delves into the cybersecurity market including key trends and drivers, market categories and subcategories, emerging technologies including Gen AI implications, valuation analysis and the road ahead.

The Cybersecurity Industry's Growth is Supported by Multiple Drivers

We remain positive on the cybersecurity industry as it offers sustainable low to mid-teens compound annual growth rate (CAGR), reaching ~US$300 billion by FY2028. Multiple drivers support the industry's growth:

The ongoing shift by enterprises to adopt hybrid security platforms with growing cloud focus creates network complexity which needs to be addressed.
Gen AI remains a long-term secular driver that is likely to generate both risks (adversaries likely to launch sophisticated attacks) and opportunities (tools and defenses to deal with such threats).
A highly toxic landscape underscored by growing involvement of nation state-related bad actors driving security operations companies to expand into new markets.
The mission criticality of cybersecurity is further underscored by a growing framework requiring companies to become compliant with cybersecurity-related regulations.
Long-term durable SaaS-driven models offering healthy growth and cash flow generation. The universe represents a play on Rule of 40 companies or companies that are likely to become such in the foreseeable future.
While not cheap, valuation levels still offer multiple expansion versus prior expansion cycles.

Comprehensive Overview of Trends in the Cybersecurity Markets

The report includes a deep quantitative and technical dive into the various security categories that collectively account for the cybersecurity market. Additionally, we offer a comprehensive discussion of M&A trends as well the group's historical and current valuation trends versus leading indices. We also highlight key and emerging players in the various market categories.

Financial and Industry Model Implications

The security market is estimated to grow at a CAGR of ~12% from US$184 billion in FY24 to ~US$300 billion by FY2028. We are positive on market categories and subcategories likely to exhibit stronger growth rates such as cloud security, end-point, and data security among others.

What To Watch in 2025

Activity to follow in the year ahead includes:

leading end-to-end security platform providers,
the market share and potential shifts of hyperscalers,
changing regulatory framework implications,
M&A cycles, and
emerging category leaders.

Subscribing clients can read the full report, Cybersecurity Primer: Navigating The Digital Threat Landscape - Ahead Of The Curve, on the TD One Portal

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The views or opinions expressed herein represent the personal views of the writer and do not necessarily reflect the views of TD Securities or its affiliates.

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Shaul Eyal

Managing Director, Communications, Security, and Infrastructure Software Research Analyst, TD Cowen

Shaul Eyal
Managing Director, Communications, Security, and Infrastructure Software Research Analyst, TD Cowen

Biography

Shaul Eyal is Managing Director and Senior Analyst covering the Communications, Security, and Infrastructure Software sectors and is one of Wall Street’s leading experts in those spaces. He started his equity research career at Oppenheimer & Co. covering Israeli technology related equities and expanded his research focus to cover the security and communication software universes.

Shaul holds an M.B.A. from Fordham University and an LL.B with honors from Oxford Brookes University. He served for five years in the Special Forces of the Israeli Defense Forces, where he held the rank of Lieutenant.

Roman Schweizer

Managing Director, Washington Research Group - Aerospace & Defense Policy Analyst, TD Cowen

Roman Schweizer
Managing Director, Washington Research Group - Aerospace & Defense Policy Analyst, TD Cowen

Biography

Roman Schweizer joined TD Cowen Washington Research Group in August 2016 covering defense policy issues. He held previous positions at Guggenheim Securities and MF Global. TD Cowen Washington Research Group was recently named #1 in the Institutional Investor Washington Strategy category. The team has been consistently ranked among the top macro policy teams for the past decade. Mr. Schweizer has over 15 years of experience in Washington, DC, serving as a government acquisition official, industry consultant, and journalist.

Prior to joining Washington Research Group, he was an acquisition professional with the U.S. Navy’s littoral combat ship program. Previously, he directed a team providing congressional and media strategic communications support to senior Navy officials on high-profile ship acquisition programs. Mr. Schweizer has also consulted on U.S. and international defense, aerospace, homeland security, and technology market sectors to Fortune 100 clients on behalf of DFI International and Fathom Dynamics LLC.
He has been published in Inside the Navy, Inside the Pentagon, Armed Forces Journal, Defense News, ISR Journals, Training and Simulation Journal, the Naval Institute’s Proceedings, and the Navy League’s Seapower.

Mr. Schweizer earned a bachelor’s degree in history from American University in Washington, DC.
Material prepared by the TD Cowen Washington Research Group is intended as commentary on political, economic, or market conditions and is not intended as a research report as defined by applicable regulation.