Cybersecurity Primer: Navigating the Digital Threat Landscape

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.