Financial Analysts Predict That Tech Companies Will Spend Billions in Security

One of the biggest predicted financial trends for tech companies will be increased spending in the security sector

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Nov 27, 2017
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If you’re looking companies you can invest in, one thing to watch is how they spend their money. Spending patterns are often a predictor of future performance, for better or worse.

One of the biggest predicted financial trends for tech companies will be increased spending in the security sector. Analysts say we’ll see an increase of billions spent in this category.

Savvy investors would do well to watch this market carefully. About 32 percent of companies reported being victimized by cyber crime in 2016. As a result, analysts predict that efforts both to prevent cyber crime and to repair the damage from electronic break-ins could reach in excess of $1 trillion.

“IT analyst forecasts are unable to keep pace with the dramatic rise in cybercrime, the ransomware epidemic, the refocusing of malware from PCs and laptops to smartphones and mobile devices, the deployment of billions of under-protected Internet of Things (IoT) devices, the legions of hackers-for-hire, and the more sophisticated cyber-attacks launching at businesses, governments, educational institutions, and consumers globally,” according to the new report.

There’s no limit to what might get hacked, from Facebook accounts to children’s smart toys. Cybersecurity is vital, so it’s not surprising that the investment market may respond mightily. It’s no wonder this market has performed well thus far.

Facebook Expects to Spend Billions

Since there are more than two billion active users on Facebook every day, hacking and other cybersecurity threats are not uncommon. According to Facebook analyst Daniel Ives, the company’s chief strategy officer and head of technology research at GBH Insights, Facebook will spend billions on security measures next year.

CEO Mark Zuckerberg recently announced ad revenues on the site of more than $10 billion. In 2018 he plans to invest significantly in improvements to the social platform. He mentioned expanding ad growth, mobile platforms, consumer engagement, monetization of Instagram and Messenger, video, and more.

Given the new investments, Ives predicts massive spending in security, partially because of recent Russian attacks and terrorist activity on social sites. Facebook and other social platforms were forced to enhance their security in a hurry, and they’re expected to throw more in as time passes.

“Facebook needs to appease some of that on the security side,” argues Ives. “They need to throw a lot more investments into it. It is obviously an issue. They’re going to double the amount of investment. But I do think that there’s a lot of underlying growth in terms of spending. It’s going to be on security but a lot around the other growth initiatives.”

Microsoft Also Requires Hefty Security Measures

A report from the beginning of the year also showed massive security spending at Microsoft. It amounted to about $1 billion on security measures each year. “As more and more people use the cloud, that spending has to go up,” said Bharat Shah, Microsoft vice president of security.

Shah was referring directly to the increase in cyber attacks. It had been at about 20,000 strikes a week just two or three years ago, but now the company is seeing nearly 700,000 attempts every week from hackers who seek access to unauthorized data.

Microsoft has already made several cyber security investments in Israel, a growing center for cyber security firms, and the Seattle giant continues to expand investments to detect hacks and prevent their entry. Shah says Microsoft’s progress initiatives will continue looking into “broader implementation of user authentication without the need for a password.”

Investors Want to See Spending on Security

Understandably, investors grow concerned if companies don’t take proper security measures. For that reason, businesses have to commit more investments to security if they wish to receive continued support for their work.

When asked about the frequency of attacks, including Russia’s impact on social media, Ives says that their concern makes sense. “I think it’s a concern for investors, just in terms of how long is this going to go on,” he says.

“2018 is an investment year, Does that mean that 2019 is going to be an investment year? I think now investors are sort of seeing through this as Facebook may be overly aggressive in terms of their investment profile, and I think it could prove to be an upside situation, just like we saw last night.”

Ives concludes his speech by asserting that we’re likely to see greater regulation and more cyber security investments to appease investors around the globe, but especially in social media and major tech corporations.

“We saw the negative side with the Russian meddling and some of the other areas in terms of terrorist activity and that’s where you see Facebook, Twitter, Google, they are going to have to significantly invest billions into security of the platform because the worst case scenario is you have more scrutiny, more regulatory sort of grip into this area.”

Disclosure: I do not own any of the stocks mentioned in this article.