Last year the Dept of Defense (NYSEARCA:DOD) spent $100 million on cybersecurity personnel and equipment in six months. When the largest spending military in the world and the largest sector of the US government makes a major financial commitment like this, you can be sure other departments--and complementary industries--will follow suit.
Why such a big push now?
Up to this point, governments have avoided spending money to protect themselves against tech-related threats--after all, they face innumerable real world threats from terrorists to insolvent banks. And many companies slashed capital expenditures amid the credit crisis and weak economy.
But with an increasing amount of sensitive business being conducted online, cybersecurity is becoming a necessity. Here are a few factoids to put it in perspective.
- The FBI ranks cybercrime as the third-biggest threat to US national security behind nuclear weapons and weapons of mass destruction.
- The nonprofit US Cybersecurity Consequences Unit estimates that the destruction from a single wave of cyberattacks on critical infrastructure could exceed $700 billion, the equivalent of 50 major hurricanes hitting the US simultaneously.
- The Dept of Homeland Security estimates that there were 37,000 cyberattacks in the US in 2007, up 800 percent from 2005.
And then there’s the mythical Chinese GhostNet, which is said to be capable of entering your computer, turning on your webcam and watching you while you work, not to mention downloading the data from your hard drive or recording your keystrokes.
Although this type of access to the average Joe’s computer might not be too exciting, it’s a different story when it comes to a worker in a power station or the intelligence community. To this day, nobody knows if GhostNet was launched by rogue agents or the Chinese government. There's also talk now that Chinese corporate and governmental espionage will increase exponentially in the next five years, with India representing a key target.
In Russia, cybercriminals have hacked debit cards that can withdraw all the cash from an ATM and collect the account information of customers who have used the machine. Hacked machines are popping up across Europe, which means the threat isn’t limited by borders.
And don’t forget about denial-of-service attacks, which overload a company or governmental department's servers to the point where they can't function. Such maneuvers are crippling and often act as a ruse that obscures the criminals’ true objective.
Military brass, top government officials and corporate titans admit that the US is playing catch-up to the ever-expanding cyberthreats.
But risks beget opportunity. As the economy gets back on its feet, companies are increasing capital expenditures. And given the importance of the Internet to businesses’ margins and productivity, expect cybersecurity measures to be on the shopping list.
But you can't just run out and buy any cybersecurity stock. Smart businessmen and bureaucrats will assess the risk-reward aspects of different approaches to online security; investors need to know which sectors have made the assessments, committed the funds and chosen their contractors.I just finished a piece on the stocks that are worth watching in this dynamic and growing space for our paid advisory, Portfolio 2020. Expect future issues of Investing 2020 to feature contributions from folks who are at the forefront of emerging technologies. Our goal is to keep you apprised of the trends that are reshaping the world and the companies driving these changes.
GS Early is associate editor of Portfolio 2020.
Race to the Summit
A panel discussion on the state of the economy. Presentations by each of our expert editors. One-on-one time with those experts. A sunset cruise of San Diego Bay…
April 23-24 could be your most important weekend of the year. Roger Conrad, GS Early, Yiannis Mostrous, Benjamin Shepherd and I will reveal the brightest trends and our best recommendations--and anything else you might want to know--during the 2010 Wealth Society Member Summit at the historic Hotel del Coronado.
They say it’s 72 and sunny every day of the year in San Diego, and in late April it probably will be. Tranquility and relaxation is good; that and the best independent view of global investing make a great combination. You may find all details at www.InvestingSummit.com.
Call 1-800-832-2330 (between 9:00 a.m. and 5:00 p.m. EST Monday through Friday) or go online now to reserve your seat at the table. Space is limited.
Gregg Early is Executive Editor of Personal Finance.
Disclosure: "No Positions"