As the Fed continues to tamper with interest rates to lower inflation, the tech sector has seen a precipitous decline. With less liquidity and smaller cash flows, many companies that were once considered high growth stocks are now declining substantially.
However, within the tech sector, and in particular cybersecurity, there is an industry that should continue to prosper even as the broader market struggles to buck stubborn downward momentum.
Confidential computing, the next frontier in cyber security that is known for its sophisticated solutions to protect banking, financial services, healthcare, and government entities, is a behemoth in the making.
With a projected market size of $54b and 85% of enterprises being heavily cloud oriented by 2025, the long-term growth prospects for this sector are robust. In addition, with the average data breach costing enterprises $3.86 million, there is a good reason for why confidential computing companies are making headway in this emerging market.
For these reasons I think it is important to analyze 3 stocks that have been able to properly adjust and excel in their current macro-environment, even if their stock prices don’t represent that in tech’s ongoing bear market.
1. Palo Alto Networks
With its headquarters in Santa Clara, Palo Alto Networks (NASDAQ:PANW) has become one of the premiere players in the confidential computing space. With 85,000 customers in 150 countries, PANW has become extremely popular for its firewall and cloud security that relies on a single platform and management.Palo Alto Networks
As the chart above indicates, when the market began to pull back, so did PANW. With negative net income and declining valuations, investors are pulling away from tech stocks like PANW.
However, with over $1.6 billion USD in billings, four straight quarters of beating EPS estimates, and profitable cash flows, PANW has become a financially sound company that could excel during the recession as companies continue to spend on cybersecurity.
Founded in 2011, Crowdstrike Holdings (NASDAQ:CRWD) is a cybersecurity company that provides cloud workload and endpoint security, threat intelligence, and cyber attack response services.
With some of the most high profile protection cases like the Sony Pictures (NYSE:SONY) hacking and the DNC, CRWD has been able to propel itself into one of the premier confidential computing companies.
Unlike Palo Alto Network, CRWD has had very strong and stable cash flows for the past three years. With YoY growth and over 400 million in earnings for fiscal year 2022, CRWD has seen its price per share decline by a whopping 14% over the past 6 months while in fact it has grown financially in that period.
Even if previously overvalued, a 5 year DCF projection with reasonable estimates could put the value at closer to $200 USD per share; well above the current $178 dollars per share.
3. Hub Security
Hub Cyber Security Israel Ltd (TASE:HUB) is a NASDAQ-bound cyber security solution company that is disrupting the confidential computing space.
In March the company announced a SPACE-merger with Rainier Acquisition Corp (NASDAQ:RNER), and is anticipating a Q3 US listing. Thanks to an aggressive and successful M&A strategy, HUB now operates in over 30 countries and provides innovative cybersecurity computing equipment, as well as a wide range of cybersecurity professional and consultancy services worldwide.
Whether it be the $50 million in PIPE funding that the company has closed contingent on its successful listing, or the advanced encrypted computing solutions it is developing, HUB has been a catalyst for other players looking to make headway in the confidential computing market.
In comparison to its exchange benchmark, i.e., TA125, HUB has in fact seen a positive return YTD, in contrast to many other tech equities.
Hub Security Graph
Furthermore, by looking through technical analysis one can see a strong trajectory for Hub Security as it still has not converged to the equilibrium level making it an undervalued stock.
Even in the face of inflation and lower valuations, HUB has capitalized on this opportunity and received an overall positive return of 3.65% YTD.
Hub Graph MACD Analysis
Lastly, even with negative net income there has been some substantial increases in key line items like revenue, EBITDA, and R&D. As long as Hub Security continues to capitalize with their acquisitions and entry into global markets, there is a real opportunity for the company to peak above its expected $10 per share price.
HUB is positioning itself for success on the NASDAQ exchange by increasing investor demand and securing a stronger cash flow for its global operations.
In conclusion, with a growing market both in cloud service and confidential computing there are many reasons to invest in these companies. Whether it be strong revenue streams from billings, or constant need to develop and improve systems, confidential computing is becoming a basic necessity in any enterprise looking to expand.