The United States is under digital attack. Now the government is responding, and it is a huge opportunity, says Jon Markman, growth-stock specialist and editor of Strategic Advantage.
The Biden Administration announced on Friday that it is seeking to help fill 600,000 vacant public and private sector positions to secure the nation’s digital infrastructure.
Despite escalating attacks on fuel transport infrastructure, the electrical grid, and State Department officials, lawmakers have been reluctant to ramp up cybersecurity. The job-tracking database at the Commerce Department reveals that almost 600,000 cyber job openings have gone unfilled, according to a report posted at Cyber Seek, an industry advocacy group.
President Biden met in August with executives from Amazon.com (AMZN), International Business Machines (IBM), Alphabet (GOOGL), Microsoft (MSFT) and Apple (AAPL). Cumulatively the companies pledged $30 billion and training for thousands of new cybersecurity professionals.
The outreach amounted to a détente for the White House.
Since 2020 President Biden has been battling with big tech at every opportunity. His administration has gone after the nation’s biggest tech companies for perceived anti-trust violations and unfair practices. However, the stakes are rising, and he needs help.
Colonial Pipeline, a 5,500 mile pipeline network that supplies the eastern states with gasoline and other fuel products, was shut down in May when a successful ransomware attack roiled internal systems. The pipeline network transports 100 million barrels per day. Gasoline futures spiked 3% and have been a steady trajectory most of this year.
Two months later, the power grid was in focus when the Department of Energy said that bad actors currently have the ability to shut down the US power grid. Energy Secretary Jennifer Granholm said the private and public sectors must come together to thwart cyber-attacks.
And Reuters reported last week that at least nine State Department officials have had their iPhones hacked by predators deploying sophisticated spyware.
The time to step up against cyber attackers has come. This is the inflection point.
Investors should take a two-pronged attack, focused on consultants and systems builders.
Accenture is a professional services company. Its consultants are dispersed all over the world, embedded at many of the biggest global brands. These workers are building real software and they are intimate with the rigors of cybersecurity.
As attackers become more sophisticated and governments begin to act collectively, business will only grow at Accenture. Tax incentives and new programs will make it easier for big customers to bulk up their cyber defenses.
Accenture currently has 624,000 employees and $50 billion in revenues. Cyber security is currently a $4 billion business for the company annually.
More importantly, business is a steady grower with solid margins. During the fiscal fourth quarter sales jumped to $13.4 billion, up 24% year-over-year. The operating margin was 14.6%, according to a filing at the Securities and Exchange Commission.
Palantir got its start building systems for the Central Intelligence Agency. In fact, the clandestine organization was one of Palantir’s original investors. Since that time executives have moved the business to work with other western governments and some corporate clients.
The focus at Palantir is data, databases, and artificial intelligence systems. The Denver, Colorado-based company runs its custom algorithms against diverse sets of data collected from both private and public sources, then software presents the findings in an easy-to-analyze format.
The simplicity of using these systems is attracting a lot of public and private sector attention.
Executives said in July that third-quarter revenues reached $392 million, up 36% year-over-year. Although the company is still unprofitable as division managers hire feverishly, gross profit margins have swollen to 82%, and enterprise sales have now reached 46% of total sales. Free cash flow was $320 million through the first nine months.
Politics is usually irrelevant to the stock market. Politicians make headlines, yet their real impact on corporations is negligible. This is different. Cybersecurity has become a huge cost to the public and private sectors. There is real political will for change.
Investors may not think about Accenture and Palantir in terms of cybersecurity, yet these businesses are certain to benefit handsomely in 2022 as securing digital infrastructure becomes the dominant theme.