iShares Cybersecurity and Tech ETF

IHAK

Market cap $758M

Cybersecurity stocks slumped on Friday on a report that Anthropic is testing a powerful new artificial intelligence model called Mythos that presents potential security risks. The rise of AI is putting pressure on cybersecurity companies to innovate and fend off increasingly sophisticated and easy-to-launch cyberattacks.

The war in Iran is entering its third week with no end in sight. That, according to Goldman Sachs analysts, warrants some portfolio changes.

Cybersecurity stocks dropped for a second day as the threat of AI to the industry loomed large with Anthropic's latest AI tool that can scan code for vulnerabilities. Investors are worried these new tools will displace software business models and many tasks handled by cybersecurity vendors.

As AI adoption surges and cyberattacks escalate, cybersecurity ETFs like CIBR and HACK stand out as investors seek digital defense gains.

iShares Cybersecurity and Tech ETF maintains a "Buy" rating, supported by international diversification and solid price action amid a premium valuation. IHAK offers exposure to global cybersecurity innovation, with a portfolio focused on growth and SMID-cap stocks, and about 25% non-U.S. allocation. Recent bullish guidance from CrowdStrike and positive September performance encourage optimism, despite IHAK lagging the ACWI ETF this year.

The cybersecurity sector offers strong long-term growth, driven by cloud adoption and increasing cyber threats. IHAK provides diversified exposure but underperforms compared to CIBR, which tracks a more focused and higher-performing index. Despite IHAK's lower fees, its returns lag significantly behind CIBR, making it less attractive for investors seeking sector growth.

Tech sector under pressure as trade tensions, AI disruption and demand swings shake confidence.

Tech stocks have struggled, but the iShares Cybersecurity and Tech ETF has shown resilience, outperforming XLK and SPY since mid-2024. IHAK offers exposure to innovative cybersecurity companies, with a moderate P/E multiple and significant relative strength, making it a compelling buy. The ETF is concentrated in tech, with the top 10 positions accounting for 44% of the fund, and benefits from ex-US exposure.

Cybercrime costs are rising, expected to reach $10.5 trillion annually by 2025, making cybersecurity a crucial investment sector. iShares Cybersecurity and Tech ETF offers a diversified portfolio of top-performing cybersecurity stocks, reducing idiosyncratic risk while capturing sector growth. Despite market volatility, the long-term outlook for cybersecurity remains strong, driven by increasing cyber threats and the need for robust defense mechanisms.

With the increasing adoption of AI in everyday activities, the risk of cyber-attacks also surges, increasing the need to raise investments in cybersecurity. Look at ETFs to capitalize.