‘What is the alternative?’ SolarWinds Increases Security Companies’ Financial Results

OAKLAND, Calif. (Reuters) – Cybersecurity providers, including FireEye Inc and Microsoft Corp, have failed to avoid a massive network breach disclosed this month by several American agencies and companies, but their shares are skyrocketing for the second week in a row.

The months-long penetration exposed weaknesses in security tools as well as in network management programs, especially Solarion’s Corp Orion software, widely used to supervise networks.

Souvenirs and scandals that affect products such as automobiles, food and toys tend to hurt an industry’s stocks as investors prepare for huge declines in consumer confidence and sales, according to two experts who studied these scenarios.

But the repercussions of the fear of cybersecurity were different. Wall Street is betting that governments and businesses – having invested years in switching to digital infrastructure – will only accelerate purchases of the latest IT tools.

“What is the alternative?” said Venkatesh Shankar, professor of marketing at Texas A&M University.

Airbag recalls or Listeria outbreaks tend to affect actions within a narrow supply chain, from restaurants and car dealerships to parts and ingredients suppliers, he said.

But “the magnitude of this breach is not just within the software industry,” he said, noting that SolarWinds’ customers span numerous industries.

Kartik Kalaignanam, professor of marketing at the University of South Carolina, said marketers expect organizations to bolster their defenses, even if it means buying services from companies that have been hacked.

“While it can be argued that each of them has some kind of flaw in their system, there is a feeling that there will be more spending going on and the market will be boosted in general,” said Kalaignanam.

A BlackRock iShares cybersecurity fund rose almost 10% last week and rose another 3.5% this week, entering Thursday. FireEye rose this week to a maximum of 5 years, Microsoft peaked at 90 days, and Palo Alto Networks, which it said has blocked SolarWinds-related intrusions, jumped to a historic record.

Mark Cash, who analyzes stocks for research firm Morningstar, said the SolarWinds breach “will certainly benefit” security companies. Once called in to repair the defenses, they inevitably get a valid contract, Cash said.

Shankar and Kalaignanam said they expect industry stocks to remain high for about six months to a year.