Why is the Darktrace share price rising?

The Darktrace share price has soared since its London listing. But why has the stock rallied? Nadia Yaqub takes a closer look.

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Since its stock market debut earlier this year, the Darktrace (LSE: DARK) share price has risen 55%. There’s no denying it’s pretty impressive for a company that was founded less than a decade ago.

I covered the stock when it first came to market and I said that I’d hold fire and watch the share price. I still hold this view. Since its London listing, Darktrace has been quiet on the news front. There have hardly been any meaningful announcements from the company.

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So what I’m really waiting for is either a trading update or a set of results to get my teeth into. As a public company, at some point it will have to release this information. So I guess I’ll have to wait for this to make my investment decision.

But until then, I think there are a few reasons why the Darktrace share price has soared. Here they are.

Cybersecurity

When I think of the London stock market, tech companies don’t spring to mind immediately. But there are a few. My fellow Fool Edward Sheldon highlighted that investors can get exposure to UK cybersecurity stocks, but the options are limited.

So when Darktrace joined the already limited pool of cybersecurity firms on the London Stock Exchange, of course this made some noise. In fact, it has worked in the company’s favour.

Although investors may not fully understand cybersecurity, we all know that it’s important. And it’s becoming more prevalent in today’s digital society. Darktrace shares represent an opportunity to get involved in this lucrative industry. And I think this is one reason that’s driving the stock price.

Buzzwords

Investors like buzzwords. And Darktrace has a few of these including ‘artificial intelligence’ (or AI), ‘self-learning’ and ‘autonomous’. In fact, all these words appear on the company’s investor website and are used to describe the firm.

When an investor hears fashionable phrases, like ‘self-learning’ and ‘autonomous’ it indicates a company embracing technology. It also indicates that the product should become more sophisticated in time with data and without the need for human intervention. This also means that Darktrace has a potential high-margin product to sell to its customers.

Smart people

The company was founded and is run by some smart people. Founders and employees with strong credentials add to the firm’s credibility and reputation. 

Back in the early days, Darktrace started with a team that included leading mathematicians from Cambridge University as well as cyber intelligence specialists. This talent clearly gave the company a competitive edge and laid the foundations for its products.

Now that Darktrace’s story is out in the open, investors have clearly warmed to the concept and have been filling their boots with the shares. I think it’s another reason why the stock has been climbing.

Risks

This is all great, but I’m not a buyer just yet. I do have a few concerns. The company is generating revenue but is loss-making. A tech firm needs to stay innovative so this means capital expenditure. I’d like more colour on the road to profitability. Perhaps this may be addressed when it releases its results. So for now, I’ll only be monitoring the Darktrace share price.

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Nadia Yaqub has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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