Barclays

What it does: Barclays is a Tier 1 bank, serving a wide range of client types in the UK but also abroad.

By Jon Smith. When I look at the banking space, Barclays (LSE:BARC) has been flying the flag for the UK versus US peers. The stock is up 33% over the past year, in comparison to the 11% gain from Morgan Stanley and a 22% gain from Citigroup.

What is helping the outperformance is the new strategy that was announced back in February. The push to cut costs over the coming couple of years will save billions, which will make the bank a more nimble and efficient operation.

Further, Barclays was very undervalued as a stock at the beginning of the year and I think value investors are finally catching on.

It’s true that Barclays doesn’t have the global footprint in the same way as some US peers do. This could hinder further growth prospects, but I don’t see it as a huge point for concern.

Jon Smith owns shares in Barclays and Citigroup.

Barclays

What it does: Barclays is a universal bank with the majority of its earnings coming from its UK operations.  

By Dr James Fox. British banks have underperformed their American counterparts since the financial crash, broadly achieving poorer returns and trading with lower multiples. Barclays (LSE:BARC) has been among the UK’s cheapest banks, trading around 4.5 times earnings a year ago. 

However, things have changed. Investors have been wowed by C.S. Venkatakrishnan’s plan to turn the company around, with £30bn of risk-weighted assets to be assigned to its UK banking arm, and a complementary cost-cutting programme.  

The UK’s fragile economy remains a headwind for UK-focused banks. Nonetheless, with interest rates set to moderate towards the ‘Goldilocks Zone’ – around 2.5-3.5% – things are looking up for customers and banks alike.

Barclays shares are up 55% over the past six months, vastly outperforming major US banks like JPMorgan. However, the valuation gap remains. Barclays is trading around eight times forward earnings, versus JPMorgan at 12.4 times. 

There’s plenty of room for further share price growth if Venkat can improve Barclay’s returns on equity. 

James Fox owns shares in Barclays.

Bloomsbury

What it does: Bloomsbury is a publisher of children’s and adult’s books, including the Harry Potter franchise

By Christopher Ruane. Bloomsbury (LSE: BMY) can feel like the publisher with a sprinkling of magic dust. The shares are up 36% in the past year alone.

That compares favourably to the 6% and 16% declines in that period by New York-listed peers John Wiley and Sons and Scholastic respectively.

That magic dust is partly thanks to the firm’s publication of the Harry Potter series, still going strong. Last year, the UK’s bestselling children’s book was Harry Potter and the Philosopher’s Stone. The firm grew revenues 30%, diluted earnings per share 59% and its annual dividend per share by a quarter.

Bloomsbury’s children’s trade division was responsible for over 100% of the firm’s profit last year, basically subsidising lossmaking parts of the operation. So much reliance on one business division is a risk, especially if the children’s market sees demand fall.

Despite a surging share price, Bloomsbury trades on a price-to-earnings ratio lower than Scholastic and only slightly costlier than Wiley.

Christopher Ruane does not own any of the shares mentioned.

Centamin

What it does: Centamin is a leading gold producer. It owns and operates Sukari, Egypt’s largest gold mine.

By Andrew Mackie. Off the back of gold prices repeatedly hitting all time highs, precious metal miners have been some of the best performing stocks across both US and UK indices. One of the largest producers in the world, Barrick Gold is up 18% since mid-February. However, Centamin, (LSE: CEY) a mid-cap FTSE 250 miner has risen 31% over the same time frame.

The case for owning gold stocks today is compelling. Ballooning government deficits and increasing geopolitical tensions has increased the importance of owning a neutral asset with no counterparty risk. In my opinion, gold is the only asset that provides such credibility.

As gold continues its march towards $2,500, smaller cap names will be the more likely beneficiaries of this new gold cycle. With its high-quality revenue-generating mine at Sukari, plus a number of advanced exploration projects, Centamin remains one of my firm favourites.

Sticky inflation remains one of the biggest risks. Labour, consumables and fuel costs continue to eat into its margins. However, these costs will pale into insignificance if gold prices keep rising into the future.

Andrew Mackie owns shares in Centamin.

Darktrace

What it does: Darktrace develops AI-powered cybersecurity tools to identify and tackle cyber attacks in real time.

By Mark David Hartley. UK cybersecurity firm Darktrace (LSE: DARK) is up by over 100% in the past year, with the growth partly due to its promising implementation of AI technology. Meanwhile, US rival Fortinet is down 8%. However, aside from being in cybersecurity, there are some notable differences. Darktrace is a £4bn firm that’s just over a decade old while Fortinet, with a market cap of $46bn, emerged from the 2000 tech boom. 

The smaller market cap understandably gives Darktrace more space to grow. But it’s also less established and more prone to risk and volatility. The rapid price rise means the shares are now estimated to be overvalued by 10% based on future cash flow analysis. Coupled with a very high price-to-earnings (P/E) ratio of 43.6 I’d say a correction is on the cards. Still, Darktrace is making the UK proud and I think it has excellent long-term potential.

Mark Hartley owns shares in Fortinet.

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Automated threat responses

Darktrace offers a highly advanced form of cybersecurity. Its clients enjoy artificial intelligence-assisted threat detection and automatic responses. This greatly reduces the risk that companies face in their digital databases and workflows being hacked and corrupted.

From the get-go, I mustn’t forget how competitive this industry is. With AI being the hottest business field in the world right now, multiple heavily funded and developed enterprises are in on the action. The three biggest threats to Darktrace’s market share are likely:

1. CrowdStrike: focuses on protecting individual devices, with services also extending to the whole network.
2. Fortinet: focuses on a hardware-centric approach and offers a broad range of cybersecurity solutions that it can adapt to different frameworks.
3. Trelix: focuses on incident response and forensics, utilising automation and machine learning. It also has threat detection and response systems.

Is Darktrace durable?

So far, management has proven incredibly strong at driving growth. Revenues have been increasing by approximately 41% annually over the past three years.

Now, this growth is anticipated to slow down considerably, partly because the company is becoming larger. However, Darktrace’s clever recurring revenue business model, which works via subscription, increases its chances of sustaining its finances over the long term.

One area that I’m navigating carefully is how the company’s AI evolves. We are entering a period where artificial intelligence is likely to grow in capability exponentially. Therefore management has to ensure its cybersecurity intelligence is learning and adapting appropriately. A failure to do this could mean other firms outcompete it.

Here’s the opportunity I see

Despite the risks with this investment, the shares have a price-to-earnings ratio based on future earnings estimates of just 8. Partly, I attribute that to the fact that the company has only recently turned a profit, so its net income is increasing quickly.

In addition, because the company is a software-as-a-service (SaaS) company, its margins are already very high. For example, Darktrace has a gross margin of 90%. That’s because there are much fewer production costs than in industries that require a lot of manufacturing.

In my opinion, this investment is quite high risk. However, higher-risk investments also come with higher rewards if they work out. That’s why I’m excited about this opportunity. As long as Darktrace keeps expanding its net margin, I think the public might start to get excited about this one, driving the share price higher.

However, there are no guarantees in life. So, I’m only looking at putting about 3% of my total assets in the company if I do decide to invest in it.

Putting AI into proper perspective

The notion that Darktrace is going to develop a fully autonomous cybersecurity system any time soon is not realistic, in my opinion. However, a lot of its marketing makes it seem perhaps more advanced than it really is. Therefore, if clients and the broader market catch on to this, the shares might not grow as fast.

I’m being cautious, but still optimistic with this one. It’s going on my watchlist for now.

The post The Darktrace share price has been surging — and it could climb higher appeared first on The Motley Fool UK.

An addition but little scope to buy

The final changes get announced on Wednesday (5 June), but based on the data I have a good indication of the companies that will get promoted.

The first one likely to join is Darktrace (LSE:DARK). The share price has jumped 101% over the past year, a key factor in helping to push the firm into the FTSE 100.

Half-year results in March helped to provide a large spike in the stock. Revenue was up 27.4% year on year. The company was able to produce another profitable period as in H1 2022, which gave investors confidence that the period of losses from 2020 and 2021 is now over.

The other big move came in April after the firm announced it had accepted an offer US private equity group Thoma Bravo. It has to go through a lot of red tape, so is only expected to be completed by the end of this year. Yet the stock has rallied to the corresponding offer level (which was at a premium).

Technically I could buy the stock until it likely gets delisted at the end of the year. But I don’t really see any value here, as the share price should trade close to the current level. If anything, the risk that the deal falls through is there, which could see the stock plummet.

A better candidate

The other option is Vistry Group (LSE:VTY). I see much more opportunity here for investors rather than Darktrace. The stock is up 70% over the past year and recently hit 52-week highs.

The homebuilder sometimes gets a bit forgotten in favour of the larger FTSE 100 rivals, but with the likely promotion this could change things. This would be for good reason, given the bounce-back that the company has enjoyed after a rocky couple of years for the property sector in general.

I still see high interest rates as a risk for the business going forward. We really aren’t out of the woods yet with high mortgage rates. This could continue to put pressure on people being able to afford to buy homes.

Yet on the whole, Vistry has managed to shake off the pessimists. The 2023 results that came out in April showed positive signs across the board. Revenue, completions, operating profit all jumped from 2022, in a sign that demand is recovering.

Even with the share price doing well, the price-to-earnings ratio is only 14.84. I’d say this is a fair value, but certainly not stretched considering the 70% jump. As a result, I’m thinking about adding this stock to my portfolio as the momentum could carry it higher still in coming months.

The post Should I buy the newly promoted FTSE 100 UK shares on the reshuffle? appeared first on The Motley Fool UK.

What does it do?

Founded in 2013, Darktrace uses artificial intelligence (AI) to detect and respond to cyber threats in real-time. Its innovative approach has garnered plenty of attention, leading to a successful IPO on the London Stock Exchange in April 2021. Since a decline following this event, the shares have generally seen growth, reflecting both market dynamics and positive company performance. The business turned profitable in 2024.

The company has reported incredible demand for for cybersecurity solutions amid escalating cyber threats globally. Additionally, expanding into new markets and industries has positioned it for further growth.

What really catches my eye is the firm’s unique AI-driven technology. This sets it apart in an increasingly crowded cybersecurity market. As cyber threats continue to grow in sophistication and scale, organisations are increasingly turning to advanced solutions to safeguard digital assets.

However, the market can get over-excited when it sees a product doing something innovative, especially in the AI space. A discounted cash flow calculation suggests the share price may be 10% overvalued at present. Similarly, the price-to-earnings (P/E) ratio of 43.8 times is well above the sector average of 41 times.

Risks

Cybersecurity is a dynamic and rapidly evolving industry, subject to regulatory changes, technological advancements, and evolving threat landscapes. Companies must continually innovate and adapt to stay ahead of emerging threats, which could require substantial investments in research and development. After all, one negative news story or incident can sink the reputation of a product for years.

Like any business in such a fast-moving sector, there are plenty of challenges and uncertainties that could impact future performance. With the share price more than doubling in the last year, any bad news could easily send that price down sharply. And as the company turns profitable, there’s a chance that growth could slow down, Maintaining the fundamentals of the business may take priority over growing market share. Earnings are estimated to grow by 6.2% annually over the next five years. That’s well below the 21% growth forecast for companies in the cybersecurity sector over the same period.

However, the balance sheet of the business seems to be in good shape, with debts well under control. Plus it has an experienced management team, and strong estimates for the future.

Overall

An investment in Darktrace shares as the head towards £6 could clearly be very successful. But I’m nervous about how far this trend can continue. When a share price doubles in a year, I always fear there may be some negative performance just around the corner. That could drive the price back down. For now, I’ll be steering clear, but will be keeping this one on my watchlist for the next buying opportunity.

The post Should I invest in Darktrace shares as they rocket towards £6? appeared first on The Motley Fool UK.

The company is relatively new, founded in 2013 with its initial public offering in 2021. Up 109% in just 12 months, I think there’s potential for these shares to deliver massive growth over the next decade. Here’s why!

Competing for the top clients

I’ve looked into the future of cybersecurity a lot, and there’s a lot of competition. For example, CrowdStrike, Palo Alto Networks, and Cisco are all leading the way in global AI cybersecurity efforts.

That being said, Darktrace is still in the right market. With high growth almost certain for the field in general, management just needs to make sure that they retain their customers over the long term. At the moment, some of these include McLaren, Steve Madden, Aston Martin, and many other prestigious firms.

Flourishing financials

In the last three years, the company has been able to pull off a revenue growth rate of 41% on average. That’s astronomical, although not unusual for a newer company in a high-growth field like AI.

In addition, the company reported its first profit in 2022, which is great news. With early-stage companies, it’s often the case that shrewd investors get in early. The general market then catches on to the opportunity once the earnings start to roll in. That’s a big contributor to why the share price is up 109% over the last 12 months.

The AI market is just getting started

One of the reasons I think artificial intelligence is such a prudent place to invest is that the consequences on society will be very tangible. The use of the technology should drive higher margins in almost all industries.

In cybersecurity, companies are going to face new levels of attacks from advanced capabilities. These will include those powered by quantum computing and AI. Therefore, it’s not a want but a need for organisations to implement the latest cybersecurity into their digital operations. Any breach can cause much more of a loss in reputation and revenue than the cost of hiring a company like Darktrace.

However, Darktrace has a market cap of around just £4bn. Compared to one of the more dominant cybersecurity providers, CrowdStrike, which has a market cap of around $76bn, I’m a little concerned that Darktrace won’t be able to keep up over the long term. AI is highly expensive to develop, run, and maintain. It’s the companies with the most money to invest in it that will likely end up having the best products and services.

Investing is all about psychology

Some people are deterred from investing in Darktrace or other cybersecurity firms because the price-to-earnings (P/E) ratios for many of these companies are way higher than normal. Darktrace, in particular, has a P/E ratio of around 42, and the average for the FTSE 250 is around 14.

The thing is, a company can sustain a high valuation for many decades in some cases. It’s all about demand.

The real concern is that expectations are high. If management doesn’t meet these, investors can sell off more quickly and aggressively than usual because the valuation is rich.

Nonetheless, I’ve added Darktrace to my watchlist! It could be a big growth story.

The post This FTSE 250 AI cybersecurity company is up 109% in 12 months appeared first on The Motley Fool UK.

In general, I look to concentrate on the best investment opportunities I can find. And sometimes that means replacing less attractive stocks with ones where the returns look more promising.

Legal & General

Any stock with a dividend yield close to 9% is obviously attractive. And I’ve owned Legal & General (LSE:LGEN) shares in my portfolio, but the stock isn’t for me at the moment. 

When it comes to investing, Warren Buffett says that risk comes from not knowing what you’re doing. And when it comes to the bulk annuities business, I probably don’t have any unique insight.

Annuities contracts have long durations, meaning it’s a long time until how profitable they will be becomes clear. And there’s also a risk of inflation – as prices rise, payouts become more expensive.

More specifically, I don’t have a sense of what Legal & General’s distinct advantage is when it comes to insuring annuities. It might have one, but it’s beyond my ability to evaluate confidently.

Something similar is true of the life insurance industry. And with these two divisions making up around two-thirds of the company’s revenues, this isn’t a stock for me. 

That’s why I decided to sell my investment in Legal & General shares a while ago. And despite the attractive dividend, I’d look to do the same today with other opportunities available. 

Darktrace

Shares in Darktrace (LSE:DARK) rose 25% last week as US private equity firm Thoma Bravo agreed a deal to buy the company. That’s probably good news for shareholders, but I’d also be looking to sell here.

Current investors stand to receive $7.75 in cash at the end of the year for each Darktrace share they own. That’s equivalent to £6.19 at today’s rates.

With the stock currently at £6.04 per share, I don’t think waiting until the end of the year for a 2.5% return when the deal closes is particularly attractive. So I’d look to sell the stock and move on. 

There’s a chance investors could do better than this if the value of the pound weakens substantially against the dollar. But there are a couple of things worth noting here.

The first is that things could go the other way, causing returns to be worse. Another is that if I was able to predict a currency shift confidently, I’d have better ways of betting on this. 

I think it’s hard to see how investors make much more than £6.19 from owning Darktrace shares. So if I owned the stock, I’d sell it today at £6.04 and buy something else for long-term returns.

Selling in May?

I’m not a fan of the idea of selling in May and going away. But sometimes my view on a company can shift, or the business itself can change significantly.

When I see a better opportunity, I’m not averse to moving on from an investment I own. When I do, though, it’s to buy more shares, not splash out on a holiday! Over the long term, I want to be invested in the stock market.

The post 2 UK shares I’d sell in May… if I owned them appeared first on The Motley Fool UK.

Today (26 April) though, the shares leapt 20% in early trading. Why?

A takeover bid. US investment firm Thoma Bravo announced it had reached agreement with Darktrace management on taking over the UK firm at a price equivalent to £6.20 per Darktrace share (at the current exchange rate).

Darktrace shares soon reached almost that level, suggesting that the City expects the cash deal to proceed.

Does this make sense for Darktrace shareholders?

Darktrace has been listed for under three years. In that time, its revenue growth has been impressive.

Source: TradingView

But at the earnings level, things have been less impressive, in my view. Tech firms often like somewhat obscure metrics to communicate their business performance. Indeed, I have often found Darktrace’s reports to be difficult to comprehend for that reason.

Just as revenue has improved markedly in recent years, so has EBITDA (earnings before interest, tax, depreciation and amortisation).

Source: TradingView

I tend not to pay too much attention to EBITDA though. Costs like interest and tax are real so why exclude them from the financial assessment of a company’s performance?

Instead, I would pay more attention to basic earnings per share. This measure has two attractions, in my view. First, it does not exclude real business expenses like interest. Secondly, looking per share instead of a total means the impact of any share dilution is more obvious.

Looking at basic earnings per share, again, the company has been making sizeable forward strides over the past several years.

Source: TradingView

Still, the company has a very limited track record of profitability. Based on its most recent full-year earnings per share, the Darktrace share price-to-earnings ratio is 46. That is far higher than I am comfortable with and is one reason I have not bought the shares at any point.

Where things go from here

Thoma Bravo clearly sees value however. No doubt that will lead other companies to run their slide rules over Darktrace and it may be that another bidder emerges, pushing the share price up further.

That is not guaranteed though. Nor is it certain that Thoma Bravo’s bid will succeed. Such situations always involve risks like regulatory clearance not being granted.

If that happens, the Darktrace share price could fall again.

Valuation always matters!

If the bid succeeds, some investors will do well out of it. Those who had bought at the start of this year, for example, would now be sitting on an 80% paper return.

But what about long-term investors that bought when the shares hit highs in 2021? They are now looking at a paper loss of 35%.

In a takeover situation, if the bid proceeds, shareholders typically have no choice but to accept. They have to take the loss even if they believe the share price would increase if the company could stay independent.

That is a salutary lesson to all investors about the importance of never overpaying for shares!

The post The Darktrace share price jumped 20% today. Here’s why! appeared first on The Motley Fool UK.

Fresh trading update

To begin with, let’s consider the reason behind the spike in the stock today (11 April). The latest trading update came out, with plenty of reasons to be positive.

Annualised recurring revenue (ARR) was up 23.5% versus the same time last year. Given the nature of contracts that are signed with clients, this is the preferred revenue metric used by the business.

The update for the full-year outlook was also impressive. For example, it narrowed the expected ARR percentage growth range to between 22.25% and 23% (previously set at 21.5% and 23%). For context, the increase of the midrange here reflects an additional $2.4m of revenue.

Demand going forward

The stock is up 78% over the past year, reflecting the growth in the business. Demand is high and I believe that this will only increase due to the rise in artificial intelligence (AI). For all the good sides of AI, there’s a dark side, related to cyber attacks and fraud attempts.

Darktrace is well positioned to benefit from this. It recently launched an ActiveAI security system for clients. This aims to improve visibility and combat security gaps and raise alerts for weaknesses.

Given the growth to come for AI across different sectors, I think Darktrace could see a large uptick in new clients that come flocking for security against it. This could be the largest area of growth for the firm over the coming years.

Still expensive

One concern that I’ve had in the past is the hype around the stock. It has been branded as the tech poster child of the UK. Of course, it’s doing well, but I often feel the stock is overvalued.

At the moment, the price-to-earnings ratio is 60.58, well above the benchmark figure of 10 I use for a fair value firm. Granted, growth stocks like Darktrace can often have a higher multiple, as people expect future profits to rise. Yet at 60 I don’t necessarily feel this is a good deal.

Profits at the business have been erratic in recent years. It had a very poor 2021 and lost $143m. After barely breaking-even in 2022 it posted a profit of $43m last year. It looks set to post another profit for 2024. Revenue has been growing each year over this period, yet various different forms of expenses and costs have hampered it filtering down to the bottom line.

Better options elsewhere

I do think the business is heading in the right direction. Yet I still don’t see enough to want to get involved. If I want tech exposure, there are better options in the US. If I want exposure to AI, again there are cheaper and more compelling opportunities. On that basis, I’m going to pass.

The post The Darktrace share price jumps 8% today! Has the firm finally turned a corner? appeared first on The Motley Fool UK.

So often, the catalyst behind a well-performing share price is earnings. Investors want to see profits rising or the expectation of bottom-line progress in the near future.

Investing for growth

Dividends, on the other hand, can be less important for growth stocks. One well-reasoned school of thought is that businesses can often employ their spare cash better by reinvesting it back into operations. In that way, the firm may generate even larger earnings later.

It can be wise to fill a long-term portfolio with both types of stock. Some of them can target growing dividend streams and others, expanding earnings.  

Recently, I’ve been considering several London-listed growth stocks. For example, international online research data and analytics technology company YouGov looks interesting.

City analysts expect the firm’s earnings to grow in the ballpark of 30% in the current trading year to July 2024 and the same again next year. That’s the kind of double-digit progress I look for in a growth-focused company, so YouGov is a good one to consider.

However, I’m also running the calculator over autonomous cybersecurity artificial intelligence (AI) company Darktrace (LSE: DARK). Once again, analysts are optimistic about earnings and have pencilled in increases of over 40% and nearly 35% for the current trading year and next.

Such business progress is impressive. However, the market looks well up with events. With the share price near 484p (15 March), the forward-looking earnings multiple is a chunky 36 or so for the trading year to June 2025.

A mark of quality?

Now, I wouldn’t allow a full-looking price-to-earnings (P/E) ratio to put me off investing in a company’s shares if I believed the business had decent prospects for growth. In the past, filtering out expensive-looking stocks has kept me away from some of the market’s best performers.

Sometimes a higher rating can be considered a mark of quality. But having said that, a higher valuation does introduce an extra element of risk for shareholders.

Darktrace only needs to fall short of its earnings estimates and the market could be brutal in its re-appraisal of the company’s immediate prospects. Not only might the share price adjust lower to account for smaller anticipated earnings, the P/E itself could decrease.

Combined, those two effects may lead to a dramatic fall for the share price. It’s a scenario seen many times with growth stocks and could lead to a volatile long-term journey for Darktrace shareholders.

One of the ‘problems’ now is that on 7 March the firm issued a stonking set of half-year results with a positive outlook statement and the stock shot higher.

Sometimes, though, moves like that can retrace a bit. So I’d keep Darktrace on close watch for the time being with a view to picking up some of the shares on dips and down-days. My plan would be to hold the stock for the long term as further growth in earnings hopefully unfolds during the coming years.

On balance, I think Darktrace looks like an attractive growth company to consider for March and beyond.

The post 1 attractive growth stock for March and beyond appeared first on The Motley Fool UK.

That’s a 61% rise! Not too shabby.

That said, investors who bought shares at 900p in late 2021 still need the stock to more than double to reach par.

Based on the tech company’s excellent H1 results though, that’s not beyond the realms of possibility.

A beat and a raise

In the six months to 31 December, Darktrace’s revenue rose 27.4% year on year to $330m. Net profit soared to $53m while its adjusted EBITDA margin expanded to 25.6% from 17.4%, beating analysts’ forecasts.

Also impressive was the company’s ability to keep adding customers in this difficult global economy. At the end of 2023, it had 9,232 customers, which was 12.9% more than the same period the year before.

Churn rates also remain low, reflecting customer satisfaction with the products.

Looking ahead, the company sees full-year revenue growing 23.5% to 25%. And it expects a minimum 21% adjusted EBITDA margin, up from its previous 18%-20% range.

From luxury to necessity

Clearly, Darktrace is operating in a huge growth industry. Gone are the days when cybersecurity was a nice but non-essential luxury for a company.

A single data breach today can cause huge reputation damage, legal liabilities and financial losses.

Indeed, according to Salford University, 60% of small and medium-sized enterprises (SMEs) that fall victim to a cyberattack go out of business within six months.

Unfortunately, such incidents are rising, with many aided by AI. I just did a quick search online for ‘cyber attack’ and Google returned these recent news stories:

• Japan blames North Korea for major cyberattack
• Leicester City Council IT systems crippled by cyberattack
• French government hit with cyberattacks of “unprecedented” force

For companies, governments and organisations, the stakes couldn’t be higher. It’s little wonder then that Fortune Business Insights sees the global cybersecurity market growing from $172bn in 2023 to $424bn by 2030.

I’m interested

Now, one issue I’d highlight here is competition. Large cybersecurity firms like Palo Alto Networks and CrowdStrike aren’t going away, and there are dozens of smaller, innovative companies globally.

Many of these start-ups have achieved unicorn status and all are jockeying for market share. So Darktrace will have to keep innovating relentlessly.

Given this, I was a little concerned to see absolute R&D spend drop by 7.4% during the first half. It went from $25.7m to $23.8m.

Still, the cybersecurity market is massive and the company has significant growth potential. And with generative AI tools lowering the cost of cyberattacks, further demand for protection from AI-powered companies like Darktrace is almost inevitable.

CEO Poppy Gustafsson noted: “In the months after the rollout of ChatGPT, we saw a 135% increase in… phishing emails that use more sophisticated grammar and language to make victims trust them. We believe attackers began using ChatGPT to make phishing harder to spot.”

Darktrace stock isn’t exactly cheap trading at 32 times forward earnings. But that’s actually a significant discount to US peers like Palo Alto (44 times).

I’m not ready to invest yet, but the FTSE 250 stock is on my watchlist.

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