A Guide to Investing in Cybersecurity ETFs

Even as investor concerns grow over the sustainability of rising AI investments, one thing remains clear — despite bouts of market volatility —  AI is here to stay. Beyond concerns over AI funding and investment sustainability, the expanding use of AI is increasing cybersecurity risks, creating a growing need for advanced cybersecurity solutions.

This trend is likely to become even more pronounced as AI adoption accelerates and Big Tech ramps up spending on AI infrastructure, driving demand for cybersecurity solutions alongside it. Greater AI integration increases the need for robust digital protection, positioning cybersecurity as a critical pillar of the expanding AI investment cycle. Cybersecurity could emerge as the next big AI spending opportunity as companies seek to protect their rapidly expanding AI ecosystems.

The S&P Kensho Cyber Security Index, which tracks companies with significant exposure to cybersecurity-related activities, has gained around 9.5% in August so far and 6.6% this quarter, bringing its year-to-date gain to an impressive 39.7%. The strong performance highlights growing investor interest in cybersecurity and the sector’s increasing appeal as an investment theme.

The AI Boom Is Creating a New Cybersecurity Arms Race

With AI-related capital spending projected to surpass $1 trillion by 2027, the scale and sophistication of cyberattacks are likely to rise in parallel. As companies accelerate AI adoption, cybercriminals are also leveraging the technology to develop more sophisticated, scalable and targeted attacks to identify and exploit vulnerabilities, further widening the cybersecurity gap.

The rising threat of AI-enabled cybercrime makes AI expansion and cybersecurity demand two sides of the same coin, as the growth of one increasingly drives the need for the other. The urgency to strengthen digital defenses is underscored by recent developments involving leading AI companies. These developments highlight the rapidly evolving nature of cyber threats and the growing need for stronger cybersecurity infrastructure.

As per CNBC, recently, OpenAI and Anthropic reported instances in which AI models broke out of controlled testing environments and attempted to access other companies’ systems. Additionally, Meta has also revealed that one of its AI models breached another company’s systems during a cybersecurity assessment, while several U.S. hedge funds have been targeted by phishing attacks.

Per the article, these incidents highlight a broader cyber arms race fueled by rapidly advancing AI. AI-enabled phishing is particularly concerning, with such attacks being around five times more effective than human-led attempts. As per Blackpanda’s Gene Yu, as quoted on the article, AI can be a double-edged sword. The same abilities that allow AI to detect cyberattacks can similarly be used to identify weaknesses and exploit vulnerabilities in digital systems.

Rising Cyber Warfare Is Fueling Demand for Digital Defense

The sector’s long-term outlook is also being reinforced by the rising importance of cyberwarfare in an increasingly fragile geopolitical environment, as conflicts extend beyond traditional battlefields into the digital domain.

As warfare increasingly moves into the digital domain, investment in military-grade cybersecurity solutions has become strategically essential. Recent geopolitical conflicts, marked by a rise in cyberattacks, underscore this trend.

With cybersecurity emerging as a cornerstone of modern defense strategy, the global military cybersecurity market is poised for significant growth, further highlighting the strong long-term growth prospects of the broader cybersecurity industry. According to Fortune Business Insights, the global defense cybersecurity market is forecasted to witness a CAGR of 10% from 2026 to 2034, reaching a valuation of $56.57 billion by 2034.

Why Cybersecurity Could Be AI’s Next Big Investment Theme

This backdrop highlights why cybersecurity funds deserve a place on investors’ radar, regardless of their outlook on the AI trade. Cyber threats persist regardless of market conditions, making cybersecurity a relatively resilient investment theme across both bull and bear markets.

At the same time, AI and cybersecurity are becoming increasingly inseparable components of the modern digital economy. AI cannot scale securely without robust cybersecurity infrastructure, making cybersecurity an important complementary theme for investors looking to capitalize on the broader AI growth story.

As businesses continue to increase cybersecurity spending to protect increasingly complex digital ecosystems, sustained demand could support the sector’s long-term growth prospects and strengthen its appeal as a compelling investment opportunity. As per Fortune Business Insights, the global cybersecurity market is projected to witness a CAGR of 13.8%, expanding from an estimated $248.28 billion in 2026 to $699.39 billion by 2034.

Who Stands to Benefit From Rising Cybersecurity Demand?

As per Paul Meeks, Freedom Capital Markets’ head of technology research, as cybersecurity spending accelerates, pure-play vendors like Palo Alto Networks and CrowdStrike could be among the biggest beneficiaries. As quoted on the CNBC article, Meeks notes that, while hyperscalers are expanding their cybersecurity capabilities, specialized vendors continue to maintain an edge through their more advanced and battle-tested security platforms.

Gene Yu shares a similar perspective. As quoted on the abovementioned CNBC article, Gene Yu states that leading cybersecurity companies are well positioned to initially benefit from the surge in spending, making cybersecurity services one of the more resilient areas of the AI investment cycle. However, he also notes that hyperscalers could also gain as they build out their cybersecurity capabilities.

This is where cybersecurity ETFs come into play, allowing investors to gain diversified exposure to the broader cybersecurity landscape. By spreading exposure across cybersecurity players positioned to benefit from rising security spending, these funds offer investors a way to participate in the sector’s growth without having to pick individual winners.

ETFs to Invest in Cybersecurity

Below, we highlight a few ETFs that provide investors with an opportunity to capitalize on cybersecurity’s growth potential.

First Trust NASDAQ Cybersecurity ETF CIBR

First Trust NASDAQ Cybersecurity ETF seeks to track the performance of the Nasdaq CTA Cybersecurity Index. The fund charges an annual fee of 0.58% and has an asset base of $15.88 billion.

Amplify Cybersecurity ETF HACK

Amplify Cybersecurity ETF seeks to track the performance of the Nasdaq ISE Cyber Security Select Index. The fund charges an annual fee of 0.60% and has an asset base of $3.01 billion.

Global X Cybersecurity ETF BUG

Global X Cybersecurity ETF seeks to track the performance of Indxx Cybersecurity Index. The fund charges an annual fee of 0.50% and has an asset base of $1.52 billion.

iShares Cybersecurity & Tech ETF IHAK

iShares Cybersecurity & Tech ETF seeks to track the performance of NYSE FactSet Global Cyber Security Index. The fund charges an annual fee of 0.47% and has an asset base of $1.09 billion.

WisdomTreeCybersecurity Fund WCBR

WisdomTree Cybersecurity Fund seeks to track the performance of WisdomTree Team8 Cybersecurity Index. The fund charges an annual fee of 0.45% and has an asset base of $130.5 million.

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This article originally published on Zacks Investment Research (zacks.com).

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