Our next war won’t be fought with guns and tanks. Instead, it will be a financial and technology war fought over the internet.

And it’s already started…

In January 2021, Steven Adair noticed something strange happing in one of his customer’s networks — a shadowy presence downloading emails. Adair, who hunts hackers for a living, dug a little deeper and was shocked at what he found… requests for access to specific email accounts and confidential files. All the requests came from a virtual server off-site.

Adair discovered a massive hack into Microsoft Exchange — one of the world’s most popular email software programs.

For nearly three months, intruders helped themselves to mounds of data from tens of thousands of unsuspecting victims. They hit mom-and-pop shops, dentist offices, school districts, and local governments.

The White House and Microsoft said that Chinese government-backed hackers were to blame for the breach. The stolen emails and intellectual property were only the beginning of something far more nefarious: China’s artificial intelligence ambitions.

Remember, this was 2021, before “AI” and artificial intelligence software ChatGPT made waves.

This wasn’t the first time China hacked the United States, nor will it be the last.

In fact, in the last week, Chinese hackers allegedly breached the U.S. Navy as part of a broader campaign that cybersecurity experts believe was intended to disrupt communications in the Pacific region ahead of a possible crisis.

Between the mysterious Chinese “weather” balloons the military shot down, the tensions arising from Taiwan, and the cybersecurity hacks that are becoming more and more prevalent, it seems we might already be at war with China.

A Trillion Dollar War…

Now I realize this sounds conspiracy theory-ish, but the Microsoft Exchange hack and the U.S. Navy breach were the latest in a list of Chinese-sponsored cyberattacks. The tally in just four years between 2014 and 2018 is head-spinning.

For example, during the breach at healthcare insurer Anthem in 2015, cyber thieves swiped 78 million names, birth dates, and Social Security numbers. In 2017, credit reporting agency Equifax announced that hackers stole the credit information of 147.9 million Americans. Then the break-in at Marriott’s Starwood hotels in 2018 saw personal information from some 500 million people stolen.

U.S. officials said Beijing-backed hackers were behind every one of those attacks. Intelligence officials estimate that China has now stolen the personal information of about 80% of Americans.

Like I said… we may already be at war with China.

According to consulting firm McKinsey, the damage from cyberattacks will amount to about $10.5 trillion annually by 2025 — a 300% increase from 2015 levels.

In 2022, the cybersecurity market size was $220 billion. And the market is expected to eclipse $650 billioin by 2030.

In fact, if you’re a business of any size and don’t have cybersecurity as a top priority, you could be in for a world of hurt.

For example, a Texas-based midsize steel structure manufacturer was forced into bankruptcy in May 2019 when ransomware permanently encrypted both its tooling and financial accounting software.

It’s no secret that cybersecurity is a huge market that’s growing like a weed. It’s also one that can be highly profitable for investors. We know this for a fact as we’ve made money here in the past, and it’s a big reason why we are jumping back into the sector this month.

We’ve Profited Here Before…

Longtime readers might recall that this isn’t our first foray into cybersecurity. I first wrote about it back in September 2017. While I didn’t officially recommend a stock in that issue, I alerted my premium readers to two ETFs that gave investors easy exposure to the industry.

The first was Prime Cyber Security ETF (HACK) — now called PureFunds Cyber Security ETF (HACK) — and the other was First Trust Nasdaq Cybersecurity ETF (Nasdaq: CIBR).

Both funds did extremely well in the years following that issue. At their peak, CIBR was up over 160%, with HACK up around 130% compared with the S&P 500’s roughly 87% return over the same period.

These funds were crushing it for investors. But cybersecurity stocks got crushed with the overall selloff in 2022 (more on this in a second).

In June 2018, we officially entered cybersecurity when I recommended Okta, Inc. (Nasdaq: OKTA). We held Okta for just over a year and made a nice triple-digit return on that investment.

Although I must admit, we probably sold that stock too early. But it’s hard to not book a 100%-plus winner in just over a year. However, one of the beauties about investing is that there’s always another opportunity lurking around the corner for patient investors.

That opportunity is here…

Closing Thoughts

Let’s go back and look at those two cybersecurity ETFs I showed you above, and you’ll see what I mean…

As you can see, since late 2021, these ETFs haven’t fared well. They lost as much as one-third of their value. Individual stocks in the space have done even worse… For example, take a look at Okta since November 2021:

Shares lost as much as 80% of their value and are still down over 70% from their highs. The stock closed 17% lower on June 1 after it reported an earnings miss.

So, it’s fair to say that these companies aren’t out of the woods yet. But I believe we are close to the bottom (if we haven’t already seen it), and big gains could be on the horizon. After all, the need for cybersecurity isn’t some fad, or hot word like “Web 3.0” or “AI.” We need cybersecurity like we need air to breathe.

Over at Capital Wealth Letter, we’re going with a dominant security software company that produces nice cash flow. And while I can’t reveal the name of this pick today out of fairness to my premium readers, you can’t go wrong with one of the ETFs I mentioned above. And OKTA may be worth a look, too.

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