Several U.S.-listed security-software stocks, primarily operating in Israel, experienced a decline in value as the country contends with the Palestinian militant group, Hamas.
Known as a dominant force in cybersecurity, Israel houses 33% of the world's unicorns, startups valued at $1 billion or more, according to the Israel National Cyber Directorate.
On Monday, the BlueStar Israel Technology exchange-traded fund (ticker: ITEQ), which monitors Israeli cybersecurity companies and other tech firms, witnessed a 3.4% decrease. Despite the war's impact on key personnel for Israeli tech companies, CEO of MarketVector Indexes, Steven Schoenfeld, expressed confidence in their resilience during previous conflicts.
Presently, investor sentiment remains pessimistic. Check Point Software Technologies (ticker: CHKP), the Nasdaq-listed company with the highest weightage of 9.1% in the ETF, experienced a nearly 3% decline at Monday's opening. With its headquarters in Tel Aviv and a significant presence of 60% of office space and 42% of employees in Israel, Check Point Software faces the most substantial exposure to the country among the security-software firms analyzed by J.P. Morgan's Brian Essex and his team.
Identity-Security Companies with Assets in Israel
Israeli-based identity-security company CyberArk Software (CYBR) holds 71% of its long-term assets in Israel. These assets encompass fixed assets like equipment, as well as intangible assets like copyrights and software. However, CyberArk Software's stock witnessed a decline of 5.3%.
On the other hand, though SentinelOne (S) is based in California, it has 44% of its long-term assets in Israel, with a significant portion of its Research and Development operations situated in Tel Aviv. Unfortunately, the cybersecurity company experienced a drop of nearly 4% in its stock.
Palo Alto Networks (PANW), which has acquired several Israeli-based companies such as Cider and Cyber Secdo, only has 12% of its long-lived assets located in Israel. Initially, the stock experienced a slight decline of 0.3% at the market open, but eventually recovered to boast a gain of 2% by mid-morning.
J.P. Morgan also listed other security-software companies, Rapid7 (RPD) and Tenable Holdings (TENB), whose stocks fell by small percentages in the low single digits.
J.P. Morgan expressed confidence that companies with operations in Israel are adequately equipped to handle geopolitical disruptions in the region. However, they anticipate that stocks of more exposed companies within their coverage universe might face pressure as events continue to unfold.