AI's 'Double-Edged' Sword to Cybersecurity & Software

SPEAKER_1 (0:00)

Joining us right now, Gerald Sparrow, CIO, Sparrow Growth Fund, and Eddy Zervigon is with us, CEO of Quantum Exchange. It's great to see you both. Eddy, I'll start with you. We talk about cybersecurity. The thought originally was maybe AI would make cybersecurity obsolete, and ended up being the complete opposite. And many of the pros were coming on and saying, the more AI we have, the more cybersecurity we need. What say you about the big picture?

Eddy Zervigon (0:32)

Sounds like a big double-edged sword, doesn't it? I think AI is going to have incredible benefits from the defensive side, but also on the offense.

SPEAKER_1 (0:45)

And Gerald, what are your thoughts, big picture?

Gerald Sparrow (0:48)

I think big picture, the increased security needs by both enterprise and government are driving top-line revenue growth for these security companies like CrowdStrike, even Microsoft has a suite of protection. So the increase in the number of agents that are operating, and the breaches that they are attempting to gather secret information from different businesses, is boosting the demand for cybersecurity to be solved by companies.

SPEAKER_1 (1:21)

You talked about the complexity of this story and that phrase that Eddy used. I think a lot of folks are saying the double-edged sword, and it's a very common phrase, but there's also a complex understory here, Gerald. Can you explain that, please?

Gerald Sparrow (1:37)

Yeah, the story is that anyone with a computer and access to the Internet, they have access to Jet, GBT, and Clot. They can develop tools to breach certain securities. Even the Department of Defense and the government, they have adopted what they call zero-trust policy. So everyone has to go through the standard. Everyone has to be checked before they get in, and the identity business is accelerating. And at this recent quarter, they said that 30% boost in their contracts that are $1 million and above. So they're seeing an acceleration on top of an acceleration from last quarter.

SPEAKER_1 (2:21)

We know people love these stocks. I mean, they've sort of run up, they've come back, they were back in fashion. Eddy, when you take a look at AI, and you're thinking about AI plus humans, that was one way. And the other way was AI times AI.

Why does that look at those two different scenarios matter to an investor? What's our takeaway there?

Eddy Zervigon (2:43)

Well, I think when you think about AI, AI is a transformative technology, but it's going to soon meet its partner in the playpen, which is quantum. And quantum and AI are going to have not a linear relationship, but exponential relationship that are going to do a lot of good things, but also a lot of bad things as it relates to cybersecurity.

SPEAKER_1 (3:05)

And when you think about the names that are leading the way, Eddy, which ones would you say seem to be really keeping everything in tact because we have that ETF hack that we look at that has all the names in it, many of the names, but at the same time, we've had rogue agents, Eddy. Do you think there's real leaders in the cybersecurity space?

Eddy Zervigon (3:26)

Well, certainly Palo Alto is placing some big bets as a consolidator in the industry and they're doing a really, really good job of being the one-stop shopping or one-stop shop for cybersecurity needs at the enterprise level. CrowdStrike is also really focused on the agent and making sure that we can corral the bad agents, if you will.

But those are the two big names and the others are, I think, trying to play a little bit of catch-up. But I would say the leader in all of us is Palo Alto and CrowdStrike.

SPEAKER_1 (4:01)

I know you had Okta that you were watching as well. Gerald, let's get to some of the names you mentioned. You had CrowdStrike in there and also Microsoft. Tell us about your expectations going forward for these names when it comes to cybersecurity.

Gerald Sparrow (4:15)

Well, we expect both of them to do well in the industry. So if you look at Microsoft, it's quite a smaller piece of their business, but it is important to their customers, both enterprises and government. If you look at CrowdStrike, they were talking about their Falcon products on their recent call.

They used the word acceleration on top of acceleration. Very rarely do you hear those sites, that language coming out, a good types of language coming out of management. So we like CrowdStrike going into the second half of the year along with Microsoft.

SPEAKER_1 (4:54)

You know, I think some of the idea about cybersecurity just in general is it can more quickly tell you that something is wrong, right? We think about the pace, Eddy, that people are using cybersecurity, what they're using it for at this point now. Tell me a little bit about that, why it's now, it seems, more important than ever.