Cybersecurity investment rebounds as regulation, AI and cloud risks drive spend

A resilient market snaps back

In the Cyber Security sector, Cybersecurity spending is re-accelerating as boards recalibrate risk and resilience. Global security and risk management outlays are set to reach roughly $215 billion in 2024, up more than 14% year over year, according to a recent forecast from Gartner. The firm points to identity, cloud security, and managed services as the fastest-growing categories as enterprises rationalize tool sprawl and shift more workloads to public cloud according to recent research.

Underlying demand is being reinforced by the simple math of risk. The average cost of a data breach has climbed to nearly $5 million per incident globally, with longer dwell times and complex multi-cloud environments amplifying blast radius and recovery expenses, IBM’s annual analysis shows. That price tag—along with rising cyber insurance premiums and tighter underwriting—continues to justify proactive investments in detection, response, and hardening.

The public markets have taken note. Profitable, scaled security vendors focused on cloud, endpoint, and identity have outperformed broader software indices in recent quarters as customers consolidate around platforms with native AI, integrated telemetry, and strong free cash flow. That momentum is encouraging late-stage private companies to weigh IPOs after a two-year drought, even as investors remain selective on growth quality and unit economics.

Venture, growth, and M&A: Capital rotates to category leaders

In private markets, cybersecurity funding downshifted in 2023 alongside the broader venture pullback, but activity stabilized through 2024 with a tilt toward later-stage, revenue-efficient leaders. Mega-rounds resurfaced in cloud security, data protection, and identity as buyers sought scale, platform breadth, and go-to-market efficiency, industry reports show. Early-stage deal flow remains healthy in niches like OT/ICS security and AI model protection, though valuations have normalized.

Strategic M&A has also regained momentum. Large platforms, consolidators, and private equity sponsors are acquiring tuck-ins that close feature gaps in posture management, identity threat detection, and managed detection and response. Aggregate deal volumes and values rebounded from 2023 lows, with advisors noting a pipeline of carve-outs and take-privates as sellers adjust price expectations per the latest almanac.

Notably, the IPO window is cracked open. High-profile listings in 2024 have tested investor appetite for security names with consistent growth, disciplined sales efficiency, and operating leverage. That dynamic is prompting late-stage firms—particularly in cloud and identity—to evaluate dual-track processes, balancing private capital options against the improving reception in public markets.

Regulation and board-level scrutiny unlock budget

Regulatory pressure has become an explicit catalyst for spend. New U.S. Securities and Exchange Commission rules require companies to disclose material cyber incidents within four business days and to provide annual transparency around risk management and governance—raising the bar on controls, detection, and reporting. Those mandates are accelerating investment in incident response, board reporting, and third-party risk programs under the SEC’s disclosure rules.

Across Europe, the NIS2 Directive and related sectoral regulations are tightening obligations for critical infrastructure and essential services, pushing standardized risk assessments, identity controls, and continuous monitoring deeper into supply chains. Multinationals are building to the highest common denominator, channeling budget toward unified policy, logging, and auditability that can satisfy multiple regulators with fewer tools.

The governance shift is also cultural. Boards are integrating cyber into enterprise risk frameworks, linking controls to operational resilience, M&A diligence, and brand protection. That top-down focus is supporting multi-year programs—zero trust, identity modernization, cloud posture management—tied to measurable outcomes rather than one-off tool buys.

Where the money is going next: Platforms, AI, and the edge

Investors are concentrating bets in three intertwined themes. First, platform consolidation: security operations, identity, and cloud-native controls are converging around unified data layers and automation to reduce noise and speed response. Vendors that can replace multiple point tools with tighter integration—without sacrificing best-of-breed efficacy—are commanding premium multiples.

Second, AI is both a capability and an attack surface. Capital is flowing to detection and response platforms that use machine learning and generative models to triage alerts, summarize incidents, and automate playbooks. At the same time, a new wave of companies is emerging to secure AI pipelines—protecting models, training data, prompts, and outputs—alongside traditional data security and privacy programs.

Third, the edge is expanding. As manufacturers, utilities, and logistics operators digitize operations, OT/ICS security is moving from pilot to platform, with demand for asset discovery, anomaly detection, and safety-oriented incident response. Coupled with continued cloud migration and identity sprawl, these forces are sustaining double-digit growth in the broader market—and, crucially, rewarding vendors and investors that prioritize durability: sticky use cases, clear ROI, and efficient growth.