Where will the Darktrace share price go next?

The Darktrace share price has been very volatile recently. What has been causing these substantial moves, and where could the share price go next?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Business man on stock market crash financial trade indicator background.

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The Darktrace (LSE: DARK) share price has had a wild couple of months. Gaining over 50%, then losing almost 20% in the month of September alone indicates to me that Darktrace is experiencing a lot of volatility. These large price movements have left me wondering: where will Darktrace shares go next?

What has been driving the volatility?

The Darktrace share price gained steadily for the first couple of months after its IPO in late April. Then, when the company reported a 41% increase in its revenues for the year, the share price exploded, more than doubling over the summer. More recently, however, the share price has suffered from the news that three large private equity firms have been selling their Darktrace holdings. KKR, Summit Partners and Balderton Capital were all investors before the IPO. Now that their lock-up period has ended, they’ve all decided to take profits. Clearly this news has scared markets, denting the Darktrace share price.

Is the price slump an overreaction?

It seems possible to me that the market could have oversold on this news. After all, these three private equity firms have watched their investment in Darktrace almost triple. It would not be unreasonable for them and other investors to take some profits, regardless of any upside potential that they may see for Darktrace.

As well as this, Darktrace investors may be able to find comfort in the fact that the cybersecurity industry, in which Darktrace operates, is growing rapidly. Hackers and other cyber criminals are becoming more and more sophisticated. Companies and governments are under increasing pressure to protect themselves from cyber-attacks. Losses due to cybercrime around the world have been estimated to reach well into the US$ trillion range in 2021 alone, a figure set to increase at a brisk rate over the next decade. Darktrace has found itself in the middle of this increasingly important industry, and with its pioneering AI technology, the company has lots of growth potential. It refers to this technology as a “digital immune system,” capable of halting in-progress cyber-attacks without disrupting regular business operations.

As Darktrace has reported a 45% increase in its customer base for the 12 months ending June 2021, it is probably safe to say that the company’s unique approach to cybersecurity is gaining market share. This is good news for the Darktrace share price.  

Challenges

Despite its recent growth, Darktrace faces several important challenges. It may operate in a high growth industry, but there are many key competitors, eager to take customers from Darktrace. Competitors of note include Cisco Systems, Honeywell and Broadcom, all companies with a market cap of over £100 billion. These companies, among others, are likely to try using economies of scale, and other advantages to improve their cybersecurity systems as business models, thus threatening Darktrace’s market position. As well as this, if Darktrace’s technology has a significant or high-profile failure, it could destroy the company’s reputation. This could severely undermine consumer confidence, and send the share price spiralling down.

Although it is impossible to tell for certain where the Darktrace share price could go next, I remain optimistic for the future, and the shares are on my watch list.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Kevin Diamond has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

How much would I need to invest in income shares to earn £300 a month?

What kind of lump sum would be required to earn £300 a month by taking advantage of some of the…

Read more »

Investing For Beginners

Up 31% in a month, could this FTSE 250 stock be getting bought out?

Jon Smith takes a look at speculation that's pushing the share price of a FTSE 250 share higher and considers…

Read more »

Investing Articles

Here’s how I’d follow Warren Buffett to start building passive income in 2025

Ben McPoland highlights one FTSE 250 firm with a strong competitive edge that he thinks can continue rewarding investors with…

Read more »

Investing Articles

Burberry shares: undervalued FTSE gems that are ready to rocket?

Burberry shares soared at the beginning of the week as the takeover rumour mill went into overdrive. Is Paul Summers…

Read more »

US Stock

Here are the latest share price forecasts for S&P 500 giant Amazon

Amazon has generated monster gains for investors over the last decade. And Wall Street analysts believe the S&P 500 stock…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

2 high-yield FTSE 250 shares I’d buy today — and 1 that I’d avoid

UK markets have felt some volatility after last week’s Budget and the FTSE 250 was no stranger to it. Our…

Read more »

Investing Articles

3 reasons the Rolls-Royce share price could soar over the next decade

Sustainable aviation fuel, narrow-body aircraft, and small nuclear reactors could all keep the Rolls-Royce share price climbing over the next…

Read more »

British flag, Big Ben, Houses of Parliament and British flag composition
Investing Articles

Here’s how much income I’d get if I invested my entire £20k ISA in cheap BT shares

BT shares are on the up but still cheap, while the FTSE 100 telecoms stock offers a good yield too.…

Read more »