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China Spy Chips in U.S. Hardware: 3 Security Stocks in Focus

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An alarming Bloomberg BusinessWeek report last week claiming that major American corporate giants were under the Chinese government’s surveillance via a minute chip implanted in U.S. hardware, took the country by storm. The companies facing the heat directly are none other than Apple (AAPL - Free Report) and Amazon (AMZN - Free Report) . The data center equipment of these giants are at the center of the hack.

The report comes hardly two weeks after Facebook (FB - Free Report) reported a cyber-attack on its system that compromised more than 50 million accounts worldwide. This isn’t the first attack on a major American technology company this year; Expedia’s (EXPE - Free Report) Orbitz and Under Armour’s (UAA - Free Report) MyFitnessPal app faced cyber security threats as well.

But the damage caused by a possible security breach through Chinese spy chips infiltrated in U.S. hardware matches nothing in terms of scale and gravity. The graveness of the matter is reflected by the companies that formed the base of the attack, indicating that no technology giant is immune to cyber threats.

Therefore, it would be a good idea to add a few cyber security stocks to your watch list, as this segment has become a necessity to tackle serious data breaches.

How Does a Miniscule Chinese Spy Chip Affect You?

American technology giants’ low-cost solution to manufacture and assemble equipment overseas has formulated a problem too big to counter right away. The cost-effective global supply chain that helps Amazon and Apple fabricate and put their hardware together demands a closer look as the Chinese government’s snuck tiny spy chips into equipment processed in China.

Super Micro , a San Jose-based component provider that assembled equipment for Elemental, Amazon and Apple’s hardware supplier, had its equipment infiltrated with Chinese spy chips, the Bloomberg report cited. Amazon, Apple and Super Micro denied allegations made in the report, with Homeland Security saying, “it has no reason to doubt” the statements issued by the concerned companies.

But the issuance of the supply chain compromise calls for a step-by-step evaluation of the entire chain, from designing and manufacturing to assembling. Hardware hacks aren’t easy to detect unless high-end equipment are put to use, therefore it makes more sense to pay heed to cyber security systems that can shield your data.

A microchip can alter the core of the system it is embedded in, allowing it to send and receive signals from a remote server, which can compromise data on the system. Built-in protections are one of the few ways to save your system from a hardware data breach, which is used by cloud services like Google Cloud Platform and Microsoft Azure.

Protect Your Data From Cyber Attacks

Encryption is one of the most effective ways to escape a possible data breach unharmed. This prevents information to be exposed to cybercriminals gaining access to your server remotely through microchips embedded in the hardware.

According to California Attorney General Kamala Harris, “Data breaches pose a serious threat to the privacy, finances and personal security of California consumers. The fight against these kind of cybercrimes requires the use of innovative strategies by government and the private sector to protect our state’s consumers and businesses. I strongly encourage more use of encryption to significantly reduce the risk of data breaches.”

Therefore, it is imperative to use encryption and other means of cyber security to secure your information, thus averting a data breach.

Stocks in Focus

All the cyber security stocks mentioned below carry a Zacks Rank #3 (Hold).

Palo Alto Networks, Inc. (PANW - Free Report) provides network security options to enterprises, government entities and service providers. The company’s firewall is at the very center of its services that offers natively integrated application, content visibility and control through its software architecture, hardware and operating system. Palo Alto’s earnings are expected to grow 25.8% for the current year and its shares have gained 48.9% since the beginning of 2018.

You can see the complete list of today’s Zacks #1 Rank stocks here.

Fortinet, Inc. (FTNT - Free Report) offers network security appliances and Unified Threat Management network security solutions to government bodies, enterprises and service providers worldwide. Its services include antivirus, firewall, intrusion prevention and web filtering among others. The company’s shares have gained 97.1% year to date and its earnings are expected to grow 60.5% for 2018.

FireEye, Inc. (FEYE - Free Report) is a provider of cyber security platforms for enterprises and government bodies. It offers web security, file security, email security and malware analysis. Shares of FireEye have gained 22.4% since the beginning of 2018 and the company’s earnings are expected to grow 112.5% for the current year.

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