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Finding Opportunities In Cybersecurity Stocks & ETFs: PANW, OKTA, ZS, HACK - YouTube
Channel: TD Ameritrade Network
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it's time now to talk cyber security
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stocks let's bring in our expert panel
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alex hammerstone director of advisory
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solutions for trusted sec and
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mark cash senior equity analyst at
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morningstar it's great to have you both
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on thank you very much alex what's
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driving the interest in some of these
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names obviously the colonial pipeline
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hack that was a big one cyber security
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work from home has been the ongoing
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story alex tell me more
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so i think all these things and i think
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you know for a long time with cyber
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security we were so focused on breaches
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and people worried about losing their
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data but now so many of these stories
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have been focused on availability right
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so these cyber events are taking down
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systems and causing companies not to be
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able to operate you know whether it's
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the company themselves or one of their
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vendors or third parties and so it's
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having a huge effect it's not just the
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fines uh and marketing issues that they
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had from breaches it now really is
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becoming very clear that this is
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continuing to affect the actual
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functioning of a lot of organizations
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so mark as we take a look as the senior
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equity analyst over at morningstar when
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you look at the opportunities i think
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that you had for example octa and palo
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alto networks as names that you're
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watching closely tell us why
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yeah well thanks for having me on you
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know i think some very good points very
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brought up but you know it's a
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heightened threat environment and then
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you had
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some recent you know executive orders
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from the byte administration saying hey
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we really need to uh
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resolve this as best we can and so
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they're pushed into something called the
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zero trust security architecture which
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means really get rid of implicit trust
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really constantly check that people
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should be allowed to do what they are
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doing with inside networks and we think
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a name like octa is hot you know highly
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positioned towards that zero trust you
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know they're the ones that are kind of
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allowing you to get access to what you
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need and only to what you should be able
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to get
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access to so you know things you'll use
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every day like multi-factor
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authentication single sign-on uh you
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know octa is kind of working behind the
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scenes to allow those things to happen
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so we think they're they're very well
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positioned uh with you know these new
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things coming on they're all about you
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know fighting fighting ransomware and
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fighting the good fight
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right and you know and we'll continue to
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focus on some of these names cloud
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security as you said alex um continues
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to be a really huge issue as everything
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is being moved to the cloud
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and people like some of these names
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right we just talked about octa
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and palo alto z scout z scaler
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crowdstrike are these companies all
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similar but different are there some to
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you that seem to stand out because of
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either what they provide or management
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or is there something is it just cyber
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security like as a broad brush you know
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or is there something special about some
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of the companies over others
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so those are absolutely all strong
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companies i think when it comes to a lot
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of these cyber security solutions you
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know from my view it really ties back
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into a lot of the staffing shortages
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that we're seeing in the industry it's
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very difficult to find cyber security
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experts and personnel right now so any
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of these companies is able to offer a
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really broad solution and multiple
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products so that the users and the
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people that are running these things at
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these companies are able to kind of
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learn one interface and one uh kind of
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one company's way of doing things i
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think they're really gonna be poised for
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success but certainly any of these
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companies that continue to focus on
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research and development
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and their marketing i think are going to
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continue to be very strong
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and mark you talked about u.s federal
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agencies need to move to the zero trust
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which you mentioned before and that's
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why you brought up some of the names
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that you did
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um is this
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i mean
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has this been going on anyway or was
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this something super special brought on
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by the biden administration and why is
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it so important is it very very
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important
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it is important because we think it can
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be a good spending driver for security
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firms or for enterprises looking to
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increase their security but it was going
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on prior to the pandemic i believe the
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way we look at this is the pandemic
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occur and all of a sudden business is
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worried about let's keep our workers
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productive uh and so what that meant is
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you probably
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didn't understand the the gaping holes
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in your security posture um and so that
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was a you know feast for ransomware
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attackers and other people were trying
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you know malicious actors trying to do
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breaches and so you know these
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breaches were always happening but you
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did not have to admit that you were a
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breach victim
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but some of these that really gotten the
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public's attention you know colonial
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pipeline jbs in the summer of this year
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are really putting the spotlight on this
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is a it's a very big problem um cyber
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criminals are always making something
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new um you're always going to be looking
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for the you know next best threat
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defense and
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um
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you know that's why we you know we we
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pointed the names like octa and palo
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alto and i think at a point you know
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you kind of hit on before but
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there's there's best of breed in all
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these there's not one best security name
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you there's a layered approach you know
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no one's you can't just go with one
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security guy so you look at crowdstrike
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z-scale or octa of the peloton networks
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they're all wonderful what they do and
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so most organizations are going to have
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to use various vendors anyway
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yeah and you know just just to sort of
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finalize that thought mark you you know
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you do look at valuations though
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and you know the dollars and cents and
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the balance sheets and some are
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i guess better positioned or
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some are maybe overvalued or frothy and
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you could just buy an etf and get all
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the names that you both are saying are
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very very important mark um tell me a
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little bit are there you know valuation
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issues with some of them or is it
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doesn't matter because some are just
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such great companies
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yeah so evaluation is obviously critical
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here in the space it's very high growing
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um a couple names that we think it might
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be slightly overvalued right now uh
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trading kind of frothy or crowdstrike z
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scaler you know fortinet and you know we
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get it and we understand why people are
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piling them you know cash into these
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momentum stocks right now um
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but we think kind of like the the growth
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rates and the margin expectations are
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pretty extreme when you look at what it
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has to be you know five ten years from
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now to grow into those valuations
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but i think you look at these names and
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the way to think about it is you look at
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like the deferred revenue you look at
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the remaining performance obligations
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you get good visibility into the next
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two three years these guys and what
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you're expecting is they'll lock a
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customer into the ecosystem you know as
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mentioned they're building a platform
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where they sell one product and they
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sell you additional ones over time
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that's why you see 120 plus dollar base
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net retention rates um so a really
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strong upselling opportunity over the
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long run and so
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some of these things got to kind of grow
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into it i think there's also just been
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some exuberance in the market for
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security
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i'm glad to speak with both of you mark
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and alex thank you
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alex hammerstone director of advisory
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solutions for trusted sec and mark cash
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senior equity analyst at morningstar all
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about cyber security
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you
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