Fortinet FTNT is sharpening its AI security push, and the effort increasingly reinforces its margin narrative. In August, the company acquired Virtue AI, which adds runtime protection and automated validation for AI models, applications and autonomous agents to complement FortiAIGate. Fortinet said the amount paid was immaterial. In September, Fortinet was named a Leader in the 2026 Gartner Magic Quadrant for Hybrid Mesh Firewall. These moves build on the FortiGate 1200G with FortiSASE Outpost, which targets AI infrastructure requirements, and an Intel collaboration on its SP6 security processor.
Second-quarter 2026 results showed this momentum turning into profitability. Non-GAAP operating margin expanded to a record 38% from 33.1% a year ago, and GAAP operating margin rose to 33.7% from 28.1%. Product gross margin improved 2.4 percentage points to 69.8%, helped by recent pricing actions. Free cash flow reached $966 million, representing a 47.2% margin.
Guidance underlines the margin strength. For 2026, Fortinet now expects a non-GAAP operating margin of 35-37%, up from the earlier guidance of 33-36%, and a non-GAAP gross margin of 79-81%. Revenues are projected to be in the range of $8.02-$8.18 billion, implying 19% growth. Service revenue is expected at $5.18-$5.22 billion and billings at $9.35-$9.55 billion. Non-GAAP EPS guidance was raised to $3.41-$3.47 from $3.10-$3.16. For the third quarter, Fortinet expects revenues of $2.01-$2.10 billion, non-GAAP operating margin of 35-37% and non-GAAP EPS of 83-87 cents.
However, challenges persist. Total GAAP gross margin slipped to 80.2% from 80.7% as the revenue mix shifted 6.5 percentage points toward lower-margin product revenues, while memory chip costs rose. Service gross margin dipped slightly on data center expansion costs. Third-quarter operating margin guidance also implies a step down from the second quarter’s record level.
Overall, raised guidance, robust cash generation and AI-driven product momentum keep Fortinet’s margin profile attractive. Product-mix pressure and rising component costs, however, warrant close monitoring in coming quarters.
How FTNT’s Margins Stack Up Against PANW and CRWD
Fortinet’s margin profile compares favorably with Palo Alto Networks PANW and CrowdStrike CRWD, though both rivals continue to expand their top lines rapidly. Palo Alto Networks’ fiscal fourth-quarter 2026 revenues rose 34% to $3.41 billion, with non-GAAP operating income of $1.01 billion, implying a margin near 30%. For fiscal 2027, Palo Alto Networks expects a 29.5% non-GAAP operating margin and a 38% adjusted free cash flow margin. CrowdStrike’s second-quarter fiscal 2027 revenues grew 26% to $1.47 billion, while non-GAAP operating margin improved to 25% from 22%. However, CrowdStrike still reported a negative 2% GAAP operating margin, well below Fortinet’s 33.7%.
FTNT’s Share Price Performance, Valuation & Estimates
Fortinet shares have gained 144.7% in the year-to-date period, outperforming the Zacks Security industry and the broader Computer and Technology sector’s growth of 117.6% and 23.5%, respectively.
FTNT’s Price Performance
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From a valuation standpoint, FTNT appears overvalued, trading at a forward 12-month price-to-earnings ratio of 51.81, higher than the sector's average of 20.93. The company carries a Value Score of F.
FTNT’s Valuation
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The Zacks Consensus Estimate for Fortinet’s earnings is pegged at $3.45 per share for 2026, which implies year-over-year growth of 25%.
Fortinet, Inc. Price and Consensus
Fortinet, Inc. price-consensus-chart | Fortinet, Inc. Quote
Fortinet currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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