We came across a bearish thesis on Fortinet, Inc. (FTNT) on Substack by Long-Term Pick. In this article, we will summarize the bears’ thesis on FTNT. Fortinet, Inc. (FTNT)’s share was trading at $109.98 as of Feb 13th. FTNT’s trailing and forward P/E were 48.66 and 44.44 respectively according to Yahoo Finance.
A technician in a laboratory, overseeing cutting edge cybersecurity solutions.
Fortinet (FTNT) has long been a dominant force in the cybersecurity industry, but cracks are starting to emerge in its growth narrative. While the company continues to post strong margins and revenue gains, its underlying fundamentals suggest an increasingly difficult path forward. The stock appears overvalued, with a PEG ratio exceeding 3, and recent earnings indicate slowing momentum, raising concerns about its ability to sustain past performance. With heightened competition, weakening demand signals, and growing macroeconomic headwinds, Fortinet’s valuation looks stretched, leaving significant downside risk for investors.
The most pressing issue is Fortinet’s slowing growth. Billings growth for Q1 2025 is projected at only 11%, a sharp deceleration from prior quarters. This suggests that demand for its cybersecurity solutions, particularly its product segment, is beginning to wane. The company’s latest guidance does not reflect the strong performance seen in Q4 2024, indicating that management itself is uncertain about near-term prospects. The average contract term has also decreased by one month year-over-year, a concerning trend that points to shorter customer commitments and potential pricing pressure in future deals.
Additionally, macroeconomic challenges could further weigh on Fortinet’s ability to maintain its growth trajectory. The company faces uncertainty regarding tariffs and supply chain constraints, particularly in Latin America, Canada, and U.S. government sales. Rising geopolitical tensions and economic slowdowns in key markets could lead to lower cybersecurity spending, especially among enterprises looking to tighten budgets. Fortinet has benefited from strong enterprise demand over the past few years, but with IT budgets under pressure and customers shifting spending toward AI-driven security solutions, legacy cybersecurity providers may struggle to justify premium pricing.
Competition in the cybersecurity space is intensifying, further eroding Fortinet’s competitive positioning. Industry giants like Palo Alto Networks and CrowdStrike are aggressively expanding their offerings, gaining market share through superior AI-driven security platforms. Fortinet’s heavy reliance on hardware-based solutions, particularly its firewall business, could become a liability as the industry shifts toward cloud-native security architectures. The rise of Secure Access Service Edge (SASE) and extended detection and response (XDR) solutions may gradually diminish Fortinet’s market dominance.
The company’s recent acquisitions, including Lacework and Perception Point, introduce additional execution risks. While these deals expand Fortinet’s security capabilities, they also come at a cost—management has already warned that these acquisitions will compress operating margins by 50 basis points in 2025. With cybersecurity spending increasingly focused on software and AI-driven security, Fortinet may find it difficult to extract meaningful synergies from these deals, potentially leading to margin erosion and increased integration challenges.
At its current valuation, Fortinet offers an unattractive risk-reward profile. While the company remains profitable, its slowing growth, macro uncertainties, intensifying competition, and integration risks create a bearish setup. If growth continues to moderate or margins come under pressure, investors could see significant downside as the market re-rates the stock. With limited upside potential at current levels, Fortinet appears overvalued and vulnerable to a correction.
Fortinet, Inc. (FTNT) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 47 hedge fund portfolios held FTNT at the end of the third quarter which was 42 in the previous quarter. While we acknowledge the risk and potential of FTNT as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than FTNT but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.