Fortinet, Inc. (FTNT Quick QuoteFTNT - Free Report) raised its 2026 revenue and billings outlook following strong third-quarter demand, with artificial intelligence, network security upgrades and large enterprise deployments supporting growth.

However, management faced questions about delayed service revenue recognition, changing product economics and the sustainability of hardware demand heading into 2027.

Fortinet Raises Outlook on Strong Billings

Chief financial officer Christiane Ohlgart raised the company's 2026 revenue guidance to $8.125-$8.215 billion and billings guidance to $9.568-$9.718 billion.

The fourth-quarter outlook calls for revenues of $2.155-$2.245 billion and billings of $2.775-$2.925 billion. Management projects non-GAAP operating margins of 35.5%-37.5%.

Ohlgart said full-year billings and revenue growth should reach 28% and 20%, respectively, at guidance midpoints. She expects both metrics to outpace addressable market growth in 2027.

FTNT Maintains Margin and Cash Flow Discipline

Non-GAAP operating margin reached 38.2%, increasing 130 basis points year over year. Non-GAAP earnings of $0.91 per share exceeded the Zacks Consensus Estimate of $0.85. Revenues of $2.08 billion surpassed the Zacks Consensus Estimate of $2.06 billion. Free cash flow reached $865 million, increasing 52%.

Fortinet, Inc. Price, Consensus and EPS Surprise

Fortinet, Inc. price-consensus-eps-surprise-chart | Fortinet, Inc. Quote

Ohlgart also highlighted a $1.2 billion increase in share repurchase authorization, bringing the remaining authorization to $2 billion.

FTNT Faces Questions on Service Revenue Timing

Service revenues increased 13% to $1.31 billion despite 26% growth in service billings. Ohlgart attributed the divergence to delayed service activations associated with large enterprise contracts.

During discussions with Goldman Sachs, she acknowledged that delayed activations would also affect fourth-quarter revenue recognition. New enterprise expansions require implementation periods before services begin contributing revenue.

A Raymond James analyst challenged management's confidence in faster service growth during 2027. Ohlgart clarified that she expects improved growth rates rather than acceleration, citing short-term deferred revenue growth of 14.5%.

Fortinet Sees AI Security Driving Demand

Chief executive officer Ken Xie emphasized network security's central role in protecting AI infrastructure, applications and enterprise workflows.

The company's SASE Firewall billings increased 31%, supported by enterprise upgrades and broader security deployments. Xie highlighted FortiOS integration and proprietary FortiASIC technology as competitive differentiators.

Fortinet also introduced FortiGuard Inline AI Security Service, designed to extend AI-specific inspection and protection through existing FortiGate installations. Management expects additional subscription opportunities as customers adopt AI security capabilities.

FTNT Addresses Pricing and Supply Constraints

During Barclays' questioning, Xie discussed component inflation and longer supply lead times. He acknowledged that inventory accumulated earlier helped cushion costs during the first half.

In response to Stifel, Xie attributed some growth deceleration to fading inventory advantages and tighter component availability rather than weakening demand.

Chief operating officer John Whittle described AI-related security threats as a durable demand driver. Investor relations subsequently clarified that pricing increases contributed approximately 10 percentage points to year-over-year billings growth rather than revenue growth.

Fortinet Expands Enterprise and OT Opportunities

Ohlgart reported 51% growth in the total value of deals exceeding $1 million, supported particularly by large U.S. enterprise customers.

Operational technology security billings grew nearly 40%. Management highlighted an eight-figure transportation infrastructure contract and another eight-figure retail deployment covering 1,500 stores.

During Morgan Stanley's questioning, Ohlgart described expanding OT demand across additional geographies. She also emphasized Fortinet's partner network in supporting large-scale installations.

Fortinet Maintains Focus on Sustainable Growth

Management maintained confidence in enterprise demand despite service activation delays, component cost pressures and changing hardware-service sales mixes.

Xie emphasized continued investment in integrated security architecture, while Ohlgart prioritized converting service billings into recognized revenues and maintaining operating profitability.

FTNT’s Zacks Rank and Style Scores Signal Mixed Prospects

FTNT currently carries a Zacks Rank #3 (Hold), indicating a neutral near-term outlook. Its Growth Score of A and Momentum Score of A highlight favorable growth characteristics and price momentum, while its Value Score of D reflects less attractive valuation characteristics. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The stock's VGM Score of B indicates a favorable combined assessment of value, growth and momentum. However, the Hold ranking tempers the implications of those stronger style scores. The Zacks Rank could change as analysts revise earnings estimates following the latest results.