Fortinet: A Top Cybersecurity Stock With Growth Catalysts

Key Points

• Fortinet has outperformed several higher-profile cybersecurity stocks in returns over the past 52 weeks.
• The company's use of customized semiconductors has been a key differentiator.
• What are the potential growth catalysts for Fortinet over the coming years? A product refresh cycle and AI could help.

Over the past 52 weeks, a seemingly unlikely winner has emerged among cybersecurity stocks. That stock is Fortinet NASDAQ: FTNT. The stock has provided a 52-week total return of 50% as of the Mar. 25 close. This surpasses the returns of much more talked-about cybersecurity stocks like Palo Alto Networks NASDAQ: PANW and CrowdStrike NASDAQ: CRWD. Those stocks have provided total returns of 33% and 19%, respectively.

So, what is behind this stock’s impressive rise, and can Fortinet continue this strong performance? Multiple interesting catalysts exist that could help push the stock higher. One relates to the firm’s use of semiconductors.

Understanding Fortinet: ASICs Give the Company a Leg Up

Fortinet is one of the biggest players in the cybersecurity industry. This all starts from having a massive and growing market share in firewall hardware. These devices look at data that is trying to leave or enter a network based around a certain physical location. It either blocks or allows information to pass through a network based on security rules and protocols.

Fortinet held over a 50% market share in physical firewall units shipped in 2024. One way that Fortinet has been bolstering its physical firewall offering is through building them with application-specific integrated circuits (ASICs). Fortinet calls this technology FortiASIC.

Engineers customize ASICs to perform a specific task very well. This greatly increases their performance and energy efficiency over general-use chips. This feeds into the company’s cybersecurity services, namely software, that it sells on top of its hardware. With rising cybersecurity demands, ASICs run Fortinet's software more efficiently. This keeps networks safe while preventing significant slowdowns.

Fortinet’s services have become an increasingly large part of their business, making up 68% of total revenue in 2024. Fortinet’s ASICs give them a clear edge. They are the only cybersecurity company using ASICs. Increasing services revenue contribution helped Fortinet massively increase its adjusted operating margin by 660 basis points in 2024.

FTNT Earnings Beat and Show Positives for Future Services Growth

Fortinet recently released an earnings report that aided the stock’s remarkable rise over the past 52 weeks. On Feb. 6, Fortinet reported earnings, beating analysts' estimates on both sales and adjusted earnings per share (EPS). Fortinet achieved sales growth of over 17%, surpassing average expectations of 13% growth. Adjusted EPS rose by a whopping 45%, blowing out of the water the average estimated growth of 20%.

Still, shares gained just 3% afterward. This modest gain was likely because the company’s guidance came in essentially in line with expectations. Overall, the company is guiding for 13% revenue growth and just 3% adjusted EPS growth in 2025. However, one part of Fortinet’s earnings report that was particularly encouraging was its product revenues.

Product revenues grew just under 18%, the fastest pace since Q2 2023. This is good to see because more physical products installed leads to Fortinet upselling more high-margin service revenue over time.

Opportunities for FTNT Going Forward

Fortinet’s ASIC-enabled hardware is being used in data centers. During the earnings call, an analyst suggested that hyperscalers, like Oracle NYSE: ORCL, are using FortiASIC to protect their data centers. The analyst asked how much Fortinet is working to boost FortiASIC sales as hyperscalers expand their data centers.

Chief Executive Officer Ken Xie did not directly answer the question. However, he said Fortinet sees a huge opportunity to secure not only general data centers but also AI data centers. The focus on AI makes sense. With AI generating massively larger amounts of data, using ASICs can secure this data in a particularly efficient manner.

The company also discussed a significant refresh cycle that it expects for its product segment in 2026 and 2027. In those years, over one-third of the company’s firewall base will see support end, which will cause many customers to upgrade their products. As stated before, more product sales lead to more service sales.

The company may have a particularly strong opportunity to drive service sales growth through this upgrade cycle. Its new hardware products can run many more applications than the old ones. That means the company could now sell even more software because its new hardware is compatible with more software offerings.

Overall, it's hard to say what will happen in the rest of 2025 for Fortinet shares. However, the company has created strong product differentiation. The prospect of higher product sales is an encouraging sign. Additionally, the potential AI data center opportunity could be huge. Fortinet looks set up well to drive longer-term growth.