Fortinet Stock Plunges 26% After Q3 Beat as Service Revenue Outlook Disappints

Fortinet shares cratered roughly 26% in premarket trading on October 29 after the cybersecurity company reported better-than-expected third-quarter fiscal 2026 results but issued a service revenue outlook that fell short of investor expectations. Adjusted EPS came in at $0.91 and GAAP EPS at $0.86, with cash flow from operations of $946 million, and the company raised its full-year revenue outlook. The sell-off reflected concern that the forward guidance, while nominally positive, was not strong enough to justify the stock's premium valuation.

For the fourth quarter, Fortinet guided revenue of $2.155 billion to $2.245 billion and billings of $2.775 billion to $2.925 billion, with non-GAAP gross margin projected at 78% to 80%. Analysts focused on the deceleration in product revenue growth and weakness in the service revenue trajectory as the core worry, with Jim Cramer noting on air that Fortinet's hardware business is "getting killed" by rival Palo Alto Networks.

Multiple Wall Street firms moved quickly to revise their views. Bank of America downgraded the stock on slowing product growth. Jefferies cut its price target citing product cycle concerns, Truist cut its target on service revenue worries, Mizuho lowered its target on growth deceleration, and BTIG reduced its target citing normalized supply dynamics. Guggenheim reiterated its Neutral rating. The downgrades came despite Fortinet's claim that its momentum is driven by "continued leadership in the AI era."

The selloff spread across the software sector, dragging ServiceNow down 19% on its own guidance miss and pulling cybersecurity peers lower in sympathy. The twin disappointments from Fortinet and ServiceNow deepened investor concern about AI disruption weighing on enterprise software demand, a pattern that has recurred across the sector through 2026.