Fortinet Stock Tumbles 20% After Earnings Beat. Why It Caught a Downgrade.

Fortinet’s integrated cybersecurity solutions include firewalls. (Oleksandr Lutsenko/Dreamstime)

Fortinet shares tumbled after the cybersecurity company reported a solid quarter late Wednesday, with analysts focusing on the outlook for upgrades of firewall products.

“We see a challenging setup going forward as the refresh tailwind diminishes in 2026,” said KeyBanc analysts led by Eric Heath, as they downgraded the stock to Sector Weight from Overweight. They don’t have a price target on the stock.

The refresh opportunity, referring to updating or renewing IT infrastructure, might not be as large as previously thought, Heath noted, adding that product growth estimates are declining.

Fortinet management noted a $400 million to $450 million refresh opportunity in firewall products in November last year, but said Wednesday that it was 40% to 50% though the 2026 upgrade cycle, suggesting future sales of upgrade components and services could be smaller than expected.

“This is driving confusion about why Fortinet is not seeing stronger product revenue growth and billings materialize,” wrote William Blair analyst Jonathan Ho in a research note.

Ho kept a Market Perform rating on the stock with no target price.

The concerns overshadowed otherwise solid second-quarter earnings. Adjusted earnings came in at 64 cents a share for the quarter ended June 30, beating analysts’ expectations of 59 cents a share. Revenue grew 14% year-over year to $1.6 billion, largely in line with expectations.

Shares fell 20% to $77.30 in premarket trading Thursday.

While peers Palo Alto Networks and Cisco Systems have yet to report earnings, KeyBanc said that the industry refresh cycle for firewall services may have peaked earlier this year.

Write to Elsa Ohlen at elsa.ohlen@barrons.com