Nasdaq-100® Inside the Index: Fortinet (FTNT)
Key Figures
- $6.80B — FY2025 revenue
- $2.76 — Adjusted EPS (FY2025)
- 35.5% — Adjusted operating margin (FY2025)
- ~47× — Forward P/E (NTM)
- 500K+ — Firewall customers
VOL 1 • ISSUE 14 • SEPTEMBER 2026
Fortinet sells the firewall that guards a company's network. Then it sells the yearly subscriptions that keep it updated.
FTNT • TECHNOLOGY • INDEX CONSTITUENT
This Issue — FTNT
Fortinet, a current Nasdaq-100® constituent at ~0.51% index weight, sells network security to organizations that run their own networks: firewalls in the building, security delivered from the cloud, and the monitoring that watches both. Founded in 2000 in Sunnyvale, it designed its own chip so that inspecting traffic would not slow the traffic down, and it runs every product on one operating system, FortiOS. About 70% of the business comes from outside the Americas, weighted toward European public-sector, industrial and critical-infrastructure buyers with strict rules about where their data may sit (per company disclosures). Newer demand is arriving from AI data centers, where the volume of traffic is the problem being solved.
Business Model & Revenue Drivers
What Fortinet Actually Sells
The visible product is the firewall. FortiGate appliances sit in network closets and data centers at more than 500,000 firewall customers, from school districts to factories to banks (per company filings). All of them run FortiOS, the same operating system Fortinet puts across more than 50 products, so a customer who learns one product can add the next.
The money follows the firewall. Security subscriptions and technical support made up 62% of second-quarter 2026 revenue, subscriptions being the larger half, with hardware the remaining 38% (per company filings). Hardware revenue grew 52% year over year in Q2 2026, and every appliance installed carries subscriptions that come due the following year.
Revenue mix, Q2 2026: Subscriptions & support 62% • Hardware appliances 38%.
Competitive Moat
Why This Is Hard to Replicate
Fortinet designs its own silicon. Its FortiASIC chips handle security inspection in hardware rather than on general-purpose processors, which is what lets a mid-priced appliance check traffic at high throughput. Running a chip program, an operating system and a hardware supply chain at once is difficult to replicate. Most security vendors buy the compute and write only the software.
It accounts for over 50% of global firewall units shipped, more than any other vendor, while ranking second or third in firewall revenue alongside Palo Alto Networks and Check Point (per Bloomberg research estimates). Price-performance buys the unit share, and the units are what subscriptions attach to. Buyers with strict rules on where data may sit keep the on-premise option valuable.
Global firewall units shipped (per Bloomberg research estimates): Fortinet 50%+ • All other vendors combined, under 50%.
Operating Strengths
Three Structural Advantages
- 30,000+ channel partners. Sells through resellers and distributors rather than a direct sales force, one of cybersecurity's largest indirect networks.
- $2.23B free cash flow (FY2025). Subscriptions are billed up front, so cash arrives before the service is delivered. Up every year since FY2020.
- 19% SASE reach, large accounts. Cloud-delivered FortiSASE reaches 19% of the large-enterprise installed base, its billings more than doubling year over year in Q2 2026.
Growth Catalysts
Where the Next Dollar Comes From
The installed base is the sales channel. Fortinet's pitch to a customer who already owns its firewalls is to add cloud-delivered security and security operations on the same operating system, which is why SASE reach inside large accounts represents the clearest upside in the model. The SASE market is expanding at roughly 20% a year (per Bloomberg research estimates), and Fortinet is recognized as a Leader in Gartner's 2025 Magic Quadrant for SASE platforms. After second-quarter results, management raised FY2026 revenue guidance to $8.02–8.18B, implying about 19% growth (company guidance).
- Factory-floor security. Operational technology security, protecting industrial equipment rather than office computers, grew over 70% and is about 15% of the business as of Q2 2026 (per company disclosures).
- US-made chips. A July 2026 collaboration with Intel to build the next FortiASIC processor, including US-based production, is expected to support federal and government demand (company statements).
- AI data centers. High-throughput AI traffic suits hardware-accelerated inspection, and Fortinet secured an eight-figure AI data center deal with a cloud provider in Q2 2026 (per company filings), which represents potential upside if similar deals follow.
Historical Context
FY2020 – FY2025 Revenue Trajectory
~21% five-year revenue CAGR (FY2020–FY2025)
Revenue grew in each of the past six fiscal years, through the 2020 shift to remote work, the 2022 spending surge, and the 2023–24 digestion period that followed it, when growth slowed to the low teens. Profitability moved faster than revenue: adjusted operating margin stepped up sharply in FY2024 as the subscription base scaled. These are past results and are not a guide to future performance.
FY2020: $2.59B
FY2021: $3.34B
FY2022: $4.42B (fastest growth)
FY2023: $5.31B
FY2024: $5.96B (margin step-up)
FY2025: $6.80B
- Adjusted operating margin (FY2020–FY2025): 26.9% → 35.5%, +860 bps
- Free cash flow (FY2020–FY2025): $958M → $2.23B, +132%
- Adjusted EPS (FY2020–FY2025): $0.85 → $2.76, 3.2×
Source: Fortinet Form 10-K filings, Bloomberg.
Ransomware victims rose 389% in a year, per Fortinet's 2026 threat report. Demand for security follows the threat.
Valuation & Investment Thesis
Priced for the Re-Acceleration
Fortinet trades at ~47× forward earnings (NTM) and ~35× forward EV/EBITDA, a premium to the broader software sector. What that price assumes is that recent momentum continues: revenue grew 26% year over year in Q2 2026, and billings, the orders booked ahead of revenue, grew 33% (per company filings).
Management's long-term targets are more measured than the current quarter: revenue and billings growth above 12% a year, with non-GAAP operating margins above 30% (company guidance). The gap between those targets and today's multiple is the debate.
Key Risks
What Could Change the Story
- Refresh-cycle dependence, since part of the current hardware acceleration reflects customers replacing aging appliances, and that cycle ends.
- Cloud-native competition, where Fortinet trails Zscaler and Palo Alto Networks in enterprise cloud-delivered security and its chip advantage does not carry over.
- Multiple compression, with a ~47× forward multiple sensitive to any quarter that misses expectations.
- Taiwan tariff exposure, which company disclosures put at roughly 90 basis points of annual gross margin if US tariffs on Taiwan are implemented.
- Cloud security scale, as the $153M Lacework acquisition needs further investment to compete with larger cloud-security platforms.
What This Means For You
The Index Angle, in Plain Terms
In your index fund — If you hold a fund that tracks the Nasdaq-100 Index®, you already own this.
- Index composition follows transparent eligibility criteria, and FTNT is a current constituent at ~0.51% index weight: roughly 51 cents of every $100 tracking the Nasdaq-100 sits in Fortinet.
- You have probably worked behind one of its firewalls without knowing it. Fortinet hardware sits in the network closets of offices, schools, hospitals and factories, wherever the network still lives in the building.
- The renewal, rather than the hardware sale, is where most of the revenue now comes from. Once a Fortinet firewall is installed, the threat-intelligence and filtering subscriptions on it come due every year.
Decoding the Jargon
Two terms doing the heavy lifting in this issue.
- Billings (orders booked). What customers agreed to pay in the quarter, including subscription years not yet earned as revenue. Billings grew 33% year over year in Q2 2026, faster than revenue, which is why the coming quarters are being priced optimistically.
- SASE (secure access service edge). Security delivered from the cloud to wherever the user is, instead of routing them back through the office firewall. Fortinet's version reaches 19% of its large-enterprise customers so far, so the rest is the sales opportunity.
Bottom Line
Inside the Nasdaq-100®, Fortinet gets paid twice: once when the firewall goes in, then every year it stays in service. Growth depends on how much security runs on that box.
About the Series
The Nasdaq-100® is a globally recognized index of 100 of the most innovative large cap companies listed on the Nasdaq Stock Market®. The Inside the Index series profiles one constituent each issue, from software to soft drinks and computer chips to potato chips, exploring what makes each business distinctive and the metrics investors should know.
Sources
NASDAQ GLOBAL INDEXES. FORTINET SEC FILINGS VIA SEC EDGAR: Q2 2026 FORM 10-Q, FY2025 FORM 10-K; FORTINET INVESTOR RELATIONS FILINGS ARCHIVE. THREAT DATA PER THE FORTINET 2026 GLOBAL THREAT LANDSCAPE REPORT. SASE PLATFORM RECOGNITION PER GARTNER MAGIC QUADRANT FOR SASE PLATFORMS (2025). FIREWALL-SHARE, MARKET-SIZE, CONSENSUS AND FORWARD ESTIMATES PER BLOOMBERG RESEARCH. DATA AS OF 8/13/2026.
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