Fortinet plays the cards between cyber security and artificial intelligence

Fortinet. It is a major player in the world of computer security. The Nasdaq-listed group divides its business into three areas: Secure Networking, Unified Sase (Secure access service edge) and Security Operations. The first segment (67% of turnover in Q1 2024) consists of an approach that combines networking functions with security functions such as firewalls. In other words: the aim is to protect and manage a company's internal network. In the second area (Unified Sase), on the other hand, are software and hardware for networking and security functions based on cloud compunting. That is: while Secure Networking is normally deployed locally in the company's offices or data centre, Unified Sase (24% of sales in the first three months of 2024) leverages the IT cloud, often outside the company itself, and is accessible from anywhere. Finally: Security Operations (9 per cent). This includes services and products that serve, among other things, monitoring, threat detection and incident response. As well as security automation and retrieval, for example, of data.

This is a business that was characterised by growing turnover and profitability in the last quarter. Revenues were $1.35 billion, up 7.2% from the same period in 2023. GAAP net profit, for its part, was 299.3 million (up from 247.7 million a year earlier). In short: the numbers are expanding. True! A single quarter tells half the story. And yet, the same trend can also be seen going back in time. In 2021, for example, revenues were worth 3.3 billion. Then, little by little, the top line rose, reaching USD 5.3 billion in the last financial year. The adjusted net profitability itself, according to the Bloomberg terminal, grew: it stood at 605.6 million three years ago, while in 2023 it was worth USD 1.145 billion. Margins are also expanding. The ratio of Ebitda to revenue rose from 22.6 per cent (2021) to 26.3 per cent in 2023.

However, on the stock market - at least in the last 12 months - the stock has not moved in accordance with the trend of fundamentals. For instance, after the publication of the latest quarterly numbers Fortinet went down. Why? The answer is articulated. On the one hand, the company beat estimates for turnover and profits; but on the other hand, it reported a 6.4 per cent drop in billing for products and services. Furthermore, also with regard to billing - which is an important indicator for future revenue dynamics - the group predicted a maximum increase of approximately 3% in 2024. This is a lower pace than last year, when the growth of this accounting item was 14.4%. Against this backdrop, traders sold their shares. Not only that. Ubs, in a report, indicated that the business is 'still very difficult to predict (...) More substantial momentum with Sase products will take time to build'. In other words: the volatility of the company's business poses unknowns.

However, there are also those who point out that there are structural trends that, beyond individual company moments, support companies in this sector, including Fortinet. One of these is Artificial intelligence (AI). AI, beyond the usual household names on the stock exchange, increasingly pervades various sectors. Among those most exposed to its 'intrusion' is, precisely, computer security. It has been estimated that the global market for AI-based cyber security services is expected to grow from around $15 billion in 2021 to $135 billion in 2023.

More. On the one hand, Artificial intelligence enables the rapid generation of a new type of sophisticated and customised threats; on the other hand, it helps to strengthen digital defences. Fortinet has developed its offer in this sense. An example? The FortiAI solution that exploits artificial intelligence to detect and respond rapidly to cyber attacks. Thus, among other things, a company - using FortiAI - can first identify suspicious activity, exploiting machine learning. It can then isolate compromised devices and, finally, automatically initiate the necessary countermeasures. At the same time, FortiGuard Labs (the group's threat research centre) analyses new risks and updates network defences in real time.