If the Tech industry has reached new highs in recent weeks, the cybersecurity sector has encountered some turbulence with Palo Alto’s acquisition of CyberArk raising some concerns about the need for large-scale M&A to sustain growth and Fortinet’s earnings commentary and soft Q3 outlook in early August weighing on the group and dragging down peers.
While Fortinet posted a robust Q2 with billings growth accelerating to 15.5% from 13.5% in Q1, 3% ahead of consensus, the guidance for Q3 and FY25 pointed to a deceleration in billings growth. The company commented that the anticipated large firewall refresh cycle, initially expected to generate $400–450 million in revenue between 2025 and 2026, was already 40–50% complete, making the refresh less meaningful for growth in the coming quarters.
We see two main explanations for this shortfall. First, Fortinet may be ceding share in the firewall market as peers such as Palo Alto, F5, and Check Point have not flagged similar weakness in recent earnings calls. Second, the firewall category itself may be facing structural headwinds as adoption of SASE (Secure Access Service Edge) accelerates. While firewalls are physical appliances deployed on-premises to filter network traffic, cloud-native SASE solutions can increasingly replace or complement them, particularly in cloud-centric environments.
If confirmed, a deceleration in firewall demand would likely affect only a handful of vendors — primarily Fortinet, Palo Alto, Cisco, F5, and Check Point. In that context, we believe the sell-off across other cybersecurity names in sympathy with Fortinet appears excessive, notably when considering that some players focused on SASE, such as Zscaler, could benefit from customers’ shift away from firewalls.
Crucially, the sector’s fundamentals remain robust. Most cybersecurity vendors continue to post solid double-digit growth despite temporary headwinds from softer federal spending (some deal slippage and/or downsizing were visible in H1). Notably, Palo Alto provided last night a reassuring outlook after the concerns that emerged in relation to the CyberArk takeover, with 14% revenue growth and 26-27% ARR growth for FY26 coming ahead of expectations.
When these federal spending challenges ease — with year-over-year comparisons improving into H1 2026 — revenue growth could pick up across the industry, supported by persistent geopolitical tensions and the secular rise in AI adoption, both of which are likely to drive incremental demand for data security.
