Fortinet Inc. (NASDAQ:FTNT) saw its stock plunge more than 26% in Thursday's premarket trading, even though the cybersecurity company reported better-than-expected third-quarter 2026 results. The culprit? Slowing growth and a cautious service revenue outlook that overshadowed an otherwise solid quarter.

Third-Quarter Earnings Beat Estimates

Fortinet reported adjusted earnings of 91 cents per share, beating analysts' consensus estimate of 86 cents. Revenue increased 20% year over year to $2.08 billion, exceeding Wall Street expectations. Product revenue surged 37% to $765 million, while service revenue grew 13% to $1.31 billion.

Billings climbed 29% to $2.34 billion, supported by 26% growth in service billings. Short-term deferred revenue rose 14.5%, its fastest growth in five quarters. Free cash flow jumped 52% to $865 million, and adjusted free cash flow reached $912 million, representing a 44% margin.

The board also approved an additional $1.2 billion in share repurchases, bringing its remaining authorization to $2 billion.

AI Security and Large Deals Fuel Growth

Fortinet expanded its AI security offerings through FortiOS, FortiCloud and FortiGuard Inline AI Security Services. An AI model developer selected Fortinet for a seven-figure expansion across five additional data centers. Meanwhile, billings from AI-driven security operations increased 15% as customers consolidated security products onto Fortinet's platform.

SASE firewall billings rose 31%, while operational technology billings climbed nearly 40%. The total value of deals exceeding $1 million grew 51%, driven by strong demand from large U.S. enterprise customers.

Fourth-Quarter Forecast Tops Expectations

Fortinet expects fourth-quarter adjusted earnings of 93 cents to 95 cents per share, above the 87-cent consensus estimate. Revenue is projected at $2.155 billion to $2.245 billion, compared with analysts' expectations of $2.161 billion. The company forecasts billings of $2.775 billion to $2.925 billion. At the midpoint, the outlook implies 20% billings growth and 15% revenue growth.

Fortinet Raises 2026 Forecast Again

Fortinet raised its full-year adjusted earnings forecast to $3.54 to $3.58 per share from $3.41 to $3.47, exceeding the $3.44 consensus estimate. Revenue guidance increased to $8.125 billion to $8.215 billion from $8.02 billion to $8.18 billion. The company expects full-year billings of $9.568 billion to $9.718 billion.

Since February, Fortinet has raised its annual billings forecast by $1.14 billion and revenue outlook by $517 million.

What Likely Triggered the Sell-Off?

Despite the earnings beat, Fortinet's steep sell-off likely reflected concerns about slowing growth and elevated investor expectations. Revenue growth slowed to 20% from 26% in the previous quarter, while product revenue growth decelerated to 37% from 52%.

The company also lowered its full-year service revenue forecast to $5.15 billion to $5.17 billion, down from its previous outlook of $5.18 billion to $5.22 billion. The slowdown and reduced forecast may have fueled concerns about future demand, particularly following the stock's strong rally ahead of earnings.

Cybersecurity Stocks Slide Alongside Fortinet

Fortinet's sharp decline appeared to weigh on other cybersecurity stocks, potentially reflecting broader investor concerns about slowing growth and elevated valuations across the sector. Palo Alto Networks Inc. (NASDAQ:PANW) and CrowdStrike Holdings Inc. (NASDAQ:CRWD) each fell more than 6% in Thursday's premarket trading, while Zscaler Inc. (NASDAQ:ZS) dropped 6.64%.

FTNT Price Action: Fortinet shares were down 26.48% at $127.99 during premarket trading on Thursday, according to market data.