Fortinet Sees AI, Neocloud Buildout Fueling Network Security Demand

Key Points

• Fortinet sees AI infrastructure as a major cybersecurity demand driver, with enterprises and “neocloud” providers seeking protection for AI data centers, machine-generated traffic, and AI deployments.
• Neocloud and sovereign AI deployments could provide a growing customer opportunity, particularly as providers build data centers quickly and face data-sovereignty requirements in regions such as Europe.
• Fortinet is expanding AI visibility, segmentation, SASE and SD-WAN offerings while attaching more subscription services to hardware; management cited strong demand tailwinds but said it is not yet providing 2027 targets.

Fortinet NASDAQ: FTNT executives said the cybersecurity company sees artificial intelligence as a growing source of demand for network security, particularly as enterprises and emerging “neocloud” providers build AI infrastructure and seek to protect machine-generated traffic.

Speaking at the Goldman Sachs Communacopia + Technology Conference, Chief Executive Officer and Co-Founder Ken Xie said Fortinet has developed its own AI models and infrastructure, including global data centers with GPUs, and has launched more than 20 AI-enabled products, primarily in security operations. He said the company’s network-security footprint provides data that helps it analyze global intrusion and attack activity.

Xie said the company sees a broader opportunity in securing AI itself, including enterprise AI deployments, internal network segmentation, and infrastructure operated by AI service providers. “You need to use AI to find or protect the other AI,” Xie said.

Neocloud Opportunity and Sovereign Deployments

Fortinet executives described neocloud providers as a potentially important customer group because they are building AI infrastructure quickly and may require security products as they deploy data centers. Xie said these providers can make purchasing decisions in months rather than years, contrasting them with traditional telecommunications carriers.

He cited an example previously discussed in earnings materials in which a neocloud customer evaluated Fortinet’s offerings and made a purchase during the same quarter, followed by an opportunity that was five to 10 times larger in the subsequent quarter. However, Xie said the market remains at an early stage and that neocloud providers are currently focused more on protecting infrastructure than on securing AI models and applications.

Chief Financial Officer Christiane Ohlgart said Fortinet aims to establish reference architectures early in the deployment process so it can grow alongside neocloud operators as they build data centers. She said midsize neocloud companies could be particularly likely customers because they may not have proprietary security components.

Ohlgart also pointed to regulatory requirements around data sovereignty, particularly in Europe, where local companies are building AI infrastructure. She said Fortinet’s technology stack can support sovereign SASE deployments and security for AI clusters operated in environments where local control is mandated.

AI Traffic Drives Internal Security Needs

Xie said recent AI-driven traffic is increasingly occurring in east-west network environments, including within data centers and enterprises. He said machine-to-machine traffic has surpassed human-to-human and human-to-machine traffic across the internet, increasing the need for visibility and control over internal traffic and AI-agent activity.

The company sees internal segmentation as a growing use case as customers seek to understand what AI agents are doing within their networks. Xie said Fortinet’s combination of SD-WAN, SASE and firewall capabilities in one operating system can be deployed on-premises, in the cloud or through service providers, which he said expands the company’s opportunity in hybrid and sovereign SASE environments.

Ohlgart said customers are purchasing larger FortiGate devices than in the past, resulting in higher average selling prices excluding price increases. She said it is unclear whether customers are buying larger systems in anticipation of greater traffic volumes or to deploy more functionality, including SD-WAN, quantum encryption and AI visibility tools.

Fortinet’s newer FortiOS releases provide added AI visibility, according to Ohlgart, including insight into where traffic is going, which models are receiving traffic, and whether prompts may include personal data.

Supply Chain and Pricing

On memory costs, Xie said Fortinet has not seen the same supply constraints affecting high-bandwidth memory used in AI systems because its products primarily use DDR4 and DDR5 memory. He said pricing in those categories has stabilized compared with six months earlier.

Xie said Fortinet monitors channel inventory and has reduced incentives for customers to purchase products far in advance. The company shortened the period customers have to register hardware and activate related services from up to one year to between one and 90 days, he said. Fortinet also seeks to maintain roughly six months of system-level inventory and about one year of inventory for its proprietary application-specific integrated circuits.

He added that Fortinet seeks to maintain relatively stable gross margins by adjusting prices when component costs change, noting that the company has raised prices when costs increased and reduced them when costs declined.

Services Attachments and Growth Outlook

Ohlgart said Fortinet is focused on attaching more services to hardware sales and expanding its subscription portfolio. The company’s newer SD-WAN service bundle includes a SASE starter license, allowing customers deploying SD-WAN to test FortiSASE with 10 to 15 users depending on the FortiGate model.

She said the strategy is intended to help customers evaluate Fortinet’s SASE capabilities before potentially replacing cloud-only SASE or security service edge products when those competing contracts come up for renewal. The SD-WAN services bundle targets customers that may previously have purchased only FortiCare, with FortiCare representing about 20% and additional services representing roughly 35% of the hardware price, according to the executives.

While Fortinet recently reported 52% product growth, Ohlgart said the company is not yet providing 2027 targets and will continue to guide one quarter at a time. She said Fortinet sees demand tailwinds across AI, sovereign SASE, traditional SASE, operational technology and quantum-related security, while noting that the pace of customer decisions remains difficult to predict.

About Fortinet (NASDAQ:FTNT)

Fortinet, Inc develops cybersecurity products and services designed to protect enterprise, small and midsize business, service provider, and government networks. Its portfolio covers network security, endpoint protection, cloud security, secure access service edge (SASE), security operations, and zero-trust access.

The company's offerings include FortiGate next-generation firewalls, FortiSwitch secure networking switches, FortiAP wireless access points, FortiClient endpoint security, and FortiManager and FortiAnalyzer management and analytics tools.

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