The use of artificial intelligence (AI) systems in the cybersecurity sector is growing at a rapid pace. Last year, AI-driven cybersecurity spending was around $24 billion, but that figure is expected to rise to nearly $134 billion in 2030, according to Statista forecasts.
Now would be a good time for investors to buy shares of cybersecurity companies that are aggressively integrating AI tools into their platforms. Fortinet (NASDAQ:FTNT) is one such company leveraging AI to drive stronger business growth.
Fortinet’s revenue pipeline improves with AI
Fortinet generated $5.3 billion in revenue in 2023, a 20% increase from the previous year. However, its deferred revenue grew at a faster rate, 24%, to $5.74 billion. Deferred revenue refers to money collected in advance by a business for services that will be rendered later. It is only recognized as revenue once the services have been provided.
Thus, the company’s faster deferred revenue growth indicates that demand for its subscription-based cybersecurity services is robust. This is also evident from the fact that Fortinet’s services revenue grew 28% in 2023 to $3.38 billion, accounting for 64% of its revenue.
Fortinet attributed the solid growth in its services business to strong demand for its security operations-related subscriptions and Secure Access Service Edge (SASE) offerings. It is worth noting that the company has integrated AI into both of these platforms. For example, Fortinet’s AI-driven security operations platform enables customers to quickly detect and respond to threats. Additionally, Fortinet management emphasizes that it has a long history of using AI to improve its offerings.
As CEO Ken Xie said during the fourth quarter conference call:
We have invested heavily in AI across every function and product. For more than a decade, Fortinet has used machine learning and AI to deliver advanced threat intelligence across more than 40 network, endpoint, and application security products. Our solutions apply AI and ML across the expanded digital attack surface, automatically containing and remediating incidents in seconds, compared to the industry average for detection and remediation taking days.
Better yet, the company began using Generative AI to strengthen its cybersecurity platform. The company launched an AI-powered generative cybersecurity assistant in December with the aim of helping organizations “make better decisions, respond quickly to threats, and save time on even the most complex tasks “.
All of this explains why Fortinet is seeing a nice improvement in the number of cybersecurity contracts concluded. In 2023, the company closed 13 deals worth $10 million or more, an increase of 160% from the previous year. Additionally, it closed 474 deals valued at $500,000 or more in the fourth quarter of 2023, a significant increase from the 367 such deals closed in the third quarter.
Given that Fortinet expects its total addressable market to grow from $150 billion this year to $208 billion in 2027, its deal momentum is expected to remain strong, especially given its focus on use of AI to improve its services. Unsurprisingly, analysts expect its bottom line growth to accelerate in 2025 and 2026, following the expected jump of just 4% this year from 2023 levels of $1.63 per share.
Investors Can Expect More Profits From This Cybersecurity Play
Fortinet stock has gained 16% so far in 2024. It currently trades at 46 times earnings, which is a reduction from its five-year average earnings multiple of 56. Its forward earnings multiple of 42 points indicates an improvement in its net results this year. year, and is below its five-year average of 44.
However, Fortinet’s earnings growth is expected to improve in 2025 and 2026, which is why the market could reward it with a premium valuation. But if Fortinet generates earnings per share of $2.47 in 2026, as analysts predict, even if after three years the stock trades at just 40 times earnings, its stock price could reach $99. This would represent a 45% increase from current levels, which is why investors should consider buying it. cybersecurity actions NOW.
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Hard Chauhan has no position in any of the stocks mentioned. The Motley Fool holds positions at and recommends Fortinet. The Motley Fool has a disclosure policy.
1 Artificial Intelligence (AI) Stock to Buy Hand Over Fist Before It Soars 45% was originally published by The Motley Fool
