This Supercharged Stock Has Jumped 70% Since August, but Can It Sustain Its Magnificent Rally?

Earnings Growth and Stock Performance - Fortinet's stock has surged nearly 70% since August 2024, driven by strong quarterly results [1] - The company's Q3 2024 revenue reached $1.51 billion, a 13% YoY increase, surpassing analysts' expectations of $1.48 billion [4] - Non-GAAP earnings per share jumped 54% YoY to $0.63, significantly higher than the guidance of $0.51 [4] - Full-year revenue guidance was raised to $5.89 billion, with non-GAAP earnings expected to reach $2.24 per share, a 37% YoY increase [11] Margin Expansion and Revenue Mix - Non-GAAP operating margin increased from 27.8% to 36.1% YoY, driven by higher services revenue [5] - Services revenue grew 19% YoY to $1.03 billion, while product revenue grew only 1.7% to $474 million [6] - Services business now accounts for 68% of total revenue, up from 65% in the same quarter last year [7] - Services gross margin is 88.5%, compared to 68.4% for the product segment [6] Growth Drivers: SecOps and SASE - Fortinet's AI-focused SecOps offerings grew 32% in billings, accounting for 10.5% of total billings [8] - Demand for AI-driven SecOps is projected to reach $163 billion by 2028, growing at a 13% annual rate [9] - Unified SASE bookings increased 14% YoY, with revenue up 27% [10] - Demand for unified SASE is forecast to grow at a 16% annual rate, reaching $46 billion by 2028 [9] Future Revenue Pipeline - Remaining performance obligations (RPO) increased 15% YoY to $6.1 billion, indicating a stronger future revenue pipeline [10] - Consensus estimates project a 20% annual earnings growth for the next five years, potentially reaching $5.57 per share by 2029 [13] - If the stock trades at 30 times earnings in five years, it could reach $167, representing a 72% increase from current levels [13]