Why Fortinet Could Overtake Palo Alto Networks by 2026

The cybersecurity sector has long been dominated by industry giants like Palo Alto Networks (PANW) and Fortinet (FTNT), but a shifting landscape of valuation, growth dynamics, and strategic innovation is positioning Fortinet to surge ahead. While Palo Alto's scale and premium pricing have fueled its market leadership, Fortinet's superior profitability, undervalued stock, and targeted investments in hardware-software integration could give it the edge to overtake PANW by 2026.

Valuation: A Clear Divide in Growth Pricing

Palo Alto's premium valuation reflects investor optimism about its ecosystem strategy, but the numbers suggest overexuberance. As of June 2025, Palo Alto trades at a P/E ratio of 112.95, compared to Fortinet's 41.98—a stark contrast. This gap isn't justified by Palo Alto's revenue growth, which has slowed to 14%-15% in 2025 from a peak of 25% in 2023. Meanwhile, Fortinet's lower P/E ratio aligns with its 31% overvaluation (vs. Palo Alto's 56%), suggesting it offers better risk-adjusted upside.

The EV/EBITDA metric underscores Palo Alto's overvaluation further. Its Q2 2025 ratio of 78.48x dwarfs the industry median of 13.7x, signaling a market overhang. Fortinet's valuation, while also above sector averages, appears more grounded. Both companies face challenges, but Palo Alto's reliance on high multiples to justify growth makes it vulnerable to a correction.

Growth Trajectories: Fortinet's Resilience in a Slowing Market

While Palo Alto's revenue grew faster in 2023 (25% vs. Fortinet's 20%), its growth has since decelerated. Analysts project 14%-15% revenue growth for PANW in 2025, while Fortinet's 2024 slump (8%-10% growth) is expected to rebound to 13% in 2025. The key difference lies in long-term sustainability.

Palo Alto's growth is tied to its Prisma cloud security platform and Cortex AI tools, which require heavy investment. Fortinet, however, is leveraging its ASIC chip technology and Security Fabric ecosystem—a unified, hardware-driven approach—to reduce costs and expand into enterprise markets. This strategy has kept Fortinet's operating margin at 31.7%, far ahead of Palo Alto's 11.1%, ensuring stronger cash flow to fuel innovation.

Strategic Advantages: Hardware Integration vs. Cloud Expansion

The cybersecurity arms race hinges on ecosystem dominance. Palo Alto's cloud-centric model (Prisma, Cortex) targets the booming SaaS market but faces execution risks. Its enterprise customer base of 80,000 lags behind Fortinet's 755,000, indicating broader adoption of FTNT's simpler, integrated solutions.

Fortinet's ASIC chips, designed to accelerate threat detection, reduce reliance on third-party hardware—a critical edge in a sector where latency can mean breach or prevention. This “security at the chip level” approach lowers costs for customers and strengthens Fortinet's $10 billion annual billing target, achievable if it maintains its current trajectory.

Investment Implications: Fortinet's Turnaround Play

Palo Alto's stock price reflects its premium positioning, but its valuation risks a reckoning. A 48.83rd percentile ranking among Software peers highlights its overvaluation, while Fortinet's undervalued metrics and improving growth suggest it's underpriced relative to its potential.

Investors should consider:
- FTNT's margin resilience: A 30%+ net margin versus Palo Alto's 14% gives it flexibility to reinvest.
- PANW's margin contraction: Palo Alto's adjusted operating margin is projected to drop to 25%-26% in 2024, raising concerns about its pricing power.
- Valuation arbitrage: Fortinet's stock offers a 67% upside to its intrinsic value ($73.12 vs. $105.66 price), while Palo Alto's 201.82 price vs. $88.08 intrinsic value implies an 86.5% downside.

Conclusion: Positioning for the Next Wave of Cybersecurity

Palo Alto's ecosystem ambitions are laudable, but its valuation and margin pressures create vulnerabilities. Fortinet's focus on profitability, cost efficiency, and hardware-software synergy positions it to capitalize on slowing growth in the sector and overtake PANW by 2026.

For investors: Buy Fortinet for its undervaluation and margin strength, and avoid Palo Alto until its valuation aligns with fundamentals. The cybersecurity race isn't over—but the finish line may soon favor the company that prioritizes cash flow over cloud dreams.