Fortinet sinks 25%, ServiceNow 14% after hours as software jitters spread

Fortinet's numbers: Revenue rose 20% to $2.08 billion, ahead of the $2.06 billion analysts expected, and adjusted earnings of 91 cents a share beat the 86-cent estimate. Product sales jumped 37% to $765 million and billings rose 29% to $2.34 billion, the company said, and it added $1.2 billion to its stock buyback plan. But revenue growth slowed from 26% in the prior quarter, Benzinga reported, and Fortinet trimmed its full-year forecast for service revenue, its subscription and support business, to $5.15 billion to $5.17 billion from $5.18 billion to $5.22 billion. Its adjusted gross margin of 79.6% was also a bit below the 80.1% analysts expected, CNBC said.

ServiceNow's numbers: Revenue rose 20.5% to $4.11 billion, slightly above estimates, but adjusted earnings of $1.00 a share missed the $1.02 forecast, per LSEG data cited by Reuters. The company raised its full-year subscription revenue forecast to $15.78 billion to $15.79 billion and lifted its target for new AI contract value this year to $1.7 billion. Its fourth-quarter subscription revenue forecast of $4.245 billion to $4.255 billion matched the FactSet consensus cited by CNBC, but its forecast of more than 18% growth in signed contracts due over the next year fell short of the 19% analysts expected on average, Bloomberg reported.

The spillover: Fortinet's drop pulled down other security stocks after hours. Palo Alto Networks fell about 6.7%, Zscaler 6.4%, CrowdStrike 6.1% and Okta 5.2%, Benzinga reported. Fortinet shares had more than doubled this year heading into the report, which left little room for disappointment, Benzinga noted.

Why investors sold, and the case for holding: The bear case, as Bloomberg described it for ServiceNow, is that a forecast that only matched expectations did not ease Wall Street's worry that AI tools could disrupt traditional business-software makers. For Fortinet, Benzinga said investors fixated on slowing growth and the lower service forecast after a huge run-up. The bull case rests on the companies' own figures: Fortinet generated $865 million in free cash flow in the quarter and raised its full-year revenue forecast to $8.125 billion to $8.215 billion, while ServiceNow raised its full-year subscription outlook, lifted its free-cash-flow margin target to 36% and grew its AI sales goal.

What's still unknown: After-hours trading is thin, and moves this large often shrink or grow by the next session. Thursday's open will show whether the selling holds and whether it spreads to other software makers.

Results and forecasts are from Fortinet's and ServiceNow's Oct. 28 earnings releases. Analyst estimates are LSEG consensus figures as reported by Reuters and CNBC; some outlets used other consensus numbers. After-hours share moves come from Reuters, CNBC, Benzinga and Investing.com as of early Wednesday evening ET and can change by Thursday's open. US Brief has not independently confirmed the reasons investors sold; those are the explanations given by the outlets cited.