Fortinet Downgraded: Elevated Memory Costs and Margin Risk Drive Sustained Sell Rating

Brian Essex, an analyst from J.P. Morgan, maintained the Sell rating on Fortinet. The associated price target remains the same with $75.00.

Brian Essex has given his Sell rating due to a combination of factors tied to Fortinet’s elevated exposure to rising memory costs and the resulting margin risk. He notes that surging DDR4 prices, driven largely by AI-related demand, are set to materially pressure the cost structure of firewall hardware, where memory can represent a significant portion of the bill of materials, especially for lower-end devices. In Essex’s assessment, Fortinet stands out as the most vulnerable among its peers because of its comparatively higher reliance on hardware-based revenue, lower software mix within product sales, and more limited flexibility to offset cost inflation through operational efficiencies. As existing supply contracts roll off, he expects these higher component costs to begin flowing through Fortinet’s financials in the second half of 2026 and into 2027, putting consensus margin expectations at risk.

Furthermore, Essex highlights that the broader IT spending environment may amplify these pressures, as customers reallocate budgets toward other memory-intensive categories such as servers if firewall spending becomes relatively less critical. Unlike some competitors that have already taken or signaled price increases to cushion the impact, Fortinet appears to have less obvious pricing or cost levers to fully neutralize the anticipated memory-driven cost escalation without impairing demand. Taken together, the combination of structural exposure to memory inflation, timing of contract resets, and potential downside to future margin and earnings estimates underpins his decision to maintain a Sell rating on Fortinet’s shares.