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Shares of Fortinet (NASDAQ:FTNT) were trading sharply lower on Wednesday, falling as much as 3.4% in early trading and were still down 2.9% as of 12:27 p.m. ET.
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The catalyst that sent the cybersecurity stock lower was a report that an artificial intelligence (AI) start-up is looking to make a splash in the industry.
Reports emerged late yesterday that AI start-up OpenAI was in preliminary talks to acquire security research and cybersecurity company Trail of Bits, according to a story first reported by The Information. The privately held cybersecurity company made a name for itself identifying and securing vulnerabilities in open-source software.
The report suggested this might be an opening volley by OpenAI in a bid to become a cybersecurity contender.
This isn't the first time OpenAI and Trail of Bits have been linked. Several months ago, the pair launched the Patch the Planet initiative, aimed at identifying and securing exploitable vulnerabilities in open source software. During the first week alone, the initiative exposed hundreds of vulnerabilities and security issues and created fixes to secure them.
If this all seems oddly familiar, investors need only recall the collapse of many software-as-a-service (SaaS) stocks to kick off 2026. The debut of AI start-up Anthropic's Claude model raised fears that AI would ultimately replace many existing software offerings. In the ensuing months, SaaS stocks have recovered as investors have come to realize that the truth is much more nuanced and that many of these offerings aren't easily replaced.
Fortinet stock has gained 120% so far this year, with a corresponding increase in its valuation. At 54 times forward earnings and 49 times next year's expected earnings, any bit of bad news could drive the stock lower.
That said, since its IPO in late 2009, Fortinet has established itself as a force in the cybersecurity space, with its stock gaining more than 11,000%. This illustrates an important truth: Sometimes, you get what you pay for.
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Danny Vena, CPA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Fortinet. The Motley Fool has a disclosure policy.
Why Fortinet Stock Slumped on Wednesday was originally published by The Motley Fool
