Wedbush (IVES) said dynamic random access memory, or DRAM, pricing is impacting buildouts of firewalls, and the companies facing the greatest headwinds are Fortinet (FTNT), Check Point Software Technologies (CHKP) and Palo Alto Networks (PANW) given their strong exposure to the firewall ecosystem.
Analysts led by Dan Ives said they hosted a call with security industry expert Jim Gruzlewski to get feedback on cyber spending across their coverage and commentary on overall cyber spending across enterprise and federal verticals in North America.
The analysts noted that the December quarter saw a slight deceleration versus the September quarter, with cyberspace not seeing as large of a bump from federal leading to some deal delays while seeing some organizations shut down earlier than prior years.
While there was only 14% of budget usage left at the end of the third quarter, the analysts noted that budgets decelerated from 108.5% to 101%, which was still above plans as the sector navigated certain hurdles not in place at the end of last quarter.
The analysts noted that contract length saw another slight uptick to 31 months versus 29 months in the prior quarter while seeing deal sizes remain relatively flat quarter-over-quarter below the prior quarter of 2% quarter-over-quarter growth while the number of deals increased 1% quarter-over-quarter slightly below the prior quarter of 2% quarter-over-quarter growth.
In addition, the analysts said that sales cycles saw a surprising extension of 10 days to 98 days with more companies seeing more deals getting pushed to future quarters due to the factors stated.
Ives and his team also said that more companies have started to balance overall IT budgets with AI budgets, where both are seeing relatively solid budget increases, putting more dollars available to spend across the board.
“During our conversation, Jim mentioned that vendors are increasing their goals for 2026 with the largest y/y goal increase he has ever seen with the usual increases hovering around 12% – 18%y/y increases, but this year the goals have increased by 25% – 30% y/y given the strength of the pipeline into 2026,” said Ives and his team.
DRAM Pricing Impacting Buildouts of Firewalls
The analysts said that over the past few months, they have seen DRAM pricing increasing, heading into 2026 including Samsung Electronics (SSNLF) and SK hynix (HXSC.F), reportedly, pitching increasing DRAM prices of 60% – 70% quarter-over-quarter from the fourth quarter.
With these DRAM impacts, the analysts noted that many organizations looking to build next-generation firewall systems are bound to see higher bill of materials costs moving forward, which may weigh on margins heading into 2026.
“The organizations facing the greatest headwinds are Fortinet, Check Point, and Palo Alto Networks given their strong exposure to the firewall ecosystem. We note that despite PANW expecting to sell more cyber hardware units this upcoming year, it may see a diminished impact moving forward as the company front-loaded its inventory purchases which may lessen the blow from DRAM price increases moving forward,” said Ives and his team.
The analysts noted that the DRAM pricing issue impacted Check Point’s quantum business, but this was largely offset by a 5% price increase across this business, which softened the blow to the overall business.
“While this was a major concern over the past month or so, DRAM is expected to have a larger impact moving into 2026 rather than in 4Q as more next-gen firewall buildouts continue,” said Ives and his team.
The analysts noted that from a vendor standpoint — CrowdStrike (CRWD) and Netskope (NTSK) had the strongest feedback, while Fortinet had the weakest feedback.
CrowdStrike (CRWD)
The analysts said Crowdstrike came in 5% to 9% above plan as many sales representatives mentioned that they’re at 100% of their quota but still faced increased pressure from upper management to continue exceeding quotas well-beyond what was initially set.
“We believe that CRWD represents the gold standard of cybersecurity that is still generating momentum for its AI-related cyber products as we keep the company on the Wedbush Best Ideas List,” said Ives and his team.
Palo Alto Networks (PANW)
Palo Alto Networks came in 2% to 5% above plan as the company continues to win significant deals across its portfolio including Prisma Access and Cortex XDR against its competition like Cisco (CSCO) and Juniper.
“We continue to believe PANW is still in the early stages of platformization strategy that is still gaining momentum with more tools being added to the platform as we keep the company on the Wedbush Best Ideas List,” said Ives and his team.
Fortinet (FTNT)
The analysts said Fortinet came in at plan in the quarter as the company balanced many tailwinds and headwinds throughout the quarter.
Check Point Software Technologies (CHKP)
Check Point came in 2-5% above plan versus the last quarter which was at plan with the company seeing success with its platform approach. The company’s approach to revamp the channel has started to play out with pricing remaining stable across the platform, according to the analysts.
Zscaler (ZS)
The analysts said that while Zscaler is only about 50% channel with the other half of its business coming from direct avenues, the company came in 2% to 5% above plan well below the 10% above plan seen in the prior quarter as the company’s partnerships formed are still benefiting them well, while Red Canary remains a shining star on this platform.
SentinelOne (S)
Ives and his team noted that SentinelOne came in 2% to 5% above plan which was one of the best quarters in a while with the company starting to see more success at the lower end of the market including mid-market versus competing for larger deals against CrowdStrike.
Rubrik (RBRK)
Rubrik came in 2% to 5% above plan with the company going on the aggressive from a bundlingperspective as Rubrik looks to capitalize on its high targets for goals in 2026 of 40% year-over-year growth, the analysts noted.
Netskope (NTSK)
The analysts said Netskope came in 5% to 9% above plan as the company’s tech remains superior to Zscaler and other competitors leading to incremental deal wins in the space.
Okta (OKTA)
The analysts noted that Okta came in 2% to 5% above plan, a slight downtick from last quarter as the company continues to navigate a much more difficult competitive landscape, including Sailpoint (SAIL), CyberArk Software (CYBR), and Microsoft (MSFT) to name a few.
Tenable (TENB)
Ives and his team noted that Tenable came in slightly ahead of plan 2% to 5% which was in-line with the prior quarter with the company still seeing some momentum with goals up 20% into the new year.
Qualys (QLYS)
Qualys came in 2% to 5% above plan, which was slightly above the prior quarter of at plan, as the company saw a lot of buyouts with TruRisk upgrades and trials, according to the analysts.
Varonis (VRNS)
The analysts said that Varonis came in 5% to 9% above plan, slightly above the prior quarter of 2% to 5% above plan, as the company’s partnerships with Copilot and Amazon’s AWS are still generating traction across its customer base.