Shares of F5 fell about 20% on Wednesday, a day after the Seattle-based company beat Wall Street’s estimates and said it would boost spending to capitalize on expected growth in the AI security market.
The application security and delivery company’s stock was trading around $368 late Wednesday morning, down from $459 at Tuesday’s close, wiping out about $5 billion in market value. That put F5 on pace for its biggest one-day drop in more than 13 years, according to Barron’s. Before the drop, F5’s shares had climbed nearly 80% this year.
F5’s revenue for its fiscal fourth quarter rose 13% to $917 million, and product revenue jumped 23%. Adjusted earnings of $4.42 a share beat estimates of about $4.30.
Slower growth ahead: Investors seem to be focused on the outlook. F5 expects revenue to grow 8% to 9% in fiscal 2027, down from 11% this year, and adjusted earnings per share to grow 3% to 5%. It’s also projecting lower margins as memory and storage components get more expensive, and as it doubles its team of AI security sellers.
F5’s hardware business is also cooling off. Systems revenue jumped 29% in the quarter as customers replaced aging equipment, but F5 Chief Financial Officer Cooper Werner said on the earnings call that those replacements will taper off in the second half of fiscal 2027.
The AI bet: F5 is spending more to go after AI security. CEO François Locoh-Donou said on the call that the company will double its team of specialist AI security sellers in fiscal 2027 and more than double its marketing in that area. It’s also adding compensation incentives for all of its field sellers to discuss AI security with customers.
F5’s adjusted operating margin fell to 33.7% in the quarter, from 37% a year earlier.
Locoh-Donou said F5’s AI-related bookings topped $100 million in fiscal 2026, up about 300%. Most of that came from AI data delivery, which moves data to and from AI systems, rather than security. More than 300 customers are using an AI-powered web application firewall that F5 launched in March.
The company estimates the AI market it sells into will grow from about $1 billion this year to $11 billion by 2030.
Wall Street reaction: Piper Sandler downgraded the stock to neutral, according to The Motley Fool. Analysts at William Blair, which rates F5 “market perform,” wrote in a research note that “the AI opportunity has yet to contribute meaningfully to the top line.”
We’ve contacted F5 for comment on the stock decline.
F5 has been building out its AI security business, including its acquisition of SurePath AI. Locoh-Donou talked about the company’s path from the early web to AI security on a GeekWire Podcast episode marking F5’s 30th anniversary. He said companies adopting AI are losing track of what those systems can access, and that juggling separate tools to manage it is a burden, which is why F5 is building a single AI security platform.
This week, F5’s board authorized an additional $1.5 billion in stock buybacks, on top of $322 million remaining in its existing program.