Key Highlights

● Fortinet's gross margin reportedly fell short of expectations.

● One recap described the results as solid with raised guidance.

● Shares had already slid during the regular session.

● ServiceNow also tumbled the same evening.

Fortinet shares tumbled in extended trading on Wednesday, October 28, after the cybersecurity company's quarterly gross margin came in below expectations, according to a market recap.

Fortinet (NASDAQ:FTNT) suffered one of the steepest after-hours drops among S&P 500 members on Wednesday, turning a weak regular session into a much steeper decline once its third-quarter report hit the tape. The cybersecurity company's shares had already slid during regular trading, then plunged after the bell. Reports differed on the exact size of the extended-trading decline, but every account pointed to a steep drop.

Margin Miss in Focus

According to one market recap, Fortinet's gross margin fell short of what Wall Street had been looking for. Gross margin, the portion of revenue left after the direct cost of delivering products and services, is closely watched at a company like Fortinet, which sells firewall hardware alongside higher-margin software subscriptions and security services.

Not every account read the quarter the same way. A separate recap described the results as solid and said the company raised its guidance. It was not clear which part of the report drove the after-hours reaction, and no explanation for the share move was given in the coverage reviewed.

A Rough Night for Software

Fortinet was not alone. ServiceNow (NYSE:NOW) also tumbled in extended trading after its quarterly results and fourth-quarter guidance underwhelmed, while Alphabet (NASDAQ:GOOGL) slid sharply after missing on both revenue and earnings. Alphabet's drop in particular weighed on overnight futures tied to the Nasdaq-100, where Fortinet is also a member.

The after-hours damage contrasted with a mostly calm regular session. The S&P 500 closed at 7,743.98, up 21.38 points for a third straight gain, while the Nasdaq Composite added 72.04 points to 26,549.85. Technology led the market's advance, but most of that strength came from semiconductor stocks rather than software.

The Macro Backdrop

The Federal Reserve left its benchmark rate range unchanged on Wednesday in a 10-2 vote, with Governor Lisa Cook and Cleveland Fed President Beth Hammack dissenting in favor of a hike. The statement said inflation remains elevated.

Long-dated Treasury yields climbed, with the 10-year pushing past a key psychological threshold. Higher yields tend to pressure richly valued growth stocks because they reduce the present value of future profits, a dynamic that can magnify the reaction when a growth company disappoints on margins.

What to Watch

Commentary from Fortinet's management on pricing, product mix and costs will be parsed for clues about whether the margin shortfall is a one-off. Analyst reactions, including any rating changes, could shape Thursday's trading.

Broader markets face a busy Thursday, October 29. The advance estimate of third-quarter GDP and September PCE inflation data arrive at 8:30 a.m. ET. Mastercard (NYSE:MA), Merck (NYSE:MRK) and Caterpillar (NYSE:CAT) report before the open, while Amazon (NASDAQ:AMZN) reports after the close.