F5 (FFIV) Q1 2026: Systems Revenue Jumps 37% as AI and Hybrid Multi-Cloud Drive Expansion

January 27, 2026 | By EarningsIQ Research

F5’s Q1 marked a decisive inflection in systems growth, with AI and hybrid multi-cloud adoption fueling a 37% surge in systems revenue and a robust expansion cycle across hardware and software. The company’s strong execution following a high-profile security incident minimized disruption and strengthened customer trust, while regulatory and AI-driven demand in EMEA and government verticals signaled durable tailwinds. Management’s guidance raise and targeted investment highlight confidence in secular trends, though memory cost inflation and evolving enterprise refresh cycles will test F5’s margin resilience as the year progresses.

Summary

• AI and Hybrid Demand Accelerate: Systems growth surged as enterprises modernize for AI workloads and regulatory resilience.
• Security Incident Response Reinforces Trust: F5’s rapid remediation limited demand impact and deepened CISO engagement.
• Guidance Raised on Durable Tailwinds: Management signals confidence in multi-cloud, AI, and converged platform secular trends.

Performance Analysis

F5 delivered 7% revenue growth in Q1, with product revenue up 11% and services up 4%. The standout signal was systems revenue climbing 37% year-over-year to $218 million, driven by tech refresh cycles and AI-related capacity expansion, especially in EMEA where revenue grew 24%. Software revenue dipped 8% against a tough prior-year compare, but subscription-based software eked out 1% growth, and management expressed confidence in a strong renewal cohort for the remainder of the year.

Gross margin remained robust at 83.8% (non-GAAP), though management flagged rising memory costs as a second-half headwind. Operating margin expanded 80 basis points to 38.2% (non-GAAP), reflecting discipline, even as F5 invested in future growth initiatives. Recurring revenue represented 69% of total, highlighting the stability of the maintenance and subscription model. Deferred revenue rose 6% to $2.1 billion, and cash flow from operations was $159 million, with $300 million in share repurchases in Q1.

• Systems Outperformance: Hardware refresh and AI data delivery use cases drove outsized growth, with EMEA and government verticals leading demand.
• Software Growth Normalization: Tough comps masked underlying health; management expects mid-single-digit software growth for FY26.
• Margin Resilience Amid Cost Pressures: Memory inflation will impact product COGS, but operating leverage and pricing actions sustain profitability.

F5’s balanced product and services mix, combined with strong demand in regulated and AI-forward sectors, positions the company for continued growth even as the operating environment evolves.

Executive Commentary

Strategic Positioning

1. Hybrid Multi-Cloud as Core Operating Model

Hybrid multi-cloud, deploying workloads across on-premises, private, and public clouds, has become the dominant enterprise model. F5’s architecture enables consistent application delivery and security across all environments, a capability amplified by regulatory drivers such as NISTU and DORA that demand resilience and digital sovereignty, especially in EMEA. The company’s platform-agnostic approach appeals to organizations seeking flexibility to avoid vendor lock-in and comply with evolving mandates.

2. AI Infrastructure and Security Tailwinds

AI adoption is now a material driver of F5’s growth, with enterprises shifting from model training to production inference, creating demand for high-performance data pipelines and runtime security. F5’s BIG-IP and AI guardrail solutions address both data throughput and novel security threats, such as prompt injection. Management highlighted that Q1 saw as many new AI customers as all of FY25, with use cases balanced between data delivery and security, underscoring the breadth of F5’s value proposition.

3. Converged Platforms and Vendor Consolidation

Fragmented point solutions are being replaced by unified platforms that simplify operations and reduce risk. F5’s Application Delivery and Security Platform (ADSP) converges high-performance traffic management with advanced security, enabling customers to consolidate vendors and streamline policy management across hybrid environments. This convergence is driving large wins in banking, consumer products, and public sector verticals.

4. Security Incident as Relationship Catalyst

F5’s rapid response to the Q1 security incident—mobilizing support, patching, and engaging directly with CISOs—limited disruption and strengthened trust. Over 9,000 additional support cases were resolved with positive customer feedback, and more than half of F5’s customer base is now on the latest software release, up from 15% a year ago. The incident reinforced F5’s critical infrastructure role and opened deeper strategic dialogues with enterprise security leaders.

5. Investment in Innovation and Future Growth

Management is channeling upside into targeted R&D and go-to-market investments, including enhanced analytics, API security, and expanded XOPS (cross-operations) capabilities. These initiatives aim to drive higher adoption rates and future-proof the platform as AI and regulatory requirements evolve.

Key Considerations

This quarter’s results highlight F5’s alignment with secular trends, but also surface operational and market dynamics that investors should monitor closely.

Key Considerations:

• AI Momentum Broadens Use Cases: Growth is no longer limited to data delivery; security for AI applications is emerging as a multi-billion dollar opportunity.
• Regulatory-Driven Refresh Cycle: EMEA and government verticals are accelerating spend to comply with digital sovereignty and resilience mandates, supporting both hardware and software demand.
• Margin Headwinds from Memory Costs: Rising component prices will pressure product COGS in the second half, testing F5’s pricing power and supply chain agility.
• Balanced Recurring Revenue Mix: Subscription and maintenance revenue provide stability, but future software acceleration will be key to sustaining margin profile.
• Converged Platform Adoption Drives Vendor Consolidation: Customers are standardizing on F5 to reduce operational complexity, a trend likely to persist as hybrid environments proliferate.

Risks

Memory cost inflation and potential supply chain constraints pose risks to gross margin and delivery timelines as the year progresses. While F5’s proactive procurement and supplier diversification mitigate near-term risk, component shortages remain a systemic threat. Regulatory uncertainty, especially in EMEA, could shift spending patterns, while the pace of enterprise AI adoption and refresh cycles introduces forecasting complexity. Finally, competitive dynamics in application security and delivery remain intense, requiring continued innovation and customer engagement.

Forward Outlook

For Q2, F5 guided to:

• Revenue of $770 to $790 million, reflecting 7% growth at the midpoint
• Non-GAAP gross margin of 82.5% to 83%
• Non-GAAP EPS of $3.34 to $3.46

For full-year 2026, management raised guidance:

• Revenue growth of 5% to 6% (prior 0% to 4%)
• Mid-single-digit software growth, double-digit systems growth, low single-digit services growth
• Non-GAAP operating margin of 34% to 35% (prior 33.5% to 34.5%)
• Non-GAAP EPS of $15.65 to $16.05 (prior $14.50 to $15.50)

Management emphasized ongoing investments in sales capacity, analytics, and roadmap innovation to capitalize on secular growth, while acknowledging memory cost headwinds and a measured approach to second-half forecasting given macro and budgetary cycles.

• Pipeline strength and expansion in AI and regulated verticals support near-term visibility
• Operating leverage and pricing actions offsetting cost inflation, but future quarters require continued execution

Takeaways

F5’s Q1 results confirm that AI and regulatory-driven hybrid multi-cloud adoption are accelerating, with systems revenue growth and customer refresh cycles outpacing expectations. The company’s ability to respond rapidly to a security incident, maintain customer trust, and deepen CISO engagement underscores its critical infrastructure role.

• AI and Regulatory Tailwinds: Hardware and security use cases are expanding, with F5’s differentiated platform seeing adoption across verticals and geographies.
• Margin and Supply Chain Vigilance: Investors should monitor memory cost inflation and execution on supply chain diversification as key margin levers in the second half.
• Software Acceleration Remains Key: Sustaining mid-single-digit software growth and recurring revenue mix will be crucial for long-term margin and valuation support.

Conclusion

F5 enters 2026 with clear momentum, underpinned by secular demand for hybrid multi-cloud, AI infrastructure, and converged platforms. While near-term cost pressures and macro uncertainty persist, the company’s raised outlook and targeted investments signal confidence in its strategic positioning and relevance to enterprise digital transformation.

Industry Read-Through

F5’s results provide a high-signal read-through for the broader infrastructure and security sector: AI production deployments are now driving real spending on traffic management and runtime security, not just cloud hyperscaler capex. Regulatory mandates in EMEA and beyond are accelerating refresh cycles and favoring vendors with flexible, platform-agnostic architectures. The convergence of networking and security is prompting vendor consolidation, rewarding those able to deliver unified, cross-environment solutions. Memory cost inflation is likely to pressure margins across hardware-centric players, requiring proactive supply chain management and pricing discipline. Investors should watch for similar dynamics at peers exposed to AI, hybrid multi-cloud, and regulated verticals, as well as for shifts in customer procurement driven by digital sovereignty and evolving compliance regimes.

FFIV Technology Networking AI Infrastructure Hybrid Multi-Cloud Security Converged Platforms