Morningstar

Palo Alto Earnings: Robust AI-Induced Cyber Demand Propels Top Line

We’ve raised our fair value estimate of Palo Alto stock.

Collage illustration for Technology Sector with a semiconductor chip.
Securities in This Article
Palo Alto Networks Inc
(PANW)

Key Morningstar Metrics for Palo Alto Networks

  • Fair Value Estimate
    : $300.00
  • Morningstar Rating
    : ★★★
  • Morningstar Economic Moat Rating
    : Wide
  • Morningstar Uncertainty Rating
    : Very High

What We Thought of Palo Alto Networks’ Earnings

Palo Alto Networks PANW reported fourth-quarter earnings, with sales up 34% to $3.41 billion and adjusted operating margins flat at 30%. The firm’s next-generation security annual recurring revenue grew 63% to $9.10 billion, with artificial intelligence being an incremental driver.

Why it matters: Palo Alto’s business is well-positioned to benefit from multiple secular tailwinds. We are seeing robust demand for cyber solutions as companies invest in cyber defense to stave off AI model cyberattacks.

  • This robust demand is driving further vendor consolidation, which benefits larger vendors like Palo Alto. Multiproduct customers represent more than 65% of the firm’s NGS ARR, with a net retention rate above 120%, signaling that customers are buying more security from fewer vendors.
  • While emerging product segments such as agentic identity and agentic security operations are doing well, as is Palo Alto’s core firewall business, which is benefiting from increased data center demand for firewalls. 2026 firewall bookings grew 17%, up from 13% in fiscal 2025.

The bottom line: We raise our fair value estimate for wide-moat Palo Alto to $300 per share from $285, primarily due to an increase in our near-to-medium term top-line forecast. We believe that AI-induced cyber spending will continue to increase cybersecurity’s share of enterprise wallets.

  • A clear beneficiary of this AI-induced cyber spending is the firm’s automated security operations offering, XSIAM, which doubled its customer count to 1,000 and increased ARR by 70% to above $700 million in the fiscal year.

Big picture: Cyber stocks have performed exceedingly well in 2026, with a 50% median return on our cyber coverage this year. We see the market’s newfound optimism as mostly in line with our view that cyber is a clear AI beneficiary, with these tailwinds set to persist as AI adoption continues to grow.

Editor’s Note: This analysis was originally published as a stock note by Morningstar Equity Research.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

Sponsor Center