Palo Alto Networks' stock falls despite strong AI cybersecurity demand

By Christine Ji and Hannah Pedone

Enterprise cyber threats and AI adoption are giving Palo Alto Networks 'durable tailwinds,' according to CEO Nikesh Arora, but the stock retreats after an earnings beat

Shares of Palo Alto Networks rose in extended trading after the AI cybersecurity company reported results for the fiscal fourth quarter.

As artificial-intelligence agents proliferate and cyberthreats grow more widespread, Palo Alto Networks is having a moment in the spotlight as one of the few pure-play cybersecurity companies.

And the company's earnings results Tuesday showed that demand for cybersecurity products is not slowing down. Shares of Palo Alto Networks (PANW) initially rose 5% in extended trading, after it reported an earnings beat for the fiscal fourth quarter. However, the stock gave up those gains shortly after the print to end the after-hours session down 1.9%.

"The latest advancements in AI are elevating cybersecurity to the top of the CIO priority list," CEO Nikesh Arora said in a statement. AI will create "durable tailwinds" for Palo Alto Networks as it progresses toward its $20 billion annual recurring revenue Next-Generation Security target for fiscal 2030, he added.

Palo Alto Networks reported $3.41 billion in revenue for the fiscal fourth quarter, up 34% from the prior year's quarter. Analysts tracked by FactSet were expecting $3.35 billion. Adjusted earnings per share came out to $1.02, above the 98 cents analysts were looking for.

Although the company posted strong top-line numbers, BNP Paribas analyst Andrew DeGasperi flagged in a Tuesday note that the company's free cash flow margin outlook of 37.5% to 38% came in light compared to buy-side consensus expectations. That's likely the reason why shares are volatile after hours, he said.

Investor expectations for shares of Palo Alto Networks are elevated after a breakout performance in recent months. The stock has climbed 100% so far this year as advanced agentic AI capabilities spark demand for threat-detection solutions from enterprises looking to protect their data from cyberattacks. Other cybersecurity names, like CrowdStrike (CRWD), have also surged this year. Last week, CrowdStrike reported an impressive earnings beat and record net new annual recurring revenue.

Annual recurring revenue for Palo Alto Networks' Next-Generation Security offering - the company's newer, cloud-based AI subscription products - reached $9.1 billion in the quarter, growing 63% year over year.

Remaining performance obligations, a measure of contracted future revenue not yet recognized, grew 34% year over year to $21.2 billion, beating Wall Street's consensus expectations of $20.91 billion.

Palo Alto Networks expects between $3.30 billion to $3.31 billion in revenue for the fiscal first quarter, surpassing the $3.22 billion analysts were expecting. Palo Alto Networks also issued guidance for adjusted EPS of 96 cents to 98 cents, versus the consensus analyst estimate of 93 cents.

For fiscal year 2027, the company guided for total revenue in the range of $14.10 billion to $14.20 billion, exceeding the $13.84 billion currently anticipated by Wall Street.

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-Christine Ji -Hannah Pedone

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09-01-26 2019ET