Palo Alto Networks reported a robust beat-and-raise quarter Tuesday evening, placing to relaxation any lingering doubt that will probably be disrupted by synthetic intelligence. The inventory was risky in after-hours buying and selling, however contemplating its blistering rally into earnings, it is not shocking to see this type of response. Income for the corporate’s fiscal 2026 third quarter elevated 31% yr over yr to $3 billion, exceeding the Wall Avenue consensus estimate of $2.94 billion, in response to LSEG. Adjusted earnings per share (EPS) elevated 6% to 85 cents within the quarter, forward of the 80-cent LSEG consensus estimate. Shares had been roughly flat however risky in after-hours buying and selling. Pal Alto is up about 61% for the yr and up 85% because the finish of March. Why we personal it Cybersecurity is a secular development market as dangerous actors are relentless and corporations merely can not afford to not put money into protection. It’s a unending arms race, made solely extra essential by the proliferation of synthetic intelligence. Palo Alto Networks has best-in-class instruments and a broad product portfolio that permits it to offer an all-encompassing “platform” answer to cybersecurity. Rivals : CrowdStrike (additionally a Membership inventory), Fortinet , Cisco Methods Final purchase : Nov. 24, 2025 Initiation : Feb. 15, 2023 Backside line We battled this one out earlier this yr when the inventory was hammered over fears that giant language fashions made by the likes of Anthropic had been going to offer cybersecurity options to everybody and substitute established safety distributors like Palo Alto Networks. It is a thesis we by no means purchased into, however we do admit it did take a look at our persistence. How did sentiment change so rapidly? The corporate’s opportunistic share repurchases, together with a $1 billion improve to its buyback authorization in February, did not assist the inventory. It received a quick pop after the disclosure that CEO Nikesh Arora purchased $10 million price of shares in late March, when the inventory was buying and selling within the $140s. However it wasn’t off to the races but. What lastly received the market on our facet was the launch of Challenge Glasswing , an initiative fashioned in early April by Anthropic and several other main companions to deal with the heightened dangers related to customers of its most superior frontier mannequin, Claude Mythos . Sure, the identical Anthropic that was as soon as seen as a boogeyman. As administration defined in its earnings presentation, the creation of fashions like Mythos has been a “recreation changer” for the trade. “We’ve entered the period of really cyber succesful methods, the place fashions like Mythos possess the autonomous functionality to execute complete assault campaigns from begin to end. This represents a basic paradigm shift for the cybersecurity trade.” Arora defined on the earnings name. The corporate stated it has had over 800 buyer conferences within the final six weeks to assist clients work by means of their cybersecurity future in a post-Mythos world, and plenty of of these conferences are resulting in curiosity in its Cortex and Agentic Endpoint Safety Platforms. For context, Arora instructed Jim Cramer on “Mad Cash” that Palo Alto held 1,200 buyer conferences all of final yr . Speedy developments in AI just like the Mythos mannequin could have “elevated the terminal worth of your entire cybersecurity trade,” in response to Arora. The terminal worth is, primarily, the “endlessly” worth of the enterprise, stretching out past an inexpensive earnings forecast interval. That is little question encouraging. However we nonetheless must see robust execution, with firms delivering on their product roadmaps and deal integration. Final quarter , the narrative towards Palo Alto Networks was all its dealmaking was diluting earnings an excessive amount of. This time round, administration demonstrated these offers have expanded its complete addressable market. We had been happy to see the corporate present how its well-timed acquisition of CyberArk is much forward of plan one quarter after its shut. Introduced in late July, Palo Alto Networks’ $25 billion acquisition of this identity-security chief was a pivotal transfer that positioned the corporate to safe AI brokers, which able to working autonomously to finish duties on behalf of human customers. CyberArk’s annual recurring income is up 27% yr over yr, and administration believes it is three to 6 months forward of plan on its synergy targets. That retains the corporate on monitor to realize a 40% free money stream margin in fiscal yr 2028. Chronosphere was a smaller deal, however nonetheless one among nice significance to realize publicity to the observability market, which is essential as the quantity of information firms must see and safe grows. In validation of the strategic transfer, administration reiterated two of the highest 5 frontier labs are utilizing the product. The acquisition was introduced in November and accomplished in January. The underside line is that if you wish to be anointed as an AI inventory, it’s important to show that AI is accelerating your corporation. Palo Alto did precisely that, reporting an acceleration in natural bookings development whereas demonstrating why its current acquisitions are more and more essential within the AI period. Complete remaining efficiency obligation (RPO) elevated 36% yr over yr, or 22% when excluding CyberArk and Chronosphere. RPO represents enterprise signed however not but transformed into income. In the meantime, next-generation safety annual recurring income (ARR) elevated 60% yr over yr, or 28% when excluding the 2 offers. The enterprise momentum is obvious right here, justifying the inventory’s robust efficiency over the previous 4 to 5 weeks. The inventory could also be buying and selling sideways in after-hours buying and selling, but it surely had simply gone parabolic, creating excessive expectations. We’ll huddle to determine if we have to change our score, however we’re growing our worth goal to $325 from $255. Commentary The development towards vendor consolidation — dubbed “platformization” by Palo Alto — stays alive and effectively. Within the quarter, Palo Alto Networks added about 110 web new platformizations within the quarter, together with 20 from id and observability — suppose CyberArk and Chronosphere. This introduced its complete platform offers to about 1,650, with one other 630 from id and observability. Given the place they stand right this moment, administration stated its assured in surpassing 4,000 platforms with $20 billion in next-generation ARR by fiscal yr 2030. One of many massive offers within the quarter was a greater than $200 million ARR growth cope with a number one frontier AI lab for observability. One other key win was an $80 million cope with a number one U.S. electrical utility that is essential to the AI knowledge heart buildout. This firm expanded its next-gen firewall spend and chosen safe entry service edge (SASE) for greater than 25,000 workers. A 3rd win was a $40 million cope with a world telecommunications supplier, which bought prolonged safety intelligence and automation administration (XSIAM) for AI modernization of its safety operations heart; it additionally consolidated a number of level merchandise. A fourth deal highlighted was a greater than $20 million cope with a number one international consulting agency, which chosen its AI safety platform, often known as Prisma AIRS , to safe AI apps and brokers. By product, Palo Alto’s community safety enterprise recorded one among its strongest quarters in current reminiscence, with firewall bookings development up 19% yr over yr and SASE ARR up 40% yr over yr. One other spotlight was Prisma AIRS, which has grow to be the quickest rising product in firm historical past because of the greater than 300 clients which have signed up for it. That is triple the shopper rely from one quarter in the past. Palo Alto introduced Prisma AIRS in late April 2025. Steerage The corporate’s outlook for the fiscal 2026 fourth quarter got here in above FactSet estimates throughout each line merchandise. Income within the vary of $3.345 billion to $3.355 billion, above the consensus estimate of $3.282 billion. Adjusted EPS within the vary of 96 cents to 98 cents, which at a midpoint of 97 cents beats the consensus estimate of 94 cents. Subsequent-gen safety ARR of $8.9 billion to $8.95 billion, which is effectively above the consensus estimate of $8.57 billion. RPO of $20.9 billion to $21 billion, which is above the consensus estimate of $20.25 billion. Palo Alto raised its full yr outlook to the next: Complete income is now anticipated to be within the vary of $11.415 billion to $11.425 billion, up from the prior vary of $11.28 billion to $11.31 billion. Non-GAAP earnings per share (EPS) within the vary of $3.77 to $3.79, which is up from the prior vary of $3.65 to $3.70. Subsequent-gen safety ARR to $8.9 billion to $8.95 billion, which is up from the prior vary of $8.52 billion to $8.62 billion. RPO of $20.9 billion to $21 billion, up from the prior vary of $20.2 billion to $20.3 billion. (Jim Cramer’s Charitable Belief is lengthy PANW and CRWD. See right here for a full record of the shares.) As a subscriber to the CNBC Investing Membership with Jim Cramer, you’ll obtain a commerce alert earlier than Jim makes a commerce. Jim waits 45 minutes after sending a commerce alert earlier than shopping for or promoting a inventory in his charitable belief’s portfolio. If Jim has talked a few inventory on CNBC TV, he waits 72 hours after issuing the commerce alert earlier than executing the commerce. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
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