PANW is up about 125% so far this year. But the stock’s valuation has sparked questions about whether the stock can maintain its growth momentum.
Rising concerns about AI safety are a positive for Palo Alto Networks, Inc. (NASDAQ:PANW). Worries about AI safety push customers toward vendors they trust, and Palo Alto sells products built for that. Its main strategy is to get customers to move many separate security tools onto its one platform. Once a customer does that, it buys more over time, and switching away becomes hard. The company has a large backlog of signed contracts, which gives it a clear view of future sales. It also runs huge amounts of security data through its systems, which smaller rivals struggle to copy. Strong free cash flow helps pay for new products and acquisitions, and the CyberArk deal gives it a bigger identity security business to sell to its existing customers. If AI security becomes its own big market, growth can stay high for years. That’s why PANW ranks 8th in our list of the best agentic AI stocks to buy now.
Photo by Mohamed Hadji on Unsplash
Bear Case
PANW stock price already assumes years of strong growth, so a small slowdown could hurt it even if the business stays healthy. Acquisitions make headline growth look stronger than it is, and the company expects its largest business, network security, to grow more slowly next year. Profit margins on sales are slipping a little as customers shift to cloud-based products. Rivals are building their own AI security products and could take customers. If AI spending slows, companies may cut security spending too. See more threats to PANW in the context of its current valuation here.
Valuation
Palo Alto Networks, Inc. trades at a forward P/E of about 96, about five times the S&P 500’s forward P/E of about 19 and about 64% above its own five-year average of about 59. In fiscal 2026 its revenue grew about 24.5% and its non-GAAP earnings per share grew about 15%, against about 10% a year for the market over the long run. Part of the revenue growth comes from acquisitions such as CyberArk, which also added shares, and the company’s guidance for fiscal 2027 points to earnings per share growth of only about 8% to 9%. The price is fair only if earnings growth speeds up well past what the company has reported and guided, and if it stays at 15% or lower, a P/E of 96 looks too high for Palo Alto Networks, Inc..
There were 7 stocks that ranked higher than PANW in our list of the best AI stocks to buy according to billionaire Stanley Druckenmiller.
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