Palo Alto Networks, Inc. (NASDAQ:PANW) is no longer just selling cybersecurity products. It is trying to become the platform sitting underneath an enterprise’s entire security operation. That distinction is becoming increasingly important as companies deal with more data, cloud infrastructure, AI applications, and autonomous agents.
The strategy appears to be working. The harder question is whether it is working well enough to justify a stock trading at about 94x forward earnings after the stock has doubled and then some since March of this year.
At that price, investors need more than a good cybersecurity market. They need evidence that Palo Alto is becoming harder to replace.
There are signs that it is.
The company’s platformization strategy is built around the simple idea that once customers use Palo Alto for multiple parts of their security infrastructure, adding another product becomes easier and replacing the company becomes harder. That is beginning to show up in customer behavior. Palo Alto added about 220 net new platformized customers in its latest quarter, while net revenue retention for that group exceeded 120%. In other words, customers already using the platform are expanding their spending.
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The more interesting part is what sits underneath that relationship.
Palo Alto’s security operations platform, XSIAM, already ingests about 19 petabytes of data every day. Management’s argument is that once a customer’s security telemetry is already inside the platform, adding new capabilities does not require building another data pipeline or integrating another standalone product. Customers can use the same underlying data in more ways.
That can create a powerful form of switching cost.
A company can replace a security product. Replacing an increasingly integrated security architecture, along with the data and workflows built around it, is a much bigger undertaking.
The SASE business provides a good example. Palo Alto said it displaced competitors in nearly 100 accounts during fiscal 2026, representing more than $400 million of contract value. Management attributed part of that success to customers already using its firewalls, agents, and management tools. Moving another piece of their security stack to Palo Alto becomes a relatively natural extension of what they already have.
This is where AI becomes important, but not necessarily for the obvious reason.
AI is creating more things that need to be secured. Agents have identities and permissions. AI infrastructure generates enormous amounts of traffic and telemetry. Enterprises are deploying more models and connecting them to internal systems. Every new deployment potentially expands the amount of security infrastructure a company needs.
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Palo Alto is trying to sit across that expanding surface.
Prisma AIRS, its AI security product, passed $100 million in ARR within its first year of general availability. CyberArk adds identity security at a time when machine identities are becoming increasingly important, while Chronosphere gives Palo Alto an observability platform designed around enormous data volumes.
Chronosphere is particularly interesting because it shows another potential advantage of the platform. Management says the product is typically 30%-40% cheaper than leading observability alternatives because it was designed for today’s much larger data volumes. Its ARR has already surpassed $500 million after the acquisition.
So the investment case is gradually becoming less about Palo Alto having the best individual security product and more about whether customers get more value, and potentially lower costs, by consolidating more of their security infrastructure with one vendor.
There is still a significant problem: the valuation.
Palo Alto Networks, Inc. expects fiscal 2027 revenue growth of 23%-24%, with NGS ARR growing 22%-23%. Those are healthy rates, but they are nowhere near the growth rates that would make a 95x earnings multiple look obviously cheap. The company also expects its largest platform, Network & AI Security, to grow only in the low double digits, meaning newer businesses such as Cortex and Idira will increasingly carry the growth burden.
That leaves investors with a fairly straightforward trade-off.
Palo Alto may be building a genuine moat as its customers consolidate more security workloads onto the platform. The more products they use, the more data Palo Alto collects, and the more deeply its technology becomes embedded in their operations. AI could accelerate that process by expanding the amount of infrastructure and activity that needs to be secured.
But at 94x forward earnings, the market already recognizes much of that potential. Palo Alto Networks looks increasingly like a business with a durable competitive advantage. That said, the market seems to have priced in many years of that growth.
Market sentiment
Hedge fund sentiment toward Palo Alto Networks strengthened sharply in the second quarter. The number of hedge funds holding PANW increased only modestly, from 87 to 89 in Insider Monkey’s database, but the value of their positions jumped from about $2.1 billion to $5.5 billion. In other words, the bigger change was not how many funds owned the stock, but how much capital they had committed to it.
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This article is originally published at Insider Monkey.
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