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Palo Alto Networks (PANW - Free Report) shares have soared 91.6% year to date (YTD), outperforming the Zacks Security industry’s 89.6% growth. The stock has outperformed other industry peers as well, including Qualys Inc. (QLYS - Free Report) , Zscaler (ZS - Free Report) and Check Point Software (CHKP - Free Report) . YTD, shares of Qualys have returned 56.2%, while Zscaler and Check Point Software shares have lost 0.1% and 23.7%, respectively.
Palo Alto Networks has been riding on strong enterprise demand for Artificial Intelligence (AI)-native cybersecurity solutions. But with the stock outperforming the industry and peers, the question arises: Does it still have room to run, or is it time for investors to consider taking profits? Let’s find out.
YTD Price Return Performance
Image Source: Zacks Investment Research
Platformization is Becoming Palo Alto Networks' Biggest Growth Lever
Palo Alto Networks is seeing strong momentum in its platformization strategy, which enables customers to standardize multiple security products on a unified architecture rather than relying on several separate tools. The company says this approach brings security data and policies together across control points, helping customers simplify operations and respond to threats in real time. PANW is using this strategy across Network Security, Cortex and Idira, while also expanding into areas such as SASE, AI security and observability.
The strategy is gaining traction with customers. In the fourth quarter of fiscal 2026, PANW added approximately 220 net new platformizations, more than twice the volume recorded when it began tracking the metric two years ago. The company also reported net revenue retention above 120% for its platformized customer cohort in the fourth quarter, indicating that customers are expanding their use of the platform.
Customer deals in the fourth quarter showed how Palo Alto Networks is using platformization to increase sales across products. A global telecom leader signed a $126 million agreement to expand its next-generation firewall footprint and replace legacy proxy providers with Prisma Access for SASE. A premier IT service provider signed a $72 million transaction covering Network Security, Cortex and Idira, with eight-figure investments in each. PANW also secured a $53 million deal with a leading global payments platform, which included a high-seven-figure commitment to Prisma AIRS as the customer expanded its enterprise AI initiatives.
The strategy is supporting growth across PANW's major platforms. Network and AI Security revenues grew 17% in fiscal 2026, while Cortex revenues rose 25% and Idira generated $1.26 billion in pro forma revenues, up 21%. PANW is targeting more than 4,000 platformizations by fiscal 2030 as part of its goal of reaching $20 billion in NGS ARR. The strong adoption of platformization and expansion across multiple security products provides a base for continued growth. As of now, PANW will need to maintain customer adoption and execute well across its expanding product portfolio to sustain this momentum.
AI Infrastructure Demand Boosts PANW's Network Security Growth
Palo Alto Networks is seeing growing demand for network security as companies expand their artificial intelligence (AI) infrastructure. Management expects the AI buildout to require significant new computing capacity, with sovereigns, neoclouds and frontier AI labs emerging as new buyers of security products. In fiscal 2026, Palo Alto Networks saw early traction from sovereigns, neoclouds and frontier AI labs, with multiple seven-figure bookings in the fourth quarter of fiscal 2026. As AI deployments expand, the company expects the resulting increase in traffic and data to create more opportunities for its Network Security business.
The increase in AI-related activity is already affecting the amount of traffic that enterprises need to secure. Agentic traffic on PANW's SASE platform increased 9x over the past nine months as autonomous AI systems became more common. The company expects this trend to continue as AI agents are deployed across network and cloud environments, creating a larger volume of machine-generated traffic and new security requirements. This is important for PANW because securing this traffic requires continuous inspection and real-time protection, areas that are already part of its network and SASE offerings.
This demand is already reflected in the performance of the Network & AI Security business. Network & AI Security revenues increased 17% year over year to $8.35 billion in fiscal 2026. Within the platform, software firewall ARR increased 29% in the fourth quarter and hardware firewall demand remained strong, helped by the adoption of Gen 5 appliances. PANW also displaced legacy providers in nearly 100 accounts, representing more than $400 million in contract value.
PANW expects Network & AI Security revenues to grow at a low-double-digit rate in fiscal 2027. As AI infrastructure expands and enterprises move more AI workloads into production, the need to secure data centers, networks and growing volumes of traffic could provide a steady demand opportunity for PANW. The Zacks Consensus Estimate for fiscal 2027 and 2028 indicates revenue growth of around 23.4% and 15%, respectively.
Image Source: Zacks Investment Research
Rising Costs Weigh on PANW’s Prospects
PANW’s non-GAAP gross margin fell 100 basis points year over year to 74.8% in the fourth quarter of fiscal 2026, while the non-GAAP gross margin for fiscal 2026 declined 60 basis points to 75.8%. The decline was mainly due to the growing mix of SaaS offerings, which are still scaling toward mature margin levels. Management expects cloud hosting costs to grow faster than revenues in fiscal 2027, which could weigh on gross-margin expansion.
Palo Alto Networks expects higher commodity costs, particularly for memory and storage, to persist in its hardware business. While strong demand for its Gen 5 firewall appliances remains positive, higher component costs could weigh on hardware profitability.
Palo Alto Networks is currently trading at a high price-to-sales (P/S) multiple, above the Zacks Security industry. The company’s forward 12-month P/S ratio sits at 20.36X, higher than the Zacks Security industry’s forward 12-month P/S ratio of 18.42X. The Zacks Value Score of F also suggests that the PANW stock is overvalued.
PANW Forward 12-Month P/S Ratio
Image Source: Zacks Investment Research
The stock trades at a premium valuation to other industry peers, including Qualys, Zscaler and Check Point Software. At present, Qualys, Zscaler and Check Point Software have P/S multiples of 9.85X, 9.48X and 5.28X, respectively.
Conclusion: Hold PANW Stock Right Now
Palo Alto Networks continues to benefit from strong demand for AI security and its platformization strategy, which is helping the company win larger deals and increase sales across Network Security, Cortex and Idira. Rising AI infrastructure spending and growing use of AI agents are also creating new demand for its network security and SASE offerings.
However, PANW’s rising costs and premium valuation warrant a cautious approach to the stock.
View the Zacks #1 Rank List
Image: Bigstock
Palo Alto Networks Surges 92% YTD: Time to Hold or Fold the Stock?
Key Takeaways
Palo Alto Networks (PANW - Free Report) shares have soared 91.6% year to date (YTD), outperforming the Zacks Security industry’s 89.6% growth. The stock has outperformed other industry peers as well, including Qualys Inc. (QLYS - Free Report) , Zscaler (ZS - Free Report) and Check Point Software (CHKP - Free Report) . YTD, shares of Qualys have returned 56.2%, while Zscaler and Check Point Software shares have lost 0.1% and 23.7%, respectively.
Palo Alto Networks has been riding on strong enterprise demand for Artificial Intelligence (AI)-native cybersecurity solutions. But with the stock outperforming the industry and peers, the question arises: Does it still have room to run, or is it time for investors to consider taking profits? Let’s find out.
YTD Price Return Performance
Image Source: Zacks Investment Research
Platformization is Becoming Palo Alto Networks' Biggest Growth Lever
Palo Alto Networks is seeing strong momentum in its platformization strategy, which enables customers to standardize multiple security products on a unified architecture rather than relying on several separate tools. The company says this approach brings security data and policies together across control points, helping customers simplify operations and respond to threats in real time. PANW is using this strategy across Network Security, Cortex and Idira, while also expanding into areas such as SASE, AI security and observability.
The strategy is gaining traction with customers. In the fourth quarter of fiscal 2026, PANW added approximately 220 net new platformizations, more than twice the volume recorded when it began tracking the metric two years ago. The company also reported net revenue retention above 120% for its platformized customer cohort in the fourth quarter, indicating that customers are expanding their use of the platform.
Customer deals in the fourth quarter showed how Palo Alto Networks is using platformization to increase sales across products. A global telecom leader signed a $126 million agreement to expand its next-generation firewall footprint and replace legacy proxy providers with Prisma Access for SASE. A premier IT service provider signed a $72 million transaction covering Network Security, Cortex and Idira, with eight-figure investments in each. PANW also secured a $53 million deal with a leading global payments platform, which included a high-seven-figure commitment to Prisma AIRS as the customer expanded its enterprise AI initiatives.
The strategy is supporting growth across PANW's major platforms. Network and AI Security revenues grew 17% in fiscal 2026, while Cortex revenues rose 25% and Idira generated $1.26 billion in pro forma revenues, up 21%. PANW is targeting more than 4,000 platformizations by fiscal 2030 as part of its goal of reaching $20 billion in NGS ARR. The strong adoption of platformization and expansion across multiple security products provides a base for continued growth. As of now, PANW will need to maintain customer adoption and execute well across its expanding product portfolio to sustain this momentum.
AI Infrastructure Demand Boosts PANW's Network Security Growth
Palo Alto Networks is seeing growing demand for network security as companies expand their artificial intelligence (AI) infrastructure. Management expects the AI buildout to require significant new computing capacity, with sovereigns, neoclouds and frontier AI labs emerging as new buyers of security products. In fiscal 2026, Palo Alto Networks saw early traction from sovereigns, neoclouds and frontier AI labs, with multiple seven-figure bookings in the fourth quarter of fiscal 2026. As AI deployments expand, the company expects the resulting increase in traffic and data to create more opportunities for its Network Security business.
The increase in AI-related activity is already affecting the amount of traffic that enterprises need to secure. Agentic traffic on PANW's SASE platform increased 9x over the past nine months as autonomous AI systems became more common. The company expects this trend to continue as AI agents are deployed across network and cloud environments, creating a larger volume of machine-generated traffic and new security requirements. This is important for PANW because securing this traffic requires continuous inspection and real-time protection, areas that are already part of its network and SASE offerings.
This demand is already reflected in the performance of the Network & AI Security business. Network & AI Security revenues increased 17% year over year to $8.35 billion in fiscal 2026. Within the platform, software firewall ARR increased 29% in the fourth quarter and hardware firewall demand remained strong, helped by the adoption of Gen 5 appliances. PANW also displaced legacy providers in nearly 100 accounts, representing more than $400 million in contract value.
PANW expects Network & AI Security revenues to grow at a low-double-digit rate in fiscal 2027. As AI infrastructure expands and enterprises move more AI workloads into production, the need to secure data centers, networks and growing volumes of traffic could provide a steady demand opportunity for PANW. The Zacks Consensus Estimate for fiscal 2027 and 2028 indicates revenue growth of around 23.4% and 15%, respectively.
Image Source: Zacks Investment Research
Rising Costs Weigh on PANW’s Prospects
PANW’s non-GAAP gross margin fell 100 basis points year over year to 74.8% in the fourth quarter of fiscal 2026, while the non-GAAP gross margin for fiscal 2026 declined 60 basis points to 75.8%. The decline was mainly due to the growing mix of SaaS offerings, which are still scaling toward mature margin levels. Management expects cloud hosting costs to grow faster than revenues in fiscal 2027, which could weigh on gross-margin expansion.
Palo Alto Networks expects higher commodity costs, particularly for memory and storage, to persist in its hardware business. While strong demand for its Gen 5 firewall appliances remains positive, higher component costs could weigh on hardware profitability.
PANW’s Premium Valuation Warrants Cautious Approach
Palo Alto Networks is currently trading at a high price-to-sales (P/S) multiple, above the Zacks Security industry. The company’s forward 12-month P/S ratio sits at 20.36X, higher than the Zacks Security industry’s forward 12-month P/S ratio of 18.42X. The Zacks Value Score of F also suggests that the PANW stock is overvalued.
PANW Forward 12-Month P/S Ratio
Image Source: Zacks Investment Research
The stock trades at a premium valuation to other industry peers, including Qualys, Zscaler and Check Point Software. At present, Qualys, Zscaler and Check Point Software have P/S multiples of 9.85X, 9.48X and 5.28X, respectively.
Conclusion: Hold PANW Stock Right Now
Palo Alto Networks continues to benefit from strong demand for AI security and its platformization strategy, which is helping the company win larger deals and increase sales across Network Security, Cortex and Idira. Rising AI infrastructure spending and growing use of AI agents are also creating new demand for its network security and SASE offerings.
However, PANW’s rising costs and premium valuation warrant a cautious approach to the stock.
Currently, Palo Alto Networks carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.