Can Palo Alto Networks Stock Overcome Valuation Concerns Despite Strong AI Momentum?

Palo Alto Networks concluded its fiscal year with impressive financial results that surpassed market expectations, though investor skepticism about its valuation persists. The cybersecurity leader posted robust growth across key metrics, particularly in its next-generation security offerings and artificial intelligence-driven solutions.

Strong Quarterly and Annual Performance

For its fourth quarter, the company reported revenue of $2.54 billion, representing a 15.8% year-over-year increase that exceeded analyst projections. Adjusted earnings per share reached $0.95, continuing a pattern of positive surprises. Full-year revenue for fiscal 2025 climbed to $9.2 billion, marking a 15% gain compared to the previous year.

The most significant growth emerged in recurring revenue streams. The Next-Generation Security segment achieved annual recurring revenue of $5.6 billion, surging 32% year-over-year. The remaining performance obligation, indicating future revenue from existing contracts, expanded 24% to $15.8 billion, signaling strong customer commitment to integrated platform solutions.

Artificial Intelligence Fuels Expansion Strategy

Artificial intelligence has become a primary growth catalyst for Palo Alto Networks. AI-related annual recurring revenue skyrocketed 150% to $545 million, demonstrating substantial enterprise demand for automated threat detection and data-driven security platforms.

Should investors sell immediately? Or is it worth buying Palo Alto Networks?

The company’s platformization strategy continues gaining traction, with 1,400 customers now utilizing integrated solutions—an increase of 150 from the previous quarter. The combination of Cortex for threat detection and Prisma for cloud security recorded nearly 25% ARR growth, while the SASE component within Prisma advanced by 35%.

Leadership Transition Amid Positive Forecasts

Despite a significant leadership change, the company maintained an optimistic outlook. Founder and CTO Nir Zuk is stepping down, with Chief Product Officer Lee Klarich assuming both roles during this transitional period.

Palo Alto Networks provided strong guidance for the coming periods, anticipating NGS-ARR between $5.82 and $5.84 billion for the first quarter of fiscal 2026—representing 29% growth. For the full fiscal year 2026, management projected revenue of approximately $10.5 billion, which would maintain a solid 14% growth rate.

While the company’s operational strength remains unquestioned, its shares continue facing valuation headwinds as investors weigh whether the current growth trajectory can justify market expectations.