Palo Alto Networks (PANW -0.38%) has enjoyed a breathtaking run in the stock market so far in 2023 with gains of more than 53% so far. That's not surprising given the company's consistently solid results and the strength of the cybersecurity market.

The cybersecurity specialist is capable of surging even higher after delivering solid gains this year, especially since it is on track to benefit from a fast-growing niche within the industry that it serves. Let's look at that catalyst and see how it could help Palo Alto maintain its outstanding growth.

Palo Alto sees AI as a big driver for its business

On May 23, Palo Alto released its fiscal 2023 third-quarter results (for the three months ended April 30). The company clocked impressive growth, with revenue jumping 24% year over year to $1.7 billion and adjusted earnings per share (EPS) surging 83% to $1.10. More importantly, management increased its full-year growth forecasts for revenue, billings, and earnings.

The company now expects to deliver full-year EPS of $4.27 as compared to its earlier prediction of $4. The billings guidance has now been bumped to $9.2 billion at the midpoint from $9.15 billion earlier. Palo Alto has also increased the lower end of its fiscal 2023 revenue guidance from $6.85 billion to $6.88 billion. Revenue is on track to increase between 25% and 26% this fiscal year.

The company's better-than-expected performance isn't surprising given the health of the cybersecurity sector. Market research firm IDC estimates that global cybersecurity spending could increase 12% in 2023 to $219 billion as compared to last year. IDC also expects that global cybersecurity spending could cross $300 billion by 2026.

So, Palo Alto is growing at a faster pace than the cybersecurity market -- not surprising since the company latched on to the artificial intelligence (AI) gravy train before the technology started taking off. According to CEO Nikesh Arora on the company's latest earnings conference call:

We first introduced machine-learning capabilities as part of our WildFire offering seven years ago. In the ensuing years, we added AI and machine-learning capabilities across our network security portfolio, and it has been a critical driver of our innovation and differentiation in the market. In 2020, we introduced the industry's first machine-learning-powered next-generation firewall, where machine-learning detection moved in line to prevent zero-day attacks. Since then, we have overhauled nearly all of our security subscriptions with advanced AI capabilities...

And now, Palo Alto seems to be reaping the rewards of its early AI push, as its impressive growth and guidance tell us. More important, Palo Alto's AI capabilities should pave the way for solid long-term growth given the increasing application of this tech in cybersecurity.

According to market research firm BlueWeave Consulting, the application of AI in cybersecurity is expected to grow at an annual pace of 21% through 2029 and generate $79 billion in annual revenue. That would be 3.5 times the size of the AI-enabled cybersecurity market last year.

Not surprisingly, Palo Alto focused big time on this technology on its latest call, with the term "AI" being mentioned 38 times. Management said that AI is driving "tangible customer benefits" by blocking 8.6 billion cyberattacks across its customer base daily. The company analyzes 750 million new and unique objects every day to train its AI algorithms, and that helps it detect 1.5 million new and unique attacks each day.

All this indicates that Palo Alto is set to make the most of the growing deployment of AI in cybersecurity, which should drive strong top- and bottom-line growth for the company.

How much more gains can this hot stock deliver?

Palo Alto has built up a solid revenue pipeline thanks to growth in customer spending and the addition of new customers. Last quarter, the company reported remaining performance obligations (RPO) worth $9.2 billion, a jump of 35% over the prior-year period. This metric grew much faster than the company's revenue, which points toward a bright future because RPO refers to the total value of contracts that the company hasn't fulfilled yet.

Once the company executes those contracts, the RPO will be recognized as revenue. It is worth noting that Palo Alto's RPO is significantly higher than the revenue that the company is expected to deliver this fiscal year. That should set the stage for stronger growth in the coming years as well.

PANW Revenue Estimates for Current Fiscal Year Chart

PANW revenue estimates for current fiscal year, data by YCharts.

The chart above indicates that Palo Alto's top line could hit $10 billion at the end of fiscal 2025. Catalysts such as AI could help it deliver higher revenue than analysts are anticipating. But even if Palo Alto's revenue increases to $10 billion in fiscal 2025 and it continues to trade at 10.7 times sales, like it does right now, its market cap could jump to $107 billion after a couple of years. That would translate into a 67% jump from current levels.

Of course, the sales multiple used in the calculation above is on the expensive side considering that Palo Alto has averaged a price-to-sales ratio of 8.6 in the past five years. But the stock's rich multiple seems justified given that it is growing at a faster pace than the industry it operates in and is sitting on a massive driver in AI that could supercharge its growth in the future.