Palo Alto Networks (PANW +2.38%) is the world's biggest cybersecurity vendor, but it isn't resting on its success. The company continues to expand its portfolio of products and services, leaning on innovations like artificial intelligence (AI) to deliver the most advanced protection to date.
Palo Alto recently reported its financial results for its fiscal 2025 third quarter (ended April 30), and it delivered accelerated revenue growth thanks to a combination of its AI products, and a shift in its business strategy which is starting to pay off. Here's why investors with a spare $190 (money they don't need for immediate expenses) might want to buy a single share of Palo Alto and hold it for the long term.
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A growing portfolio of AI-powered cybersecurity products
Palo Alto offers dozens of cybersecurity products spread across three primary platforms: Cloud security, network security, and security operations. The company is weaving AI into as many of those products as possible to automate threat detection and incident response processes, because speed is everything when it comes to neutralizing a threat.
The Cortex XSIAM security operations solution is a shining example of this strategy. Human-led cybersecurity processes are no longer sufficient to deal with the growing volume of modern-day threats, so XSIAM allows large organizations to defer more of those workloads to AI and automation.
Around 60% of companies using XSIAM have reduced their median time to remediate (MTTR) incidents to under 10 minutes, from two or three days previously. That means fewer cyber threats are slipping through the cracks, which significantly reduces the risk of a major breach. During the fiscal 2025 third quarter, XSIAM's annual recurring revenue (ARR) surged by 200% year over year. The platform was launched just two and a half years ago, and it's already approaching $1 billion in bookings on a trailing 12-month basis.
But Palo Alto is also trying to protect businesses that are using AI. The company recently launched a new platform called Prisma AIRS, which secures sensitive data when it's plugged into AI models from third-party developers like OpenAI, and scans external AI applications for vulnerabilities to ensure they are safe to use. This is a new product segment for Palo Alto, but the company estimates it has an eye-popping $15 billion addressable market already.
NASDAQ: PANW
Key Data Points
Accelerating revenue growth, driven by AI and platformization
Palo Alto generated $2.3 billion in total revenue during the fiscal 2025 third quarter. It represented a 15% increase from the year-ago period, which marked an acceleration from the 14% growth the company delivered in the second quarter three months earlier.
The strong result was partly driven by Palo Alto's next-generation security (NGS) segment, which is where the company accounts for revenue from its AI products. NGS ARR soared by 34% to a record $5.1 billion during the quarter.
But "platformization" was also a big contributor to the third-quarter result. The cybersecurity industry has a history of fragmentation, meaning different vendors specialized in specific products, so businesses had to piece their security stack together from multiple providers. Palo Alto is now focusing on platformization, which involves becoming the one-stop vendor that fulfills all of a customer's cybersecurity needs.
Some customers might need all three of Palo Alto's platforms, whereas others might only need cloud security, but platforming them enables the company to capture more of their spending over the long term. During the third quarter, 1,250 of Palo Alto's top 5,000 customers were officially platformed, which was up nearly 39% year over year.
Products like Cortex XSIAM are a key driver of platformizations, because they require an "all-in" approach from the customer. That's because XSIAM is designed to take over the entire security operations center, so it consolidates many legacy cybersecurity tools from other vendors into one single platform, basically making them redundant.
Why Palo Alto stock is a long-term buy
Despite Palo Alto's leadership position in the cybersecurity industry, its stock actually trades at a steep discount to one of its main rivals, CrowdStrike (CRWD +3.03%). Its price-to-sales (P/S) ratio is 14.9 as of this writing, which is 45% below CrowdStrike's P/S ratio of 27.3:
Growth is one of the reasons for the disparity. CrowdStrike will report its latest quarterly financial results on June 3, and it is forecast to have grown its revenue by 20%, which is a faster rate than Palo Alto's 15%. However, Palo Alto's NGS ARR of $5.1 billion alone is higher than CrowdStrike's total annual revenue, and remember, it soared by 34%. Therefore, I think Palo Alto stock deserves to close the valuation gap to CrowdStrike.
Plus, the company is aiming to nearly triple its NGS ARR to $15 billion by 2030, with help from as many as 3,500 platformizations, so there is plenty of growth still in the tank.
Moreover, Palo Alto values its addressable market for Cortex XSIAM alone at $40 billion, which is 40 times higher than the product's current annual bookings. That's in addition to the $15 billion opportunity in Prisma AIRS. In other words, AI has extended Palo Alto's potential growth runway significantly.
As a result, I think Palo Alto stock might be a no-brainer buy right now, especially for investors who can hold it for the next five years (or more) as NGS revenue ramps up.
