Many great growth stocks have been brought down in recent months as the market reassesses the threat that generative artificial intelligence (AI) poses to many existing businesses. The software industry has been hit hardest, but in some cases, it makes more sense than others. Many cybersecurity stocks, for example, have been repriced amid fears that AI developers will be able to replicate their capabilities for less.
But few enterprises (if any) are going to put their cybersecurity needs in the hands of a vibe-coded firewall anytime soon. That presents an opportunity for investors in the space, and one stock looks like a great value at under $200 per share. Here's why investors should take a closer look at Palo Alto Networks (PANW +0.49%).
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The one-stop cybersecurity shop
As cybersecurity needs grow more complex with on-site data moving to the cloud and workforces operating remotely from around the world, there's an increasing need for more solutions. Palo Alto has expanded its product portfolio to include a wide range of software-based solutions across network security, cloud security, and security operations. And it continues to add more through internal development and strategic acquisition.
It already acquired CyberArk Software and Chronosphere this year. The former adds identity security, particularly focused on AI agent identity impersonation. The latter provides an observability platform specializing in generative AI applications and delivers substantial cost savings compared to competitors. The two give Palo Alto a presence in markets expected to be worth a combined $79 billion in 2028.
Integrating them into Palo Alto's platform should provide some synergistic benefits from cross-selling. Enterprises are increasingly looking to consolidate their cybersecurity needs to a single provider, simplifying their operations. Palo Alto has taken advantage of that trend with its "platformization" strategy. As of the end of its first quarter, it counted 1,450 platformized customers, up more than 30% year over year.
NASDAQ: PANW
Key Data Points
The shift to selling software-based solutions (rather than physical hardware) and selling more of them to each customer should benefit Palo Alto Networks' profit margins over the long run. The company's operating profit margin has steadily expanded over the last few years, and that trend should continue as it scales and expands its total addressable market. Management expects adjusted operating margin to improve by 70 basis points to 120 basis points this year.
The stock may still look somewhat expensive, even after falling amid the current sell-off. At about $160 per share, it trades for over 40 times forward earnings estimates. Its enterprise value is roughly 10.5 times management's revenue expectations for fiscal 2026. But consistent revenue growth and margin expansion should produce robust earnings growth over the coming years, making its current valuation look cheap. Investors with $200 could add a share of the stock to their portfolios right now at a great price.
