We're upping our Palo Alto price target after strong earnings vanquish AI disruption fears

An important development from the financial markets: Palo Alto Networks reported a strong beat-and-raise quarter Tuesday night, putting to rest any lingering doubt that it will be disrupted by artificial intelligence. The stock was volatile in after-hours trading, but considering its blistering rally into earnings, it's not surprising to see this kind of reaction. Revenue for the company's fiscal 2026 third quarter increased 31% year over year to $3 billion, exceeding the Wall Street consensus estimate of $2.

94 billion, according to LSEG. Adjusted earnings per share (EPS) increased 6% to 85 cents in the quarter, ahead of the 80-cent LSEG consensus estimate. Shares were roughly flat but volatile in after-hours trading.

Economic Details

Pal Alto is up about 61% for the year and up 85% since the end of March. Why we own it Cybersecurity is a secular growth market as bad actors are relentless and companies simply cannot afford to not invest in defense. It is a never-ending arms race, made only more important by the proliferation of artificial intelligence.

Palo Alto Networks has best-in-class tools and a broad product portfolio that allows it to provide an all-encompassing "platform" solution to cybersecurity. Competitors : CrowdStrike (also a Club stock), Fortinet , Cisco Systems Last buy : Nov. 24, 2025 Initiation : Feb.

15, 2023 Bottom line We battled this one out earlier this year when the stock was hammered over fears that large language models made by the likes of Anthropic were going to provide cybersecurity solutions to everyone and replace established security vendors like Palo Alto Networks. It's a thesis we never bought into, but we do admit it did test our patience. How did sentiment change so quickly?

Analyst Views

The company's opportunistic share repurchases, including a $1 billion increase to its buyback authorization in February, didn't help the stock. It got a brief pop after the disclosure that CEO Nikesh Arora bought $10 million worth of shares in late March, when the stock was trading in the $140s. But it wasn't off to the races yet.

What finally got the market on our side was the launch of Project Glasswing , an initiative formed in early April by Anthropic and several major partners to address the heightened risks associated with users of its most advanced frontier model, Claude Mythos . Yes, the same Anthropic that was once seen as a boogeyman. As management explained in its earnings presentation, the creation of models like Mythos has been a "game changer" for the industry.

"We have entered the era of truly cyber capable systems, where models like Mythos possess the autonomous capability to execute comprehensive attack campaigns from start to finish. This represents a fundamental paradigm shift for the cybersecurity industry. " Arora explained on the earnings call.

Economists are analysing what the news means for the markets.