Palo Alto Networks Continues Perfect Execution Amid AI Risks. Here’s What to Know Before Buying PANW Stock at a Questionable Valuation.

A blowout earnings report and lucrative acquisitions saw Palo Alto Networks' (PANW) stock double in a span of just three months. After nearly a month of inaction, the stock price is again registering new all-time highs, prompting investors to take notice. What’s moving PANW stock now, and is it the beginning of the next leg up?

Earlier in the week, Palo Alto Networks announced that it was expanding its collaboration with International Business Machines (IBM) and Red Hat as part of IBM’s Project Lightwell. The project aims to secure open-source software against AI-enhanced cyber threats. 

Palo Alto Networks has an important role to play in this. The company’s technology comes in when something needs fixing without disrupting enterprise workflow. As soon as a cyber threat is detected, PANW can deploy a virtual patch at the network layer to block any exploitation attempt without having to take the systems offline. This is of utmost importance in industries like healthcare and finance, where even milliseconds can change outcomes drastically. Once PANW buys extra time for companies to fix their software, these companies use real-time data provided by PANW on the nature of the threat to improve their code or systems. As soon as their permanent fix is deployed, PANW’s network-layer virtual patch has fulfilled its objective and can be taken away.

This development further strengthens the company’s role in a world where AI threats are increasingly worrying cybersecurity investors. However, one problem for investors amid this good news is the stock’s valuation. Palo Alto Networks trades at a forward P/E of 77.7x. With low double-digit expected growth in the next three years, long-term returns become a huge question mark, especially considering how the cybersecurity world is rapidly changing. 

About Palo Alto Networks Stock

Palo Alto Networks is a leading cybersecurity company that provides software and cloud-based security solutions. The company’s product portfolio includes cloud security solutions, threat intelligence services, network security platforms, security automation software, and AI-powered security operations tools. It serves customers across manufacturing, education, telecommunications, healthcare, financial services, government, and energy industries. 

Over the past year, PANW stock gained around 64%, outperforming the iShares Cybersecurity and Tech ETF (IHAK), which returned about 13% during the same period. This highlights the company’s strong performance relative to the broader cybersecurity industry. A bet on PANW is more or less a bet on the company maintaining its leading position in the industry; outperformance should accompany this status, as long as it is maintained.

Palo Alto Networks Boasts Strong Margins

The company posted its third-quarter fiscal 2026 results on June 3, reporting total revenue of $3 billion. Gross margin for the quarter stood at 75.8%, with the non-GAAP operating margin of 21.3%. On the profitability side, it reported a GAAP net loss of $0.22 per share, and diluted non-GAAP earnings came in at $0.85. Adjusted free cash flow totaled $910 million. During the quarter, the company bought back 6.8 million shares, worth $1 billion. 

Palo Alto Networks raised its fiscal 2026 outlook and now expects fourth-quarter revenue between $3.345 billion and $3.355 billion. Alongside, diluted non-GAAP EPS is projected to range from $0.96 to $0.98. For the full fiscal year 2026, the company forecasts revenue in the range of $11.415 billion and $11.425 billion. Diluted non-GAAP EPS is estimated at $3.77 to $3.79. 

What Analysts Are Saying About PANW Stock

Following its earnings report, analyst sentiment has become more positive towards PANW stock. On June 3, both Jefferies and Robert W. Baird raised their price targets on Palo Alto Networks while maintaining their “Buy” ratings. Jefferies increased its price target from $300 to $335, while Robert W. Baird raised its price target from $300 to $320 on the shares.

The 54 analysts tracked by Barchart give the stock a consensus “Strong Buy.”

Currently, PANW stock is close to its mean target price of $315.16, which recently rose following multiple analyst updates. The bullish sentiment is likely to continue in the near term as the stock makes new all-time highs.