Anticipated Growth Post-CorrectionKey arguments in support of the idea.
We view the current correction as an advantageous entry point for investors.
The negative effects of U.S. tariffs imposed on other countries are expected to be minimal for Palo Alto Networks.
Investment Thesis
Palo Alto Networks, Inc. (PANW) is a U.S. company dedicated to cybersecurity. It develops cutting-edge solutions designed to protect enterprise networks, cloud environments, and endpoints from cyber threats. The company’s flagship offerings include next-generation firewalls (NGFW), SASE security platforms (Prisma Access), and cloud infrastructure protection solutions (Prisma Cloud). PANW leverages artificial intelligence and machine learning extensively to detect and thwart cyber attacks. The company serves a diverse clientele that spans large enterprises, government agencies, and cloud service providers worldwide. It is headquartered in Santa Clara, California.
We view the current correction as an advantageous entry point. Despite the robust first-quarter FY 2025 financial results that exceeded both internal forecasts and market expectations, Palo Alto Networks’ stock is experiencing nearly a 5% decline in the premarket. The main disappointment for investors was the weakerthan-expected guidance for the third quarter of FY 2025 adjusted diluted EPS. However, the company has raised its financial performance forecast for FY 2025, amid stronger revenue growth. The fundamentals of the business remain strong. Palo Alto Networks is aggressively expanding its platform solutions with AI integration, enhancing its competitive edge in the industry. In the second quarter, the company secured approximately 75 new platformization deals, a substantial increase from 45 in the same period last year. Overall, the number of platforms adopted by its top 5,000 customers exceeded 1,150, compared to 850 a year earlier. Additionally, the number of customers utilizing two platforms increased by more than 50% y/y in the second quarter, and the number of customers using three platforms tripled compared to the previous year. The adoption of a platform approach within Cortex also more than tripled y/y, signaling significant growth in XSIAM’s popularity. This trend reinforces the view that the future of cybersecurity lies in AI-driven platforms that can dramatically accelerate threat response. We view the current market correction as an opportune entry point.
The negative effects of U.S. tariffs imposed on other countries are expected to be minimal for Palo Alto Networks. The company upgrades its contract manufacturing facility in Texas to a primary manufacturing and order fulfillment center. This enables the company to scale and innovate its devices while benefiting from the foreign trade zone status. This move will help mitigate tariff costs on international shipments. Furthermore, all firewalls are assembled and manufactured in the U.S., rendering the impact of tariffs against China negligible on the company’s future earnings.
The target price for the shares is $220, the rating is Sell. We recommend setting a stop loss at $167.