Key Takeaways
- Palo Alto Networks shares rose 3% today after Deutsche Bank named it one of three standouts among companies set to gain from rising AI usage, while the Nasdaq fell about 2%.
- CEO Nikesh Arora warned that more AI-found flaws like this week’s PHP bug are coming, and Cloudflare rose [4%] as the cybersecurity rally carried on.
- When AI finds flaws faster, companies have to spend more to defend against them, and that makes Palo Alto a hedge against AI’s risks.
- The stock already reflects a lot of that demand, with its forward P/E well above its five-year average.
Palo Alto Networks (PANW) shares are up 3% today, while the Nasdaq is down about 2%.
Before the open, Deutsche Bank named Palo Alto one of three standouts, along with Snowflake and CrowdStrike, among companies set to gain from rising AI token usage. The bank’s reasoning is that expanding data flows, digital identities and attack surfaces support demand for cybersecurity.
And that call landed on a sector that was already rallying.
AI is finding the holes
On Wednesday, the PHP Foundation disclosed two critical flaws in PHP, the programming language behind nearly 70% of websites, and issued an emergency patch. Researchers found the bugs partly with an OpenAI model.
Palo Alto CEO Nikesh Arora went on the TBPN podcast Wednesday afternoon with a warning: “We’re gonna see more of these, not less.”
He said Palo Alto’s own scan found 22 million places where the PHP flaw persists. He added that whatever today’s AI models miss “will definitely be found three months from now with the next model.”
Which, yikes.
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Defense budgets have to climb
That’s why Palo Alto rose on a day when most of tech fell. The faster AI finds flaws, the more companies have to spend defending against them, and Palo Alto is first in line for those budgets.
Analysts already expect revenue to climb from $11.5 billion in fiscal 2026 (the year ended July 2026) to $16.2 billion in fiscal 2028…
The catch is the price
Deutsche Bank itself noted that the market has already priced these benefits into valuations, to varying degrees. Palo Alto traded at 83x forward earnings at Wednesday’s close, well above its five-year average of 57x…
…and after today’s jump, it’s closer to 87x. (It hit 101x in August and was as low as 38x in February, so sentiment on this stock swings hard.)
My take: Palo Alto has become a hedge against AI’s risks, and Arora’s warning makes that case stronger. At close to 87x forward earnings, though, it needs to beat those estimates for the stock to keep climbing.
Of course, the first real test comes with its next quarterly report, expected next month. That will be the first report since the PHP flaw hit.
So what is Palo Alto Networks stock actually worth?
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