Key Takeaways
- Palo Alto Networks (PANW) stock fell approximately 13% in the month through November 2, closing near $352 as AI competition concerns and cybersecurity valuations pressured shares.
- CrowdStrike (CRWD) also faced selling pressure, although improving cybersecurity budgets could support demand for its security platform.
- Fortinet (FTNT) reported 20% third-quarter revenue growth, but slowing product revenue growth raised concerns about industry growth expectations.
- Palo Alto’s earnings are projected to rise through fiscal 2028, although its 88x forward earnings multiple leaves limited room for disappointment.
What Happened?
Palo Alto Networks (PANW) stock fell approximately 13% between October 2 and November 2, declining from $403 to $352 as investors reassessed cybersecurity valuations amid concerns about artificial intelligence and industry competition.
The first major concern emerged on October 13, when The Information reported that OpenAI was in early discussions to acquire Trail of Bits, a cybersecurity company specializing in identifying and fixing software vulnerabilities.
Although no agreement had been announced, the discussions raised questions about whether AI companies could expand beyond software vulnerability detection into services traditionally offered by established cybersecurity providers.
Palo Alto faced additional pressure on October 14 after disclosing a PAN-OS firewall vulnerability that the company said had seen very limited exploitation.
However, AI-powered code auditing and real-time threat prevention serve different purposes, meaning OpenAI’s potential acquisition would not necessarily undermine Palo Alto’s core security business.
CEO Nikesh Arora addressed AI competition at Goldman Sachs’ September technology conference, describing traditional endpoint security pricing as “probably $30 to $40 an endpoint.”
He argued that continuously using expensive frontier AI models to inspect endpoint traffic could be less economical than established cybersecurity infrastructure.
Meanwhile, Palo Alto expanded its AI security offerings on October 23 by making Prisma AIRS and Unit 42 Continuous Frontier AI Defense available through OpenAI’s Marketplace.
Cybersecurity stocks faced another setback after Fortinet reported third-quarter revenue growth of 20% to $2.08 billion.
Despite raising its full-year guidance, Fortinet’s product revenue growth slowed to 37% from 52% in the previous quarter, raising concerns about growth expectations across cybersecurity stocks.
Still, an October 23 Evercore ISI survey pointed to improving cybersecurity budgets and identified Palo Alto and CrowdStrike as potential beneficiaries of AI-driven spending.
Taken together, the developments suggest valuation concerns and uncertainty over AI competition contributed to the sell-off, even as cybersecurity spending indicators remained encouraging.
Is Palo Alto Networks Stock Undervalued or Overvalued?
At approximately $352, Palo Alto Networks still traded at a substantial premium to its historical valuation, suggesting shares may remain overvalued despite the recent decline.
According to TIKR’s October 31 estimates, normalized earnings per share are projected to increase from $3.84 in fiscal 2026 to $4.18 in fiscal 2027 and $4.88 in fiscal 2028, representing approximately 9% and 17% annual growth, respectively.
Palo Alto traded at approximately 88x forward earnings on October 30, down from roughly 95x at the end of September but substantially above its five-year average of 57x.
Wall Street’s average price target of approximately $399 implies about 13% upside from the November 2 closing price, although the premium valuation leaves shares vulnerable if profitability disappoints.
Palo Alto’s next major catalyst is its November 18 fiscal first-quarter earnings report. Management guided to revenue of $3.30 billion to $3.31 billion, representing 33% to 34% year-over-year growth.
Investors will also monitor adjusted gross margin, which reached 74.8% in the previous quarter, as rising cloud-hosting costs could pressure profitability.
The recent pullback may offer an opportunity for long-term investors, but Palo Alto’s premium valuation leaves little room for disappointing results. Holding existing positions or building exposure gradually appears more defensible than aggressively buying before earnings, particularly while investors await evidence that revenue growth and margins can support the stock’s valuation.
So what is Palo Alto Networks stock actually worth?
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Disclaimer:
Please note that the articles on TIKR are not intended to serve as investment or financial advice from TIKR or our content team, nor are they recommendations to buy or sell any stocks. We create our content based on TIKR Terminal’s investment data and analysts’ estimates. Our analysis might not include recent company news or important updates. TIKR has no position in any of the stocks mentioned. Thank you for reading, and happy investing!
