Palo Alto Networks on Tuesday night ended its fiscal 2026 on a high note and signaled that the good times will continue in the new year. The numbers and conference call commentary reinforce the essential role of cybersecurity in the artificial intelligence era. Revenue in the company’s fiscal fourth quarter increased 34% year over year to $3.41 billion, exceeding the Wall Street consensus estimate of $3.35 billion, according to LSEG. Adjusted earnings per share (EPS) in the May-to-July period totaled $1.02 in the quarter, ahead of the 98-cent LSEG consensus estimate. On an annual basis, adjusted EPS rose 7%. Shares were down almost 2% in extended trading, though it’s tough to say that move is purely a judgement on what Palo Alto delivered. When the earnings release first hit the tape, the stock initially moved higher by a couple of percentage points, only to reverse course before the conference call even got underway. Some of this could simply be profit-taking, considering the stock has had a massive move in recent months; after all, we took profits Monday ourselves , so we cannot fault anyone here. Another potential culprit for the reversal? OpenAI announcing that its upcoming AI model, dubbed Astra, breaches certain cybersecurity thresholds and will have throttled-back cyber capabilities when released. “We now believe Astra meets the Critical cybersecurity capability threshold under our Preparedness Framework , meaning that with the right tools and access, it can find previously unknown security flaws and develop ways to exploit them across many well-protected systems without a person guiding each step,” OpenAI said in a press release. “It is the first model we are designating at this level, and requires stronger safeguards during development and before release.” We’ve seen this song and dance already this year, where cybersecurity names get sold off on the back of a more advanced cybersecurity model. We remain undeterred, believing it is silly to think that the very companies creating AI — and the risks that come with the powerful technology — would be the ones to displace industry incumbents. It’s also fanciful to argue that the enterprise companies looking to embed AI into their workflows would risk a data breach trying to vibe code a replacement for cybersecurity platforms that took ages to build and have amassed valuable, proprietary data unavailable anywhere else. PANW YTD mountain Palo Alto Networks’ year-to-date stock performance. Bottom line Astra doesn’t change our read on Palo Alto’s results, which strengthened our conviction that cybersecurity is the software component that enables the adoption of artificial intelligence. Memory may be the hardware component that AI chips need to thrive, but cybersecurity is what allows an organization to adopt and deploy this technology securely. At the end of the day, the ability to implement is all that matters. What good is a Ferrari sitting in the driveway if you don’t have a driver’s license? “You cannot deploy AI successfully if you do not get cybersecurity right,” Palo Alto CEO Nikesh Arora told Jim Cramer on “Mad Money” Tuesday night, adding that AI changes the industry’s long-term growth rate for the better. The reality is that while AI is certainly bringing new levels of productivity to enterprises around the world, it also introduces a new level of risk when it comes to protecting sensitive data. That’s especially true when thinking about legacy infrastructure, the kind of stuff installed when the word “agent” was most commonly associated with the person who helps athletes and actors land work. Five to six years ago, certainly, people were not thinking about agentic AI systems that can plan and complete multi-step tasks with little to no human intervention. “There is approximately $1 trillion of global cybersecurity debt that must be modernized to defend against automated threats,” Arora said on Tuesday’s earnings call. By debt, Arora means that roughly $1 trillion of infrastructure is still out there from the pre-generative AI era and not ready for what’s coming. That naturally represents a massive opportunity going forward. That’s translating into even stronger demand for Palo Alto’s all-encompassing cybersecurity platform than we saw just a few months ago. One of the big trends within cybersecurity is so-called platformization, which refers to getting customers to consolidate their spending on security tools to a more limited number of vendors. This is a historically fragmented industry, with different vendors for different kinds of services, such as firewall, threat detection, and identity. Palo Alto and fellow Club name CrowdStrike are the leaders in this platform shift. Palo Alto’s closely watched next-generation security annual recurring revenue (NGS ARR) grew an incredible 63% year-over-year, up from the 60% growth rate we saw in the prior quarter, and ahead of what the Street was looking for. The businesses included in NGS ARR are focused on subscriptions for its cloud-native services; it excludes hardware and legacy products. Another key metric providing insight into the demand environment is net new platformizations , which came in at about 220 in the quarter, representing a 44% year-over-year increase. That is double the number of platformizations in the third quarter. “As we look forward, we remain on track towards our long-term objective of over 4,000 platformizations by fiscal 2030, which serves as a bedrock for reaching our $20 billion next generation security ARR target.” Total remaining performance obligation (RPO) , meanwhile, which represents business signed but not yet converted into revenue, increased 34% year over year, to $21.2 billion. That was also ahead of expectations. “Fiscal 2026 was a transformative year for Palo Alto Networks and the broader industry,” Arora said. “We remain convinced that the AI tailwinds catalyzing cybersecurity demand will only intensify as we look towards the future.” To date, Arora called out three key moments that helped drive the demand, including: The rise of Open Claw, which showed the world the potential of agentic AI. It was first released in November 2025 under a different name . The emergence of Anthropic’s Mythos in April, which made clear that AI, left unchecked and unsecured, could be leveraged by bad actors to exploit previously undiscovered vulnerabilities. The growing normalization and adoption of open-weight AI models, as enterprises and consumers alike seek to customize models to their unique use cases. Going forward, Arora’s belief that AI will continue to drive demand is due to: The incredible levels of investment happening in AI. Arora said he expects capital expenditures in the next five years to outpace what we’ve seen over the past two decades combined. “This surge in critical infrastructure is a permanent tailwind for cybersecurity, a trend already manifesting in the accelerated momentum of our network security and observability businesses this year,” he said. The increasing importance of real-time response to threats, adding that fragmented solutions “are no longer viable.” He added, “Platformization is the only solution for real-time defense, ensuring that telemetry and policy are harmonized across every control point. We’re still in the early chapters of this structural change.” The rise of agents brings new risks and, in turn, new opportunities for Palo Alto. “The rise of autonomous agents will dramatically expand the network surface area that requires fortification, robust governance and security guardrails for AI have shifted from optional features to essential enterprise requirements,” Arora said. “While this market is evolving rapidly, we believe the future belongs to architectures providing end-to-end controls.” Palo Alto is putting its money where its mouth is on agentic security, announcing Tuesday the acquisition of Console for an undisclosed sum. This suggests the deal is on the smaller side, but the strategic rationale makes sense. “Console is designed to help organizations apply AI-driven analysis and action across their enterprise operations, giving organizations the force multiplier they need to resolve alerts, issues, and requests at machine speed,” the company said in a press release. The bottom line? AI is a major tailwind for cybersecurity that won’t let up anytime soon. Sure, the stock may be down in after-hours trading due to profit-taking given the incredible advance since Mythos was announced in early April, and the OpenAI announcement noted above. If anything, this helps explain why we sold some shares into strength Monday — we figured expectations would be high following strong prints from CrowdStrike and Okta last week. This has played out like we thought it would, with PANW down about 5% (including Tuesday night’s move) since our sale despite a terrific quarter and strong outlook. Nevertheless, we’re raising our price target to $400 from $380. Our rating is under review. Guidance The company’s outlook for the full year and first quarter of fiscal 2027 came in above estimates across every line item. Here’s the first-quarter outlook: Revenue in the range of $3.3 billion to $3.31 billion, above the consensus estimate of $3.22 billion, according to LSEG. Adjusted EPS in the range of 96 cents to 98 cents, which at a midpoint of 97 cents beats the LSEG consensus estimate of 93 cents. Next-gen security ARR of $9.54 billion to $9.56 billion, which is well above the FactSet consensus estimate of $9.215 billion. RPO of $20.8 billion to $20.9 billion, which is above the consensus estimate of $20.38 billion. For the full year, management guided to: Total revenue in the range of $14.1 billion to $14.2 billion, well ahead of the $14.79 billion expected, according to LSEG. Adjusted EPS in the range of $4.16 to $4.19ahead of the $4.11 LSEG consensus estimate. Next-gen security ARR of $11.075 billion to $11.175 billion, ahead of expectations of $10.915 billion. RPO of $25.2 billion to $25.4 billion, a strong outlook versus estimates of $24.78 billion. (Jim Cramer’s Charitable Trust is long PANW and CRWD. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
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