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Shares jumped after August results and guidance, lifting the cybersecurity leader near record highs.
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Recent results show healthy growth in revenue, remaining performance obligations, and recurring subscription ARR.
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Competition is intense, and the stock's valuation looks stretched next to realistic growth.
Palo Alto Networks (NASDAQ: PANW), the platform-focused cybersecurity company behind Prisma, Cortex, and its next-gen firewall offerings, has rallied sharply since mid-August. After closing at about $176 on Aug. 18, the day it reported results, the growth stock trades at about $202 as of this writing -- a gain of roughly 15%. The move reflects renewed confidence in the company's growth algorithm and a guidance for more of the same.
Some investors may be tempted to chase the momentum. But should they? The business is performing well, and management sounded constructive about fiscal 2026. But the current price arguably already bakes in a lot of good news.
Importantly, Palo Alto's latest quarter delivered impressive broad-based progress. In its fourth quarter of fiscal 2025 (the period ended July 31), revenue rose 16% year over year to about $2.5 billion. For the full fiscal year, revenue increased 15% to roughly $9.2 billion.
More importantly, the company's recurring engines remained strong. Remaining performance obligations (RPO) climbed 24% to $15.8 billion, and next-generation security annual recurring revenue (ARR) rose 32% to $5.6 billion. Management also highlighted continued operating efficiency alongside robust free cash flow.
Chairman and CEO Nikesh Arora framed the demand backdrop succinctly in the news release:
Our strong execution in Q4 reflects a fundamental market shift in which customers understand that a fragmented defense is no defense at all against modern threats. They are partnering with us because our platforms are designed to work in concert, creating powerful operational synergies that deliver superior, near real-time outcomes and the efficiency our customers need.
He added that the company "surpassed the $10 billion revenue run-rate milestone," exiting fiscal 2025 with accelerating RPO.
Management's fiscal 2026 outlook calls for revenue of about $10.48 billion to $10.53 billion, up roughly 14% at the midpoint, with a non-GAAP operating margin near 29% and adjusted free cash flow margin of 38% to 39%.
Competitive context helps explain why investors rewarded the print. CrowdStrike (NASDAQ: CRWD), a fast-growing endpoint rival, reported second-quarter fiscal 2026 revenue up 21% year over year to $1.17 billion, while Zscaler's fourth-quarter revenue increased 21% to $719 million and Fortinet's Q2 revenue grew 14% to $1.63 billion. Against strong peers, Palo Alto's combination of double-digit growth at scale and large, expanding RPO underscores solid demand for its consolidated platform.
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