Palo Alto Networks faces tougher valuation test as AI growth remains strong

Palo Alto Networks is entering fiscal 2027 with strong cybersecurity and artificial-intelligence momentum, but the company’s share-price gains have raised expectations for further growth. Yahoo Finance reported that PhillipCapital downgraded the stock to Neutral from Accumulate on 7 September, while raising its price target to US$346 from US$320.

Revenue rose 34% year on year to US$3.4 billion in the fiscal 2026 fourth quarter. Next-generation security annual recurring revenue increased 63% to US$9.10 billion, with the company adding nearly US$1 billion in net new NGS ARR during the quarter. Palo Alto Networks is targeting US$20 billion in NGS ARR by fiscal 2030.

Management expects NGS ARR growth of 22% to 23% and revenue growth of 23% to 24% in fiscal 2027. It still forecasts 63% NGS ARR growth in the first quarter, indicating that the expected slowdown may come later in the financial year.

The outlook has become more demanding after the stock rose about 160% from its February low to its August peak. PhillipCapital lifted its target by rolling its valuation forward, but also increased its weighted average cost of capital to 5.2%, citing higher debt and a larger share count following acquisitions.

Palo Alto Networks is using acquisitions to broaden its platform and AI-security offering. Its purchase of Console could expand Cortex’s role as companies deploy AI agents, while CyberArk adds identity-security capabilities. The financial contribution of the deals remains uncertain, leaving execution central to the valuation debate.

Insider Monkey’s database reportedly showed hedge-fund ownership rising to 89 funds in the second quarter from 87 in the first. Short interest reportedly stood at 22.4 million shares, or 2.79% of public float, as at 14 August. With growth still strong but expected to moderate, the stock faces a higher bar to justify its valuation.