Freedom Broker analysts see more than 25% upside potential in Palo Alto shares

Freedom Broker experts reaffirmed their “Buy” recommendation on Palo Alto Networks (PANW) shares and raised the target price from $330 to $420. The current share price is $333,2, implying upside potential of 26,05%. According to the experts, developers of advanced AI models are turning from potential competitors into partners and major customers of the company’s solutions. Palo Alto Networks’ market capitalization is estimated at $270,531 bn.

What Palo Alto Networks does

Palo Alto Networks is one of the world’s largest developers of cybersecurity solutions. The company protects corporate networks, cloud infrastructure, data centers, accounts, and security operations.

Its portfolio includes the Network & AI Security network protection platform, Cortex and XSIAM solutions for automating cybersecurity operations centers, Prisma AIRS for protecting AI systems, and Idira. Idira is developing the Modern PAM segment—modern privileged access management for employees, services, and autonomous AI agents accessing mission-critical systems.

AI shifts from a threat to a source of multibillion-dollar revenue

According to Freedom Broker analysts, the key shift in the investment thesis for Palo Alto Networks is the move from concerns that advanced AI models would displace traditional cybersecurity products to technological collaboration with their developers.

AI labs and operators of specialized cloud platforms are building data centers, generating large volumes of machine traffic, and need protection for autonomous agents, networks, and telemetry arrays. They are becoming direct clients of Palo Alto Networks, purchasing physical and virtual firewalls, Chronosphere monitoring systems, and products to secure AI environments.

Analysts believe that in fiscal years 2027–2029, cooperation with AI labs and neoclouds could generate an additional $2,5–4,0 bn in annual revenue for Palo Alto Networks. Over the longer term, products for agentic AI, infrastructure monitoring, and automated attack response could add $5 bn to $7 bn in incremental recurring revenue.

Revenue rose 34%

In the fourth quarter of fiscal year 2026, Palo Alto Networks’ revenue increased 34% year over year to $3,41 bn, exceeding the upper end of management’s guidance of $3,36 bn and the market consensus of $3,35 bn.

Subscription and support revenue grew 36% to $2,67 bn, while product revenue rose 29% to $738 mln. Demand was supported by AI data-center construction, corporate customers upgrading firewalls to the Gen 5 line, and large platform contracts. In particular, the company signed a $126 mln deal with a global telecom operator.

Next-Generation Security recurring revenue, or NGS ARR (a unified cybersecurity platform for protecting networks, clouds, and devices with real-time threat analytics), grew 63% to $9,10 bn. Remaining performance obligations reached $21,2 bn, up 34%. This metric reflects future revenue under contracts already signed.

Adjusted profit beat the forecast

Adjusted operating profit totaled $1,0 bn versus $768 mln a year earlier. Adjusted earnings per share rose from $0,95 to $1,02, beating the FactSet consensus of $0,98 and the Freedom Broker forecast of $0,96.

Under GAAP, the company posted a net loss of $282 mln, or $0,35 per share, versus profit of $254 mln, or $0,36 per share, a year earlier. Operating cash flow increased from $1,0 bn to $1,4 bn, and adjusted free cash flow rose from $954 mln to $1,3 bn. Its margin for fiscal year 2026 was 38,4%.

Analysts note that the CyberArk integration is running 3–6 months ahead of plan. Sales synergies and reduced duplicate costs helped offset gross margin pressure from younger cloud services and higher memory component prices.

Palo Alto expects further growth

For fiscal year 2027, the company forecasts revenue of $14,10–14,20 bn, which corresponds to growth of 23–24%. Adjusted earnings per share are expected in the range of $4,16–4,19, operating margin at 29,5%, and adjusted free cash flow margin at 38,0%.

NGS ARR could reach $11,075–11,175 bn, and the remaining performance obligations portfolio $25,2–25,4 bn. Palo Alto Networks also maintains its long-term goal of increasing NGS ARR to $20 bn by fiscal year 2030.

Freedom Broker raised the share target price to $420, factoring in strong results, accelerated integration of acquired companies, and growth in AI security products. Key risks cited by analysts include higher costs for hardware components and cloud hosting, the complexity of integrating multiple assets simultaneously, and long transition timelines as enterprise clients move to a unified platform.

AI agents boosted demand for cyber protection

In August, Palo Alto Networks and CrowdStrike (CRWD) shares hit new highs after the Black Hat conference. Market participants noted that the spread of AI agents increases the number of new attack vectors, while the deployment of specialized protection tools is still at an early stage.

Not an individual investment recommendation.