PANW is significantly overvalued due to high valuation multiples and poor fundamental performance relative to price.

The proliferation of proxy AI was great news for cybersecurity stocks, and for Palo Alto Networks in particular. There is no doubt that the increased demand resulting from the actions of artificial intelligence agents creates an increased demand for cybersecurity.

But more importantly, and I think more impactfully, the news headlines were great for cybersecurity stocks, weren't they? We have heard about AI agents getting out of control and doing these things, and those headlines and concerns and what they raise among investors have really encouraged them to look at cybersecurity stocks as a solution to this problem.

That was great for me too. Until a few weeks ago, I was rating many of these cybersecurity stocks as excellent buying opportunities, including Palo Alto Networks .

The stock has risen by more than 109% since the beginning of 2026, and I know that many of my viewers have made significant gains as a result.

So, after all that has been said, what am I going to do with Palo Alto stock now that its price has risen so much and its valuation has increased?

Let me answer this question in this video by reviewing the company’s long-term developments and comparing them to its valuation, to provide a strategy for what I would do if I owned Palo Alto stock today.

Palo Alto has certainly seen a surge in revenue growth as a result of the spread of AI proxies, and you can see that in the increasingly steep revenue curve since the beginning of 2026.

But this company has been growing revenue for more than a decade, and another trend working in its favor is the consolidation of suppliers between customers. Companies now have many different suppliers, and they are looking for areas to consolidate their supplier relationships.

Palo Alto Networks provides a comprehensive approach to cybersecurity, which customers can turn to for all their needs.

However, while revenue growth accelerates in 2026, the company's operating profit margins are collapsing. It has dropped from 12.5% to 5.4%, indicating that the company needs to invest more money to generate those additional revenues.

This is a sign that organic revenue is not as much in demand as one might assume when looking at the company's performance. We get a similar figure if we look at the company’s return on invested capital, which peaked at around 45% in 2024 and has now fallen to 1.77%.

So, when looking at the company holistically, where we take into account margins as well as revenues, the performance is not as impressive as it may appear on the surface. But the rating has reached its highest point.

Palo Alto Networks is currently trading at a forward price-to-earnings ratio of 78, and if we go back to 2024, this valuation is at a completely different level.

So , the company was re-evaluated . Investors have reassessed this business and are willing to pay nearly double the valuation they were paying two years ago, before the rise of proxy AI.

In my opinion, this reassessment is exaggerated. I agree that it should have been revalued, but perhaps not to a forward P/E ratio of 80. Perhaps it would have reached a forward P/E ratio of 60 or 65, but not to 80 or 85 as happened earlier this year.

A few weeks ago, the rating rose sharply and reached its peak. Therefore, I also updated my valuation of Palo Alto Networks using discounted cash flows, valuing the stock at $164. It is currently trading at $385.

Therefore, I see a significant overvaluation of Palo Alto Networks, whether viewed through the forward price-to-earnings multiple or based on discounted cash flows.

So, as I mentioned a few weeks ago, a little over a month ago, I downgraded my rating on Palo Alto Networks stock from a buy opportunity to a hold. She then reaffirmed this retention rating on September 9.

So, what I would do if I owned Palo Alto Networks stock today is think about two things. I would consider selling a covered call option at a price of approximately $425. I would be satisfied if the stock price rose to that level and the buy option on my shares was executed.

Or I would consider reducing my position and taking profits if I hold Palo Alto Networks shares for a while. I will convert some of those assets into other stocks that I feel are undervalued .