PANW is overvalued by ~50% (DCF fair value $164); wait for better entry prices before buying.

Shares of companies like Fortinet and Palo Alto Networks have risen by more than 100% by 2026. Cybersecurity companies like Palo Alto Networks and Fortinet have already seen revenue growth over the past decade.

The spread of artificial intelligence has served as additional fuel for this growth. You can see that the revenue growth curve has accelerated recently since 2026.

Palo Alto Networks and Fortinet are among the largest cybersecurity companies in terms of revenue over the past twelve months.

Palo Alto's revenues have risen to $11.5 billion, an increase of nearly tenfold. However, a key difference emerges when comparing the two companies in terms of operating profitability.

Looking at the operating profit margin since 2026, the two companies have diverged, with Palo Alto Networks' operating profit margin declining while Fortinet has achieved new record levels.

Furthermore, Fortinet 's operating profit margin is significantly higher than Palo Alto Networks' operating profit margin, and has remained so throughout the past decade. So, this is nothing new.

In contrast, Palo Alto Networks' operating profit margin also improved, but not to the same extent as Fortinet's. The company's operating profit margin was 5.4%, up from -15% in 2017.

In contrast, Palo Alto’s returns on invested capital peaked at around 50%, then fell to around 1.8% over the past twelve months. Now, one of the metrics where Palo Alto Networks outperforms Fortinet is revenue per employee.

This is a productivity metric that I have been following closely since the pace of artificial intelligence accelerated. I see this as one way companies are integrating artificial intelligence to increase their productivity.

Since 2022, Palo Alto's revenue per employee has seen remarkable growth.

Therefore, Palo Alto Networks outperformed Fortinet when measuring total revenue and when measuring revenue per employee. In terms of valuation, Palo Alto Networks shares are trading at a higher price than Fortinet.

Based on the price-to-earnings ratio, Palo Alto Networks shares are trading near their highest level in years, at 79.

Keep in mind that cybersecurity stocks are poised for a significant surge in 2026, with Palo Alto and Fortinet shares expected to rise by more than 100%.

I am excited about this because I have been optimistic about the cybersecurity industry for many years. You have heard me describe it as one of the industries I have been most optimistic about in recent years.

Therefore, I am pleased to see the industry performing well overall, as well as Fortinet and Palo Alto Networks, two stocks I have considered investment opportunities for several years.

These stocks also appear to be expensive when using the discounted cash flow model. I calculated the fair value of Palo Alto Networks stock at $164. Compared to its current market price, it appears to be overvalued by about 50%.

So, valuations have certainly risen considerably, with stock prices expected to climb in 2026. If it were up to me, I would postpone buying any cybersecurity stocks, or at least these two, until prices become more attractive.