Parkev Tatevosian, CFA on $PANW (Nov 5, 2026)

The proliferation of proxy AI has been great news for cybersecurity stocks, including Palo Alto Networks. Of course, I'm glad about that because I've been talking for years about the cybersecurity industry being one of the best industries to invest in.

This year alone, cybersecurity stocks have risen by nearly 100%, with Palo Alto Networks shares specifically rising by more than 91%. Then, two months ago, I downgraded many of them, including Palo Alto Networks, to a "hold" rating.

That proved to be the right decision, as Palo Alto Networks' performance has been volatile since the stock reached $400.

The price is now at $353, and I wanted to revisit this cybersecurity firm to determine if it represented an attractive buying opportunity after its drop from $400 earlier this year.

One way to gauge the growing enthusiasm on Wall Street for cybersecurity firms like Palo Alto Networks is to look at Wall Street analysts' estimates of these firms' long-term earnings per share growth and the trend line of those estimates.

For Palo Alto Networks, in February and March of this year, Wall Street analysts who follow it estimated that it would achieve earnings per share growth of about 12% over the next few years.

That estimate was down from about 26% in January 2024. So analysts were becoming increasingly pessimistic about cybersecurity firms like Palo Alto Networks, and estimates hit a low point earlier this year.

But as the artificial intelligence proxy began to spread, those estimates started to rise, and you can see that happening over the past few months, with estimates going up from 12% to 19% at the time this video was recorded.

The proliferation of proxy AI means that more actions are being taken, especially by agents. Agents can take more actions throughout the day without stopping, as they continuously accomplish tasks, and this increases the size of the risks that companies, institutions, and individuals face.

This means there is a growing need for cybersecurity, and that is why analysts have become optimistic, even more optimistic, about companies like Palo Alto Networks.

But the share price had already risen significantly since the beginning of this year, as had the valuation. The forward price-to-earnings ratio has risen from around 30 earlier this year, which I considered a great opportunity, and I rated these companies, including Palo Alto Networks, as excellent buying opportunities.

But the valuation then rose above 70 and approached 90 on a forward price-to-earnings basis, and I felt this was overrated, so I lowered my rating for Palo Alto Networks at that point.

Well, the stock is currently trading at a forward P/E ratio of 72, which I still consider high given that the company's earnings per share estimates are still below 20% for the next few years.

After all those calculations, the value of Palo Alto Networks' stock was estimated at $172. Well, even after the drop, the stock is trading at $352. Therefore, the stock still seems overvalued to me based on my current calculations.

The stock has already risen by more than 91% since the beginning of the year, but since reaching $400 earlier after August, its performance has been volatile and trending downwards.

So, it appears that Palo Alto Networks has fully incorporated the developments in proxy artificial intelligence into its market price.

But I think that what is also being included in its current market price is more incentives, isn't that right? We have seen the spread of proxy AI for enterprise use, but we have yet to see the impact on cybersecurity firms in terms of the spread of proxy AI on the consumer side, such as Meta's Muse products.

I believe the market is pricing in these factors before seeing the actual results, because based on what they have seen of the effects of enterprise proxy AI, they are linking it to similar positive effects of proxy AI on the consumer side.

So, I last updated my review of Palo Alto Networks on September 29 when I said it didn't look like a buy opportunity. After about a month of reassessing the company, I come to the same conclusion that it does not look like a buying opportunity at these market prices.