Palo Alto Networks reported robust financial results for the second quarter of its fiscal 2026, which concluded on January 31. The cybersecurity firm saw its revenue climb 15% year over year to reach $2.59 billion, slightly surpassing analysts’ expectations of $2.58 billion. Additionally, earnings per share (EPS) surged 27% compared to the same period last year, coming in at $1.03 and exceeding the consensus estimate of 94 cents.
Despite these impressive figures, the company’s stock experienced a significant decline of over 8% in after-hours trading. This drop was largely attributed to a forecast for weaker-than-expected EPS in the current quarter and a reduction in the overall earnings outlook for the year. Conversely, management raised its guidance for current quarter and full-year revenue, as well as next-generation security annual recurring revenue (ARR), leading to some cautious optimism among analysts.
Observers noted that the downward revision of earnings was chiefly due to share dilution from recent acquisitions, including CyberArk and Chronosphere, rather than weakness in core operations. Stakeholders are encouraged to focus on qualitative insights shared during the post-earnings conference call, especially regarding the impact of artificial intelligence (AI) on the business. Analysts expressed a more positive outlook on the year ahead, despite stock volatility, highlighting the unique position Palo Alto Networks holds in the ever-expanding cybersecurity landscape.
Prominent market commentator Jim Cramer has reiterated that cybersecurity firms like Palo Alto should not be grouped with traditional software-as-a-service (SaaS) companies due to the escalating importance of cyber protection in a world increasingly influenced by AI technologies. Palo Alto Networks has drawn attention for its comprehensive cybersecurity platform, which is designed to tackle the dynamic threats posed by bad actors.
During the earnings call, CEO Nikesh Arora commented on the challenges and opportunities arising from AI adoption. He noted that the proliferation of AI technologies has resulted in an expanded attack surface for organizations, leading to a higher demand for advanced cybersecurity solutions. Arora emphasized that a holistic platform approach to cybersecurity is crucial for managing these sophisticated threats, particularly as AI systems start to operate independently across infrastructures.
The CEO further elaborated that organizations relying on multiple security vendors may struggle to respond swiftly to threats, thereby increasing the appeal for Palo Alto’s unified platform strategy. He drew parallels between current trends in AI-security adoption and the earlier waves of cloud adoption, suggesting that there may be a time lag before the higher demand translates into substantial revenue increases.
Arora also highlighted the rapid growth of Prisma AIRS, Palo Alto’s AI-native security platform, which has seen its customer base triple in recent months. Despite challenges, the company reported improvements across various financial metrics, including next-gen ARR growth of 33% in fiscal Q2, as well as a net retention rate of 119% among platformized customers.
For the upcoming third quarter of fiscal 2026, management forecasts next-generation ARR between $7.94 billion and $7.96 billion, with remaining performance obligations projected to range from $17.85 billion to $17.95 billion. Revenue is anticipated to fall between $2.941 billion and $2.945 billion, accompanied by adjusted earnings of 78 to 80 cents per share.
For the entire fiscal year, guidance indicates next-generation ARR will likely reach between $8.52 billion and $8.62 billion, with an increase in revenue expectations from previously estimated figures. Adjusted EPS projections have been modestly lowered to between $3.65 and $3.70 from a prior estimate of $3.80 to $3.90.
In light of these developments, analysts remain optimistic about Palo Alto Networks’ long-term growth trajectory despite the current market turbulence, maintaining a “buy” rating on the stock while adjusting their price target in recognition of shifting investor sentiments in the software sector.
