Stephanie Link
Chief Investment Strategist & Portfolio Manager at Hightower, Contributor to CNBC
Palo Alto Networks looks set for a near-term move to $400-$410 after its CEO bought $10M of shares. The setup resembles Dell's, and cybersecurity looks attractive here. x.comÂ
Cybersecurity is a clear secondary beneficiary of AI that has been lumped into the software selloff, and Palo Alto Networks is one of the safe bets. It trades at 9x NTM sales for about 23% growth, with a Rule of 40 score above 60 and its CEO buying shares, which is hard to ignore. CrowdStrike and Zscaler are the other safe bets. x.comÂ
Palo Alto Networks is an expensive stock for the profit growth it will deliver over the next couple of years, despite another strong quarter and a promising annual guide. x.com x.comÂ
Palo Alto Networks was unjustly sold off on overblown AI concerns, when AI adoption should actually be a tailwind. Its Next-Gen Security ARR has tripled over three years. x.comÂ
Palo Alto Networks has strong secular tailwinds as AI adoption drives platform market-share gains, so the winner should be left to run. Morgan Stanley named it a sector top pick, raised its target to $410 from $394 with an Overweight rating, and cited underestimated enterprise spending consolidation. The stock trades near 52-week highs. x.comÂ
Palo Alto Networks is wildly overvalued, with a market cap above $250B on $3B of revenue and $8.1B of ARR while still reporting losses. That is like paying $300k for a lemonade stand with zero costs and $10k of yearly sales, before even counting stock-based compensation. x.comÂ
Palo Alto Networks benefits from AI increasing software exploits, a basic insight that made it an easy cybersecurity pick. Its CEO also comes across well on podcasts. x.comÂ
Palo Alto Networks wants every AI agent's credentials routed through it, and whoever brokers the keys sits inline on every action a CISO wants to control. It is the only firewall vendor that also owns a top privileged-access stack. Last quarter revenue grew 34% at a 70% gross margin, with $4.11 billion of free cash flow and net cash. The price is steep at 81.2x forward earnings and 28.2x sales, leaving no cushion if cloud platforms credential agents natively. x.comÂ
Palo Alto Networks looks overextended at 100x EPS for a company growing at most 20%, after running from 308 to 389. x.comÂ
Palo Alto Networks stands to gain because Mythos has changed how companies budget for security, from a nice-to-have to a probable buy-it-now rush to sign with category leaders. The CEO has been pitching its Next Gen Security product hard, with margin expansion hoped for. That demand may show up in its guidance at today's earnings. The market is rewarding category leaders doing even better, such as ServiceNow and Cloudflare. Options imply a 10.5% move, about 21% for the 2x PALU fund. x.comÂ