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Palo Alto’s Rally Has One Big Problem Ahead of Earnings

Written by Sam Quirke. Date Posted: 8/31/2026.

Shares in Palo Alto Networks Inc. (NASDAQ: PANW) may have started the year on the wrong foot, but they have been on a tear ever since. After turning higher in February, the cybersecurity heavyweight has rallied hard. A jump of around 20% in just the past few sessions has left the stock trading within a few dollars of its all-time high.

That latest surge owes much to a rival. Blockbuster results this week from CrowdStrike Holdings Inc. (NASDAQ: CRWD), whose management called it the best quarter in the company's history, sent shares across the sector flying. AI was singled out as the force driving both the threats and the spending needed to counter them.

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The timing could hardly be more pointed, because Palo Alto reports its own results next week. With its rival having knocked the ball out of the park, expectations are building for Palo Alto to do the same, and investors are asking what this surge in security demand really means for the stock.

AI Security Demand Is Doing the Heavy Lifting

The bullish case starts with the sheer force of the tailwind now pushing the entire sector higher. As businesses race to deploy AI across their operations, they are opening vast new fronts that need defending, and Palo Alto's management has been unambiguous about what that means for demand.

The company has been growing at a rapid clip, with revenue jumping more than 30% year over year in June's report, while its all-important recurring revenue from newer products expanded even faster. That momentum gave management the confidence to raise its guidance, and next week's results will show whether the trend continued through the summer.

Underpinning it all is what the company calls platformization: persuading customers to buy a full suite of security products from Palo Alto rather than piecing together tools from multiple vendors. As threats multiply, the thinking goes, the appeal of a single, integrated defense grows. That is exactly how Palo Alto has been positioning itself.

The price action is encouraging, too. Palo Alto shares have jumped close to 170% since March, and this week they snapped back higher after a recent bout of selling. Even so, the stock's Relative Strength Index (RSI) is still around 60, suggesting there may be plenty of room for it to run higher if next week's report delivers the goods.

Palo Alto’s Biggest Risk Is Already in the Stock

For all this momentum, however, one issue should give even the most optimistic bulls pause: the stock's valuation. Compared with the wider tech space and its own peers, Palo Alto's shares are extremely expensive. They currently trade at a triple-digit price-to-earnings (P/E) ratio that towers over the broader market and leaves little room for error. Fortinet Inc (NASDAQ: FTNT), one of Palo Alto's main rivals, currently trades at a P/E ratio of around 60.

The concern is that Palo Alto's frothy valuation means much of the best-case scenario is already baked into the share price, leaving little room for disappointment. Bears will also note that, stripping away the boost from recent acquisitions, underlying growth is more modest than the headline figures suggest—perhaps in the mid-teens rather than the eye-popping percentages that attract attention. In addition, the same AI wave boosting demand is lowering the barrier to entry for more nimble, lower-cost cybersecurity alternatives.

Analysts Are Giving Palo Alto the Benefit of the Doubt

Despite those concerns, the mood on Wall Street is almost universally bullish ahead of next week's results.

The past week alone has seen BTIG, JPMorgan Chase and Benchmark rate Palo Alto a Buy or equivalent, thanks in large part to its accelerating platform strategy and the broader industry tailwinds taking shape.

Fresh price targets on Palo Alto shares range as high as $435, implying upside of close to 15% from current levels ahead of the upcoming earnings report.

This optimistic outlook is reflected in MarketBeat's consensus analyst rating of Moderate Buy.

The AI Security Winner Still Has to Justify the Price

So where does that leave investors ahead of next week's closely watched results? The bull case is undoubtedly attractive: Palo Alto is riding a real structural boom in security spending, its platform strategy is winning converts, and its bold push into identity positions it well for a future filled with AI agents.

The catch, however—and it's a big one—is the price. A P/E ratio north of 300 raises the stakes for every earnings report and leaves little room for disappointment. For now, Palo Alto looks every inch a winner from the AI security boom, but its shares have already traveled a long way on the strength of that trend. Next week's numbers will be the latest test of whether this high-flyer can continue living up to investors' ever-increasing hopes.