Global cybersecurity corporations Palo Alto Networks beat market expectations on demand for artificial intelligence (AI)-based security. But the stock fell on concerns about slowing profitability.
According to The Information and MarketWatch on the 1st (local time), Palo Alto's revenue for the fourth quarter of fiscal 2026 (May–July) rose 34% from a year earlier to $3.41 billion (about 4.7 trillion won). That topped the market estimate of $3.35 billion.
Adjusted earnings per share (EPS) also came in at $1.02, above the $0.98 market forecast. Annual recurring revenue (ARR) for its AI agent security product surpassed $120 million, and total ARR for the next-generation security (NGS) institutional sector rose 63% from a year earlier to $9.1 billion.
The outlook also topped market expectations. Palo Alto guided next-quarter revenue of $3.3 billion to $3.31 billion, and full-year fiscal 2027 revenue of $14.01 billion to $14.2 billion.
It is also accelerating the expansion of its business areas. Palo Alto said it completed the acquisition of startup "Console," which uses AI to automate handling of internal IT inquiries at corporations. The move follows the released acquisition of cybersecurity corporations CyberArk.
Nikeshi Arora, Palo Alto chief executive officer (CEO), said, "AI is elevating cybersecurity to the top of corporations' IT investment priorities," and "it will serve as a continued tailwind toward achieving $20 billion in ARR for the next-generation security institutional sector in fiscal 2030."
However, despite strong results, concerns about a slowdown in profitability came to the fore, and Palo Alto shares closed down 5.24% at $362.09 in regular trading. They fell an additional 1.90% in after-hours trading.
BNP Paribas pointed to Palo Alto's projected free cash flow (FCF) margin of 37.5%–38%, which fell short of market expectations, as a reason for the stock's decline. Palo Alto's chief financial officer (CFO) also said the gross margin dropped to 74.8% in the fourth quarter due to higher expense tied to the shift to a software-as-a-service (SaaS) business.
Other cybersecurity corporations are also sustaining growth on expanding AI demand. CrowdStrike said on the 27th that net new ARR jumped 51% from a year earlier to a record high. Okta has raised its revenue outlook twice this year.
Palo Alto shares have risen 102% this year on the strength of the AI cybersecurity sector.