By Adam Clark

Palo Alto Networks stock was surging Tuesday as the company's latest earnings bolstered Wall Street's confidence in its efforts to become the dominant cybersecurity platform.

Palo Alto shares were up 4.5% at $184.14 in early trading after fourth-quarter earnings and guidance came in ahead of expectations.

The company is already the largest pure-play U.S. cybersecurity stock, outstripping its closest rivals CrowdStrike and Cloudflare. However, with Palo Alto's recently announced $25 billion deal for smaller peer CyberArk Software, it is attempting the biggest step yet in a so-called platformization strategy to convince customers to bring all their cybersecurity spending to a single vendor.

It's a plan that comes with risks. Cybersecurity has historically been dominated by a mix of specialist players. Technology executives have been wary of becoming overdependent on a single supplier, both for safety and financial reasons.

Still, the latest earnings suggest Palo Alto is gaining traction. The company said the number of customers generating more than $5 million in annual recurring revenue rose by more than 50% from the prior year, to 156 in total.

"Palo Alto demonstrated this quarter that its decision to platformize was prescient as it was able to win multiple eight-figure deals for a broader consolidated set of products," wrote William Blair analyst Jonathan Ho in a research note. "The company's approach makes sense given the desire by customers to consolidate vendors and move away from the large number of solution providers they have grown accustomed to."

Ho kept an Outperform rating on Palo Alto stock with no target price.

Palo Alto was originally a specialist in firewalls, but it has added various cybersecurity features to its platform. Last year, it even offered to give free access to certain products to rivals' customers, in the hope of winning clients from its peers.

On July 30, Palo Alto announced its intent to buy CyberArk, which would extend its portfolio of services into identity security. While the price tag raised eyebrows and sent the stock tumbling initially, analysts are backing the expansion plan.

"We believe PANW's proposed acquisition of CyberArk features "game-changing" characteristics, and has the potential to be highly synergistic by uniting two strong cybersecurity companies that have no product overlap, and potentially paving the way to strong cross-selling and greater overall monetization (including agentic AI)," wrote Mizuho analyst Gregg Moskowitz in a research note.

Moskowitz kept an Outperform rating and $210 target price on the stock.

Palo Alto said alongside its earnings that it expected to have a free cash flow margin of more than 40% in the first full year after completing the acquisition of CyberArk, compared with a margin of 38%-39% in its fiscal year 2026.

"Margin targets may...further alleviate investor concerns around potential CyberArk integration risks. Looking ahead, we see room for upside as the platform strategy sustains with evidence of growing customer consolidation," wrote Oppenheimer analyst Ittai Kidron in a research note.

Kidron reiterated an Outperform rating on the stock with a $225 target price.

The question now becomes how will rivals react. CrowdStrike is the principal cybersecurity player also pursuing a platform strategy. Analysts at D.A. Davidson previously suggested that CrowdStrike acquiring Okta would be the most likely move in response.

Write to Adam Clark at adam.clark@barrons.com

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August 19, 2025 10:11 ET (14:11 GMT)

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