“Almost sentenced to death”: Palo Alto CEO says AI fears were overblown
Nikesh Arora said investors had expected AI companies to eat the software industry's “breakfast, lunch and dinner,” but that view has begun to change. Palo Alto reported strong results and expects revenue of about $14 billion in the coming year, even as its stock falls after doubling in 2026.
Palo Alto Networks' stock has doubled since the beginning of the year, leaving investors with expectations that even excellent results would struggle to meet. The world's largest cybersecurity company, which is also traded in Tel Aviv and now has a market value approaching NIS 1 trillion ($322 billion), reported strong financial results and an upbeat outlook. Yet the stock, which had already fallen 9% on the eve of the results, continued to lose ground, dropping another 9% yesterday.
Although this is the middle of the calendar year, the latest results mark the end of Palo Alto Networks' fourth quarter and fiscal year, making them the company's most important annual report. The company, founded by Nir Zuk and which completed its $25 billion acquisition of Israeli cybersecurity company CyberArk six months ago, beat analysts' expectations across the board.
Quarterly revenue reached $3.4 billion, compared with an analyst forecast of $3.3 billion, representing growth of 34%. For the full fiscal year, revenue reached $11.5 billion, up 25% from the previous year. Palo Alto consolidated the results of CyberArk and Chronosphere, which it acquired for $3 billion, only during the second half of the year.
Net income excluding one-time items rose 25% from the corresponding period to $2.9 billion, while cash flow reached $4.4 billion. The company's forecast for the current quarter is somewhat conservative, with revenue expected to reach $3.3 billion, but that would still represent annual growth of 34%.
For the full fiscal year, Palo Alto expects revenue of approximately $14 billion, an increase of 24% from the previous year. The forecast is above analysts' expectations.
Palo Alto's results, which follow strong reports from CrowdStrike and Okta, two other major cybersecurity companies, suggest that concerns about the impact of AI companies on the cybersecurity industry may have been overstated.
Nikesh Arora, Palo Alto's CEO and known for his colorful language, addressed those concerns directly on a call with investors.
“I think nine months ago, we were all guilty and convicted of near death as cybersecurity and software because Frontier AI was going to eat all of our lunch and breakfast and dinner,” Arora said, “Clearly, in the last six to nine months, it’s become apparent that that’s not happening. We’re all going to be enjoying this feast together. We’ve seen both OpenAI and Anthropic and even Google come to the table in terms of partnerships. We have early access to these models. We’re able to test them. We’re able to test their cybersecurity capabilities.”
The shift in perception that Arora described has taken shape in recent months. While AI companies have demonstrated increasingly powerful cybersecurity capabilities, it has also become clearer that they are unlikely to replace specialized cybersecurity providers. In some cases, the opposite may be true: AI agents capable of launching increasingly sophisticated attacks, including incidents involving systems that operate beyond the direct control of the AI companies themselves, could create additional demand for cybersecurity products.
Arora said that following the launch of Anthropic's Mythos, an AI system designed to detect security weaknesses, Palo Alto received more inquiries from customers trying to understand how to respond to the new threat landscape.
Palo Alto's changing view of AI was also reflected in its announcement of another acquisition, this time of Console, a small startup developing AI-powered cybersecurity solutions.
Arora also praised Palo Alto's $25 billion acquisition of CyberArk, whose enterprise identity management product line has been renamed Idira, describing the deal as "phenomenal."
Idira's business grew 21% year over year and generated $1.26 billion in revenue. In the latest quarter, its growth accelerated to 27%.
For the current fiscal year, however, Palo Alto is forecasting more moderate growth for Idira, estimating that its growth rate will remain roughly stable or slow slightly, with revenue reaching approximately $1.5 billion.
The main growth opportunity for Palo Alto is selling Idira's identity management products to its existing customer base, a product category that the company did not previously offer. According to Palo Alto, it has already completed 200 such deals, while the number of large contracts worth more than $5 million each jumped 50% in the latest quarter.
At the same time, Palo Alto's management continues to focus on the cost savings and operational synergies from CyberArk. The company said the business has already become more profitable than it was as an independent company.
