PANW stock dubbed 'double table pounder' despite muted outlook

Palo Alto Networks (NASDAQ: PANW) is retreating this morning as investors react to its cautious guidance that overshadowed a solid second-quarter beat.

While the cybersecurity firm exceeded revenue and profit estimates in Q2, its “full-year” earnings outlook fell short of expectations, mostly due to the heavy lifting of integrating several high-profile acquisitions.

PANW has been on a shopping spree in recent months, absorbing CyberArk in a “landmark” $25 billion deal, followed by Chronosphere, and most recently, the Israeli AI-security startup “Koi”.

And as the company’s deal-related costs continue to pile up, its margins are seen squeezing in the near-term.

However, Dan Ives remains undeterred – arguing these strategic investments are “missing pieces” of a massive AI puzzle, and the post-earnings dip in Palo Alto Networks shares is a “double table pounder” for long-term believers.

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A growing narrative in the software sector suggests generative AI tools like Anthropic or OpenAI could “disintermediate” traditional cybersecurity, rendering old-school firewalls obsolete.

But Wedbush Securities’ senior analyst Dan Ives categorically rejects this sentiment.  

Speaking with CNBC this week, he pointed out that PANW’s multi-billion dollar acquisition strategy, specifically the CyberArk deal, is designed to create a “full end-to-end AI security platform” that startups just can’t replicate at scale.

According to him, as enterprises transition to AI-centric budgets, cybersecurity’s share of IT spend is inflating from a mere 5-8% and may climb upwards of 25% as AI agents become “autonomous employees.”

Ives remains bullish on PANW stock since its management isn’t spending money to defend against AI; it’s spending to own the infrastructure that secures it, effectively turning a perceived headwind into a massive growth catalyst the market has yet to fully price in.

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Dan Ives sees the post-earnings dip in Palo Alto Networks stock as a “prime buying opportunity” as the AI disruption fears are misaligned with the company’s future cash-flow potential.

He believes the CyberArk integration will prove the “deal that changes PANW,” providing a level of visibility and platformization that could boost its market cap by “hundreds of billions” over time

According to the Wedbush analyst, once the integration “noise” subsides, the market will recognize this Nasdaq-listed firm as the undisputed heavyweight champion of the AI-security era.

Backing this conviction, the investment firm reiterated its outperform rating on Palo Alto Networks today, with a price target of $225, indicating potential upside of about 50% from here.

PANW’s chief executive Nikesh Arora echoed the sentiment – saying “I’m still confused why the market is treating AI as a threat to cybersecurity, as customers have figured out they need to drive more consistency in their security stack to be able to respond faster using AI.”

All in all, with the earnings multiple about 8.0% blow its three-year average, Palo Alto Networks’ valuation is becoming increasingly attractive for a firm with $16 billion in remaining performance obligations (RPO).