PANW Q3 Deep Dive: AI Security, Platform Expansion, and New Market Entry

Cybersecurity platform provider Palo Alto Networks (NASDAQ:PANW) reported Q3 CY2025 results topping the market’s revenue expectations, with sales up 15.7% year on year to $2.47 billion. The company expects next quarter’s revenue to be around $2.58 billion, close to analysts’ estimates. Its non-GAAP profit of $0.93 per share was 4.4% above analysts’ consensus estimates.

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StockStory’s Take

Palo Alto Networks’ third quarter saw sales growth above Wall Street’s expectations, but the market responded negatively, reflecting investor caution on the path forward. Management attributed revenue growth to broad adoption of platform solutions, particularly in areas like SASE (secure access service edge), software firewalls, and expanding demand for AI-driven security tools. CEO Nikesh Arora emphasized that customers are consolidating security vendors, opting for the company’s integrated offerings to address an increasingly complex cyber threat landscape. Arora cited several large deals, including a significant U.S. federal contract, as evidence that platformization is gaining traction across industries.

For the coming quarters, Palo Alto Networks’ guidance is shaped by continued momentum in AI security, strategic acquisitions, and efforts to expand into new markets. Management highlighted the integration of ProtectAI and the pending CyberArk and Chronosphere deals as drivers for both product breadth and cross-selling opportunities. CFO Dipak Golechha stated, “Our ability to deliver best-in-class products through our unified platforms is a critical motivation for customers to platformize with us.” The company also pointed to the rising urgency around quantum-safe security and the need for persistent observability as major trends underpinning its multi-year growth outlook.

Key Insights from Management’s Remarks

Management credited the quarter’s performance to increasing customer adoption of integrated cybersecurity platforms, as well as strong execution in software-driven and AI-native security solutions.

• Platformization drives large deals: Customers are moving away from fragmented point products, leading to significant wins in sectors like U.S. federal and telecom. Arora noted a $33 million SASE win with a federal agency and a record $85 million XIM deal with a major telecom provider, both citing unified security as a priority.
• SASE and software firewalls momentum: SASE annual recurring revenue grew 34% year over year, surpassing $1.3 billion, and software firewalls accounted for nearly half of product revenue. Management highlighted growing demand as organizations shift cloud workloads and require scalable, software-based protection.
• AI security adoption accelerates: The integration of ProtectAI was part of the launch of Prisma AIRS 2.0, positioning the company at the forefront of AI security, with customer deals for AI security more than doubling quarter-over-quarter. Management sees this as a response to high-profile AI-driven cyberattacks and the need for real-time protection.
• Quantum-safe security initiatives: The company launched new quantum-ready products and deepened a partnership with IBM to address post-quantum cryptography (PQC) needs, aiming to help enterprises automate cryptographic risk inventories and accelerate quantum-safe migrations.
• Expansion through M&A and new products: The pending CyberArk and Chronosphere acquisitions are expected to broaden the company’s reach in identity security and observability, while new products like Agentyx (AI-driven security agents) and secure browsers drive incremental value and future growth opportunities.

Drivers of Future Performance

Looking ahead, Palo Alto Networks’ outlook rests on scaling its AI security portfolio, integrating key acquisitions, and addressing emerging threats such as quantum computing.

• AI and platform adoption: Management expects AI-driven security needs and platform-based solutions to drive customer spending, especially as AI-based attacks proliferate and organizations seek to consolidate their security stack for efficiency and response speed.
• Acquisition integration and cross-sell: The planned integration of CyberArk for identity security and Chronosphere for cloud observability is anticipated to open new market opportunities and enhance cross-sell potential, supporting management’s long-term revenue targets.
• Quantum and compliance readiness: Rising awareness of quantum computing risks is pushing enterprises to accelerate adoption of quantum-safe solutions, and management believes that proactive investment in post-quantum cryptography will differentiate the company as compliance requirements evolve.

Catalysts in Upcoming Quarters

Going forward, the StockStory team will be watching (1) the pace of customer adoption for AI and quantum-safe security offerings, (2) the integration progress and early revenue impact from CyberArk and Chronosphere acquisitions, and (3) further expansion in SASE, software firewalls, and secure browser deployments. The company’s ability to maintain platform momentum and successfully cross-sell new solutions will be key signposts for execution.

Palo Alto Networks currently trades at $195.10, down from $200.43 just before the earnings. Is there an opportunity in the stock?The answer lies in our full research report (it’s free for active Edge members).

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