Morgan Stanley Raises Palo Alto Networks Price Target to $410 on AI Security Demand

Morgan Stanley has increased its price target for Palo Alto Networks (NASDAQ:PANW) to $410 from $394, citing expectations that growing adoption of artificial intelligence will support cybersecurity spending and create opportunities for the company to expand its market share.

The investment bank maintained its Overweight rating and identified Palo Alto Networks as its preferred stock within the sector.

Morgan Stanley argued that current market estimates may underestimate the potential for businesses to consolidate their cybersecurity spending with large platform providers.

AI Adoption Expected to Increase Cybersecurity Spending

The bank expects demand for cybersecurity products to rise as companies deploy more AI-powered applications and autonomous agents.

According to Morgan Stanley, approximately 1.5% of enterprise AI investment is currently allocated to AI-related security, suggesting scope for spending to increase as adoption expands.

The analysts identified AI security products, identity management and security information and event management (SIEM) systems as potential sources of growth.

Morgan Stanley also forecasts that the global cybersecurity software market will reach approximately $300 billion by 2028, supported by additional AI-related security expenditure and the consolidation of spending among fewer vendors.

Market Share Expectations Support Revised Valuation

Morgan Stanley noted that Palo Alto Networks shares have gained more than 110% this year and trade at a substantial valuation premium to large-cap software companies.

Despite the share price increase, the bank highlighted a difference between its market share expectations and current consensus estimates.

Consensus forecasts indicate that Palo Alto Networks could lose approximately 50 basis points of market share over the next two years, according to Morgan Stanley.

This would contrast with the approximately 100-basis-point gain recorded by the company over the preceding four years.

Morgan Stanley instead expects Palo Alto Networks to increase its market share by around 75 basis points over the next two years.

The bank’s expectation of continued market share gains, supported by AI-related security demand and customer consolidation, underpins its revised $410 price target.

Risks Include Slower AI Adoption and Changes in Security Technology

Morgan Stanley also identified several risks to its outlook.

These include slower-than-expected adoption of artificial intelligence, disruption to existing cybersecurity products from new AI technologies and the possibility that developers of proprietary AI models will incorporate additional security capabilities directly into their platforms.

Such developments could affect demand for independent cybersecurity providers or alter the competitive environment.

The bank’s revised valuation therefore depends partly on whether Palo Alto Networks can capture additional spending as businesses expand their use of AI while maintaining its position in the broader cybersecurity market.

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