Palo Alto Networks, Inc. (PANW): A Bear Case Theory

We came across a bearish thesis on Palo Alto Networks, Inc. (PANW) on Disruptive Analytics’ Substack. In this article, we will summarize the bears’ thesis on PANW. Palo Alto Networks, Inc. (PANW)'s share was trading at $186.75 as of 23^rd May. PANW’s trailing and forward P/E were 107.33 and 50.76 respectively according to Yahoo Finance.

Palo Alto Networks (PANW) reported fiscal Q3 2025 results that modestly beat expectations, with revenue rising 15% YoY and strong contributions from next-generation security products. However, the market reacted negatively, as investors were underwhelmed by the company's forward guidance. PANW projected just 14–15% revenue growth for the next quarter and announced a 19% increase in remaining performance obligations (RPO), both seen as signs of slowing momentum.

These figures sparked concerns about whether the company can maintain the high growth rates that have justified its valuation. The broader cybersecurity sector remains a long-term growth story, but PANW’s recent slowdown is evident. Two years ago, the company was growing revenue at 25% YoY, while current growth has slipped to the mid-teens. Although investor expectations have adjusted somewhat, PANW still trades less than 10% below its all-time high, indicating that optimism remains elevated. The valuation premium appears unjustified given the current growth trajectory.

At over $200 per share, the stock implies sustained revenue growth near 20% YoY, which PANW is not delivering. This disconnects between valuation and performance highlights the risks of relying solely on sector strength. While PANW operates in a promising industry, its financials no longer support such a high multiple. The numbers suggest a fair value closer to $155, where expectations would better align with realistic growth. Without a reacceleration in fundamentals, PANW looks overvalued at current levels despite its strong positioning within cybersecurity, and investors may need to reset assumptions accordingly.

Previously, we have covered Palo Alto Networks, Inc. (PANW) in March 2025 wherein we summarized a bearish thesis by the same author. In the article, he cited concerns over its high valuation despite solid fundamentals and 15% annual growth. While PANW benefited from AI-driven security innovations and a shift to a unified platform model, a DCF analysis estimated its fair value at $155, below its then-current price of $182.32. The article acknowledged PANW’s strengths but suggested other AI stocks offered better return potential at more attractive valuations. Since our last coverage, the stock has been mostly flat as of 26^th May.

Palo Alto Networks, Inc. (PANW) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 83 hedge fund portfolios held PANW at the end of the fourth quarter which was 64 in the previous quarter. While we acknowledge the risk and potential of PANW as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than PANW but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

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Disclosure: None. This article was originally published at Insider Monkey.