Palo Alto Networks Hits $5B in NGS ARR: What's Fueling the Surge?

Palo Alto Networks PANW surpassed a key milestone during the third quarter of fiscal 2025, wherein the annual recurring revenues (ARR) for its next-generation security (NGS) solutions hit the $5 billion mark. In the third quarter, NGS ARR reached $5.09 billion, representing year-over-year growth of 34%.

Palo Alto Networks had 130 customers with more than $5 million in NGS ARR at the end of the third quarter, up 41% year over year. Also, the customer count with more than $10 million in NGS ARR grew 63% to 44. 

In the third quarter, PANW reported that AI-related ARR now stands at approximately $400 million, 2.5 times higher than the year-ago quarter. The robust growth in NGS ARR can be attributed to its flagship XSIAM platform, which is gaining traction across enterprise customers. 

During the third quarter, bookings for XSIAM, an artificial intelligence (AI)-powered NGS platform, approached the nearly $1 billion mark on a trailing 12-month basis. The platform now has approximately 270 customers with an average ARR per customer of more than $1 million. XSIAM ARR grew more than 200% year over year in the third quarter, all within 30 months after XSIAM was made generally available to customers. 

With management targeting $15 billion in ARR by fiscal 2030, AI may be more than a tailwind, it could be the engine of PANW’s next phase of growth. The company forecasts that its NGS ARR will contribute approximately 60-70% of the fiscal 2023 total targeted ARR.

How PANW’s ARR Growth Stacks Up Against Rivals

Competitors like CrowdStrike CRWD and SentinelOne S are also gaining ground through platform expansion and AI innovation. 

CrowdStrike ended its first quarter of fiscal 2026 with $4.44 billion in ARR, reflecting 22% year-over-year growth. The robust increase was fueled by the growing adoption of CrowdStrike’s Falcon Flex subscription model.

Though a small competitor, SentinelOne’s ARR is also growing rapidly with reaching $948 million at the end of the first quarter of fiscal 2026. This represents a year-over-year rise of 24% fueled by growing adoption of SentinelOne’s AI-first Singularity platform and Purple AI.

PANW’s Price Performance, Valuation and Estimates

Shares of Palo Alto Networks have gained 6.7% year to date compared with the industry’s growth of 19.4%.

PANW YTD Price Performance Chart

From a valuation standpoint, PANW trades at a forward price-to-sales ratio of 12.6, below the Zacks Security industry’s 14.47.

PANW Forward 12 Month P/S Chart

The Zacks Consensus Estimate for Palo Alto Networks’ fiscal 2025 and 2026 earnings implies a year-over-year increase of approximately 15% and 11%, respectively. The estimates for fiscal 2025 have been revised upward in the past 30 days, while the same for fiscal 2026 has remained unchanged.

PANW stock currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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