Palo Alto Networks (NASDAQ: PANW) entered quarter 4 earnings after a rough session for software stocks, with shares falling 5.24% to $362.09 as Treasury yields and oil prices climbed.
Then PANW delivered $3.41 billion in fourth-quarter revenue, up 34% year over year, while adjusted earnings per share (EPS) came in at $1.02 against guidance of 96 cents to 98 cents. NGS annual recurring revenue (ARR) reached $9.10 billion against guidance of $8.90 billion to $8.95 billion, while remaining performance obligations (RPO) came in at $21.2 billion versus $20.9 billion to $21.0 billion expected.
Shares rose after the report, then gave back much of the move, leaving a market reaction that says more about the stock than the quarter itself.
The market had already started cutting exposure to expensive software before PANW reported. The earnings then came in strong, yet they failed to reverse that pressure.
PANW Is Getting More Money From Customers It Already Has
Palo Alto Networks added roughly 220 net-new platformizations during the fourth quarter, bringing more customers into a model that replaces several security products with a single platform.
More than 65% of NGS ARR now comes from platformized customers, and those customers produce more than 120% net retention. PANW also ended the year with 223 customers generating more than $5 million in NGS ARR, up 45% year over year, while 78 customers crossed $10 million in NGS ARR, up 50%.
Those numbers give the platform strategy some teeth. How? Simple. PANW isn’t relying on a constant stream of new logos to sustain growth anymore because its largest customers are spending more across the company’s products.
The individual contracts show the size of those accounts, with fourth-quarter wins including a $126 million telecom deal, a $72 million global technology services deal and a $53 million global payments deal.
Network & AI Security revenue grew 17% year over year, Cortex grew 25%, and Idira delivered 21% pro forma growth… which is pivotal, as PANW’s growth is now spreading across the platform instead of sitting within one product that could lose momentum.
AI Gives PANW More Security Spending To Capture
Artificial intelligence is increasing the volume of traffic, data and credentials that enterprises need to protect, which expands the scope of security spending PANW can pursue within existing accounts.
AI traffic through PANW’s software firewalls has increased more than fourfold since June, while agentic traffic through SASE has increased more than ninefold over the last nine months. Prisma AIRS reached roughly $120 million in ARR within one year and now has more than 800 customers.
Cortex XSIAM ARR exceeded $700 million in fiscal 2026 after more than doubling year over year, with roughly 1,000 customers. Observability ARR passed $500 million after more than doubling in two quarters.
CyberArk Software (NASDAQ: CYBR) gives PANW another source of expansion, with more than 200 new CyberArk wins coming from PANW’s existing customer base.
The combination is important for one simple reason — AI can increase the security workload for companies already spending money with PANW, giving the company more opportunities to expand those accounts without rebuilding its customer base from scratch.
PANW generated $4.41 billion in adjusted free cash flow during fiscal 2026, equal to a 38.4% margin, while non-GAAP operating margin reached 29.2%. That is a powerful financial base for a company still investing in AI security and integrating CyberArk
The Forward Numbers Are Where The Argument Gets Harder
PANW expects fiscal 2027 revenue of $14.10 billion to $14.20 billion, representing 23% to 24% growth, while NGS ARR is expected to rise 22% to 23%. Adjusted free cash flow margin is guided to 38%.
The 63% NGS ARR growth reported for Q4 cannot be compared with the 22%-23% outlook without accounting for CyberArk and PANW’s NGS ARR definition, which differs from CyberArk’s prior subscription ARR measure.
There is still a clear change in the numbers investors are being asked to underwrite. The 34% quarterly revenue growth is expected to decline to 23%- 24% for fiscal 2027, while the company expects to keep operating margins near 30% and free cash flow margins near 40%.
Sure, that can support a premium valuation. The problem for shareholders, however, is that Treasury yields have moved toward 5% while software multiples are under pressure across the market.
PANW’s fourth-quarter non-GAAP gross margin also came in at 74.8%, below the 75.8% fiscal-year figure, leaving another number for investors to watch as the company expands its SaaS offerings and integrates CyberArk
The stock, therefore, has less room for a slowdown in growth than the business itself does.
The Chart Gives Us A Line In The Sand
PANW had climbed from roughly $180 in April to around $400 in August, leaving the stock with plenty of valuation risk before the earnings report arrived.
September 1 brought the first serious test, with shares opening at $374.62, reaching $375.92, falling to $357.35 and closing at $362.09 on 9.28 million shares.
The close put PANW below its 20-day moving average near $368.40, while the 50-day average sits around $346.82. I would watch $345 to $350 from here, because a hold would keep the larger advance intact, while a break would put the market’s valuation reset on firmer technical ground. The 200-day average remains near $231, so the long-term trend has plenty of distance beneath it.
I would be more concerned by a heavy-volume break below the 50-day average than by the first reaction to earnings. PANW’s business is still producing 20%-plus forward growth, close to 30% operating margins and more than $4 billion in annual adjusted free cash flow.
And even though I’m holding on to my shares, the stock still has to prove those numbers are enough to support its valuation in a market where money has become more expensive.
