Jim Cramer Bullish on Palo Alto After Strong Earnings

Palo Alto Networks closed its fiscal fourth quarter with roughly 2,500 platformizations, including a record 220 net additions, as the company bets its platformization strategy can carry growth toward a targeted $20 billion in Next-Generation Security ARR by fiscal 2030. NGS ARR jumped 63% to $9.1 billion in the quarter, a figure that also benefited from acquisitions including CyberArk and Chronosphere, while net retention among platformized customers exceeds 120% and more than 65% of NGS ARR now comes from those customers. The company says it is on track to deliver more than 4,000 platformizations, which it expects to drive the majority of that $20 billion FY2030 target. Palo Alto has been adding capabilities and making strategic purchases to bolster the strategy, launching Unit 42 Continuous Frontier AI Defense on September 22, an annual subscription service that uses multiple frontier AI models to identify, validate and remediate exposures, and acquiring Portkey for an AI gateway, Koi to expand Prisma AIRS into agentic endpoint security, and CyberArk for identity security across human, machine and agentic identities. Gartner estimates global information-security spending will rise about 12% this year to $244 billion, supporting the market backdrop, though the company must integrate several acquisitions while expanding into fast-evolving AI-security markets. Hedge fund holdings in Palo Alto rose to 89 in the second quarter from 87, with Ken Fisher's Fisher Asset Management increasing its stake 2,143%, and short interest stands at 2.66% of the float, down from 2.8%.

CrowdStrike and Palo Alto Networks are racing to answer the question Jensen Huang raised on Sept. 10, when he told investors at the Goldman Sachs Communacopia + Technology Conference that cybersecurity is likely to become AI's next major growth market. CrowdStrike unveiled SafeMind at its Fal.Con conference on Sept. 1, an agentic cybersecurity system built by its own Cyber Superintelligence Lab on top of open Nemotron models, which the company says detects threats 29% more accurately and remediates them six times faster than the frontier models it benchmarked against. CrowdStrike's fiscal second quarter revenue rose 26% to $1.47 billion, with net new annual recurring revenue climbing 51% to a record $333 million, and CEO George Kurtz disclosed an eight-figure Falcon Flex deal with a frontier AI lab. Palo Alto Networks took the opposite path, integrating CyberArk and Chronosphere and adding Console, an AI native platform for agentic enterprise workflows; its Next Generation Security annual recurring revenue reached $9.1 billion, up 63% year over year, and total remaining performance obligations crossed $20 billion for the first time, rising 34% to $21.2 billion, even as it swung to a GAAP net loss of $282 million in the quarter. Investors rewarded only CrowdStrike's report, sending its shares up roughly 20% on Aug. 27, while Palo Alto's shares fell more than 5% despite revenue rising 34% to $3.41 billion in its fiscal fourth quarter. The threat behind both bets is not hypothetical: Anthropic told Reuters it disrupted a Russia-linked hacking campaign that used its Claude models against more than 20 Ukrainian government and defense targets, and a joint study by Wiz and Irregular found AI agents completed sophisticated offensive security challenges for under $50 in computing costs versus close to $100,000 for the same work by paid human researchers.

Palo Alto Networks reported fiscal fourth-quarter revenue of $3.41 billion, up 34% year over year, alongside a $282 million GAAP net loss after earning $254 million a year earlier. Next-Generation Security annual recurring revenue rose 63% to $9.10 billion, though the company said the increase is not an organic growth rate because the current portfolio includes acquired identity and observability businesses absent from the prior-year base, and remaining performance obligations climbed 34% to $21.2 billion. GAAP operating income fell to $172 million from $497 million, cutting GAAP operating margin to 5.0% from 19.6%, while company-defined non-GAAP operating income reached $1.01 billion and non-GAAP net income was $853 million. The quarter's operating reconciliation included $487 million of share-based compensation-related charges, $281 million of acquired-intangible amortization and $68 million of acquisition-related costs, and the net-income gap also reflected a $524 million fair-value change in convertible senior notes acquired in the CyberArk transaction. Operating cash flow rose to $1.36 billion from $1.02 billion, and management guided fiscal 2027 revenue of $14.10 billion to $14.20 billion, growth of 23% to 24%, with NGS ARR expected to reach $11.075 billion to $11.175 billion, up 22% to 23%.