Palo Alto Networks (NASDAQ:PANW) has captured Wall Street’s attention with a multibillion-dollar expansion of its partnership with Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL). The deal goes far beyond a typical vendor arrangement, positioning Palo Alto Networks stock to benefit from the surging AI security market. With Prisma AIRS embedded in Google’s AI development tools and workloads migrating to Google Cloud, the cybersecurity giant is cementing its presence where AI applications are built.

The timing is crucial. Palo Alto’s recent State of Cloud Report revealed that nearly all organizations faced attacks on AI workloads last year. By embedding security at the source rather than retrofitting protection, the company aims to capture a significant share of the rapidly growing AI security market.

How the Google Deal Strengthens Palo Alto Networks Stock

The Google Cloud partnership has already been commercially successful. Over $2 billion in Google Cloud Marketplace sales and more than 75 joint integrations demonstrate strong market traction. Now, with native integration into Google’s Vertex AI platform and Gemini language models, Palo Alto Networks stock could see material revenue contributions as enterprises adopt combined Google-Palo Alto AI architectures.

Unlike pilot programs, this multibillion-dollar commitment reflects strategic conviction from both parties. Analysts see this as a clear signal of long-term growth potential, reinforcing the stock’s appeal to both existing and prospective investors.

Bull Case for Investing in Palo Alto Networks Stock

Fiscal Q1 results highlight Palo Alto’s growing strength. Remaining performance obligations (RPO) reached $15.5 billion, up 24% year-over-year. Next-generation security annual recurring revenue (ARR) rose 29% to $5.85 billion. Platform consolidation and customer wins indicate the company is successfully capturing market share.

Key deals underscore the momentum. A $100 million telecom deal, including an $85 million XSIAM commitment, marked the largest security operations platform deal in the company’s history. Another $33 million SASE contract with a federal cabinet agency displaced an entrenched competitor, securing 60,000 seats.

Revenue growth is strong. Fiscal Q1 revenue rose 16% to $2.47 billion, with product sales growing 23%. Software now accounts for 44% of trailing 12-month product sales. Operating margins expanded 140 basis points to 30.2%, marking consecutive quarters above 30% and showing improved operational leverage. Management expects at least 37% adjusted free cash flow margins in fiscal 2026 and aims for 40% plus by fiscal 2028.

Strategic acquisitions further enhance Palo Alto Networks stock. The $3.35 billion purchase of Chronosphere, an observability platform with triple-digit ARR growth, addresses AI infrastructure gaps. Chronosphere serves two of the top five frontier AI model providers, boosting technical credibility.

Palo Alto also raised its fiscal 2030 ARR target for next-generation security from $15 billion to $20 billion. SASE now exceeds $1.3 billion ARR with 34% growth, and XSIAM serves 470 customers averaging over $1 million ARR per customer. New products like AgentiX bring autonomous AI agents to security operations, while partnerships with IBM (NYSE:IBM) expand quantum-safe security offerings.

Is PANW Stock Undervalued?

Over the past decade, Palo Alto Networks stock has returned more than 540% to shareholders. Consensus forecasts project revenue growth from $9.22 billion in fiscal 2025 to $16.98 billion by fiscal 2030, with free cash flow increasing from $3.7 billion to $8.45 billion.

At present, PANW trades at a forward free cash flow multiple of 31x, above its 10-year average of 23.5x. Analysts suggest that if the stock were priced at 25x forward FCF, it could gain 62% over the next three years. Out of 49 analysts covering PANW, 34 recommend “Strong Buy,” three “Moderate Buy,” 11 “Hold,” and one “Strong Sell.” The average price target of $225.38 is well above the current trading price of $188, indicating potential upside.

The Bottom Line on Palo Alto Networks Stock

The combination of a multibillion-dollar Google partnership, accelerating AI security adoption, strong recurring revenue, and strategic acquisitions positions Palo Alto Networks stock as a compelling investment for long-term growth. With analyst support and robust fundamentals, the stock may offer both growth potential and resilience in an evolving cybersecurity landscape.

For investors seeking exposure to AI-driven cybersecurity, fiscal 2026 could be a pivotal year to consider Palo Alto Networks stock as part of a diversified technology portfolio.

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