Palo Alto Networks (NASDAQ:PANW) FQ2 results weren’t the inflection point the analysts had hoped for, but the uptrend will continue because AI is good for business. To paraphrase CEO Nikesh Arora, AI and advancing digital technologies are good for cybersecurity businesses because with each advancement comes the need for increased and advancing security. The takeaway from the report isn’t that results weren’t dazzling but that the platformization continues to drive growth, margins are improving, and outperformance was posted.
Likewise, the guidance wasn’t mind-blowing but included increased expectations for revenue and earnings that have analysts raising their stock price targets.
The analysts' response is slightly tepid due to a few reiterated ratings and price targets, but it aligns with the bullish trend. Over half of the half-dozen revisions tracked by MarketBeat within the first few days of the release include increased price targets leading to the high-end range.
That puts the stock up another 20% in 2025, and the positive revision cycle will likely continue. Palo Alto is sustaining its business momentum; there is no reason to think it will cease. Management’s proactive lean into AI has it on target to meet long-term goals and gain share, and there are opportunities for diversification into new security areas.
Palo Alto Delivers Beat and Raise Quarter
Palo Alto’s results weren’t a blowout, but the $2.26 billion is up 14.1%, sustaining a solid double-digit CAGR, and outperformed consensus with the bar set high. The fact the company outperformed at all is a sign of strength. Strength was driven by Next Gen security features, which grew by 37,% and future quarters will likely be as strong in this segment. RPO, an indicator of future revenue, is up more than 20% systemwide.
Margin news is another area of strength. The company managed to control its costs and spending and widened its operating margin significantly. Net operating income is up a leveraged 20% for the quarter and is also expected to remain strong in 2025. Regarding the guidance, the company increased its forecasts for Q3 and the year, raising the full-year EPS target to a range above the consensus forecast.
The only bad news is that some estimates had expected more. Regardless, the growth outlook is sufficient to sustain the cash flow and capital return outlook, which is improving.
Palo Alto Networks buys back shares but not in sufficient quantity to provide a strong tailwind for the stock price. However, the balance sheet highlights suggest that the dynamic could change with assets rising, liabilities falling, and equity increasing by 20%.
Leverage is also very low, with a total liability of about 2.3X equity and less than 0.75X assets, leaving it in a healthy financial position to invest in growth or acquisitions.
Institutions Bought the January Dip in Palo Alto Networks
The institutions are buying sufficient quantities of PANW stock to create a market tailwind. The activity is mixed for the 12 months leading up to the Q2 release, but a notable spike in Q1 2025 aligns with the January post-stock-split price dip. The institutions bought $28 billion of shares, about 20% of the market cap, and lifted their ownership to nearly 80%. With this in play, PANW shares may not move higher in 2025 but are highly unlikely to move lower.
The price action in PANW is bullish following the release. The market slipped on the initial announcement but quickly regained traction, lifting the market to a two-month high by the end of the session. The signal confirms support at the 30-day moving average and the uptrend. The critical resistance is at the current all-time high and may be broken soon because the indicators are set up for a bullish market swing. 