Palo Alto Networks Surges 89% in 3 Months: Hold or Fold the Stock?

Palo Alto Networks PANW shares have soared 88.6% in the past three months, outperforming the Zacks Security industry’s 66.6% growth. The stock has outperformed other industry peers as well, including Qualys Inc. QLYS, Zscaler ZS and Check Point Software CHKP. In the past three months, shares of Qualys, Zscaler and Check Point Software have returned 69.2%, 9.3% and 4.5%, respectively.

Palo Alto Networks has been riding on strong enterprise demand for Artificial Intelligence (AI)-native cybersecurity solutions. But with the stock outperforming the industry and peers, the question arises: Does it still have room to run, or is it time for investors to consider taking profits? Let’s find out.

3-Month Price Return Performance

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Positive Industry Tailwinds Bode Well for PANW’s Prospects

Palo Alto Networks is well-positioned to capitalize on the growing demand for advanced cybersecurity solutions. According to Fortune Business Insights, the global cybersecurity market is projected to expand from $248.28 billion in 2026 to $699.39 billion by 2034, representing a massive addressable market. As cyber threats become more sophisticated, enterprises are increasingly prioritizing multi-layered security platforms, which directly contribute to PANW’s strengths.

Palo Alto Networks’ wide range of innovative products, strong customer base and growing opportunities in areas like Zero Trust, Secure Access Service Edge (SASE) and private 5G security continue to support its long-term growth potential. For example, in the third quarter of fiscal 2026, SASE was Palo Alto Networks’ fastest-growing segment, with SASE Annual recurring revenues (ARR) increasing 40% year over year. Growth is mainly coming from customers who want to reduce the number of security tools they use.

Many organizations are moving away from older SASE products that do not provide a full view of their networks, cloud workloads and remote users. One of Palo Alto Networks' largest deals in the third quarter was an $80 million contract with a leading U.S. power producer. The customer selected the company's next-generation firewalls and SASE platform to secure a workforce of more than 25,000 employees. The company reported nearly 50 displacement wins totaling approximately $200 million in contract value year to date, highlighting continued market share gains. Further, PANW has sold more than 11 million secure browser licenses during the third quarter, representing a fourfold increase from the prior-year period.

The above-mentioned factors should continue to support PANW’s long-term growth as demand for cybersecurity solutions across enterprises continues to rise. The Zacks Consensus Estimate for fiscal 2026 and 2027 indicates revenue growth of around 23.8% and 20.5%, respectively.

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Key Technical Indicator Signals Bullish Trend for PANW

Palo Alto Networks shares are trading above their 50-day and 200-day moving averages, a bullish technical signal that indicates the potential for continued upward momentum in the near term.

PANW 50-Day & 200-Day Simple Moving Averages

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PANW Suffers From Rising Integration Costs

As a result of back-to-back acquisitions, PANW is incurring high integration-related costs, including onboarding employees, aligning go-to-market teams and integrating systems and operations. Acquisition-related costs in the third quarter of fiscal 2026 amounted to $113 million, a whopping increase from $5 million incurred in the prior quarter. These costs are expected to hurt the company's profitability before the benefits of synergies from acquisitions are fully realized.

Further, PANW’s non-GAAP operating expenses rose to $1.46 billion in the third quarter of fiscal 2026, up from $1.19 billion incurred in the prior quarter. As a percentage of revenues, operating expenses expanded 290 basis points sequentially. As a result, non-GAAP operating income margin contracted 320 basis points on a sequential basis. PANW is incurring rising costs, which could lead to slower operating leverage and warrant some caution about the company’s near-term prospects.

PANW’s Premium Valuation Warrants a Cautious Approach

Palo Alto Networks is currently trading at a high price-to-sales (P/S) multiple, above the Zacks Security industry. Palo Alto Networks’ forward 12-month P/S ratio sits at 24.75X, higher than the Zacks Security industry’s forward 12-month P/S ratio of 18.06X. The Zacks Value Score of F also suggests that PANW stock is overvalued.

PANW Forward 12-Month P/S Ratio

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The stock trades at a premium valuation to other industry peers, including Qualys, Zscaler and Check Point Software. At present, Qualys, Zscaler and Check Point Software have P/S multiples of 7.22X, 7.49X and 4.29X, respectively.

Conclusion: Hold PANW Stock Right Now

Palo Alto Networks remains a leader in cybersecurity, with a strong long-term growth trajectory, continued AI-driven innovation and a shift toward a more predictable recurring revenue model. Growth in areas such as SASE and platform-based security offerings remains strong, supported by large enterprise deals and increasing customer adoption, which provides a favorable long-term growth opportunity for the company.

However, Palo Alto Networks faces near-term risks from rising integration costs due to large acquisitions, which are hurting its margins. Further, the company’s premium valuation warrants a cautious approach to the stock.

Currently, Palo Alto Networks 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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