What spooked Palo Alto investors in 2025 could accelerate growth in 2026
For investors looking for a cybersecurity comeback story, Palo Alto Networks may be quietly writing one. 2025 performance: 1.2% Forward price-to-earnings multiple: 43.7 versus a five-year average of 53, according to FactSet data. Our rating: Buy-equivalent 1 Our price target: $225 a share PANW YTD mountain PANW stock performance YTD. With a roughly 1% gain in 2025, Palo Alto’s stock appears to have had a muted year, but beneath the surface, it was volatile. In the second half of the year, in particular, shares were held back by investor concerns over CEO Nikesh Arora’s dealmaking spree. Despite creating an overhang on shares, Palo Alto’s acquisitions of CyberArk and Chronosphere position the cybersecurity giant for a stronger 2026 as more customers seek to consolidate their security tools from a disparate set of vendors. That aligns with Arora’s long-term strategy, dubbed platformization — his plan to build an integrated security platform that includes network, cloud, identity, observability, and threat intelligence. Instead of selling siloed products, Palo Alto unifies security operations so customers can easily detect and respond to threats from one place. Rival cybersecurity provider CrowdStrike , a fellow Club name, also emphasizes its platform approach, so Palo Alto isn’t the only game in town. That makes Palo Alto’s two biggest acquisitions this year particularly important. The $25 billion acquisition of CyberArk , announced in late July, will provide Palo Alto with an increasingly important identity security layer, one of the most targeted entry points for hackers. Expected to close in early 2026, the deal is projected to bring more than $1.5 billion in annual recurring revenue and roughly $400 million in free cash flow, according to Citigroup, which has a buy rating and a $235 price target on Palo Alto stock. For context, Palo Alto expects to end its fiscal year with $7 billion to $7.1 billion in annual recurring revenue, with consensus free cash flow projections of roughly $4 billion, according to FactSet. The second major deal is Palo Alto’s $3.35 billion acquisition of Chronosphere, deepening Palo Alto’s reach into observability security, the tools used to help customers monitor and understand what’s happening across their systems in real time. Citi analysts said the acquisition will also help Palo Alto build long-standing relationships with the next generation of fast-growing AI startups, many of which covet Chronosphere’s lower-cost observability solution. Announced in November, the Palo Alto-Chronosphere deal is expected to close in the second half of 2026. While these two multibillion-dollar deals carry some execution risk and dilute existing shareholders, the moves underscore Palo’s push into the AI era of cybersecurity, where threats are more automated. Citi argues that if Palo Alto continues to deliver on its platformization strategy by providing more cost-effective solutions to its customers, the stock could be primed for upside next year. That’s a view we share. Morgan Stanley is also positive on Palo Alto next year. “We continue to like the setup on the stock as we progress through CY26, believing there is still meaningful upside to results as the year becomes more back-end loaded, acquisitions close/integrate, and AI becomes a stronger tailwind,” they wrote in a note to clients Dec. 18. Palo Alto shares took a breather this year, but better days are ahead. (Jim Cramer’s Charitable Trust is long PANW. See here for a complete list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
<
