3 Reasons Palo Alto Networks Is Becoming a Wall Street Favorite

Key Points

• Palo Alto Networks has seen notable activity from institutional investors, with institutions holding about 80% of all outstanding shares.
• The company's solid fundamentals, recent performance, innovative next-gen security products, and move toward AI-driven platformization are all reasons to consider investing in these institutions.
• Still, a high valuation and limited upside potential may be worth considering before investing.

Up more than 10% year-to-date (YTD) and about 20% in the past 12 months, cybersecurity firm Palo Alto Networks NASDAQ: PANW has weathered the initial storm of tariff uncertainty well. In a sign of support for PANW, institutional investors have taken a particular interest in the firm in recent months.

In the first quarter alone, for example, HighPoint Advisor Group bulked up its stake by 20%, Crestwood Advisors Group by 18%, and J.W. Cole Advisors by 81%, among others. In the last 12 months, institutional buyers of Palo Alto shares have outnumbered institutional sellers nearly three to one, while institutional inflows have outpaced outflows by a similar margin. Institutional ownership for the company is roughly 80%.

Though it's not always possible to confirm what draws institutional investors to a particular stock, a few likely catalysts include Palo Alto's excellent fundamentals and recent performance, its strong next-gen security products, and the company's shift toward artificial intelligence (AI) platformization.

1. Top- and Bottom-Line Performance, Margins, and Forecasts Strong

Palo Alto Networks' latest earnings report was solid across the board and affirmed its stable financial standing. The company posted double-digit revenue growth of more than 15% year-over-year (YOY) to about $2.3 billion, ahead of analyst predictions. Earnings per share (EPS) of 80 cents also beat expectations. The company's margins are also improving—its non-GAAP operating margin for the quarter was 27.4%, close to two full percentage points higher than 25.6% in the prior-year quarter. What's more, Palo Alto expects these trends to continue, with fiscal 2025 operating margin anticipated in the range of 28.2% to 28.5%.

With growing revenue and earnings and improving efficiency, Palo Alto is well prepared for future growth. Further, the company's strong cash position provides an extra level of security should unexpected geopolitical uncertainty enter into the picture as well. Externally, analysts believe Palo Alto is positioned to continue to build on recent gains as well. Analysts expect the firm to grow its earnings by a sizable 19.3% in the coming year.

2. Next-Gen Security Products Take the Lead

Behind Palo Alto's YOY gains in the latest quarter are its next-generation security tools, Prisma and Cortex. Prisma is a cloud-based security solution while Cortex utilizes AI and machine learning. Thanks to Palo Alto's subscription-based service model, its next-gen security tools have experienced rapid annual recurring revenue (ARR) growth.

Indeed, for the latest quarter, these products had an increase of 34% YOY to ARR, reaching $5.1 billion. Palo Alto Networks expects this growth rate to roughly maintain into the next quarterly report and for the full fiscal year as well, as it has forecast next-gen security ARR growth of 31% to 32% for both of those periods.

3. Building a Compelling All-Around Platform

Climbing ARR for Cortex and Prisma is not only beneficial to Palo Alto's top-line performance, but it also helps to drive the company's ongoing shift toward becoming a unified, all-around security platform. When customers continue to subscribe to one or more of Palo Alto's products, they may be more likely to adopt other products as well—the platform thus becomes stickier and drives continued adoption and retention rates.

The firm is upgrading products and launching partnerships to further drive this multi-pronged approach. In July 2025, Palo Alto and identity and access management company Okta Inc. NASDAQ: OKTA announced an expansion of their ongoing partnership. Together, the companies will provide a unified security architecture based on AI, offering automated threat response, secure application access, and more. Partnerships like this are a win for Palo Alto because they both expand its service into new areas and provide heightened security for customers.

Keep an Eye on Valuation

While there are several compelling reasons for institutional and retail investors alike to consider investing in PANW, it's also worth keeping an eye on the company's valuation. With a price-to-earnings (P/E) ratio of 111.9, PANW significantly exceeds both the overall market average and the high-end tech sector average.

Despite substantial analyst support, PANW shares may also have limited upside potential in the short term based on a consensus price target of $209.16, just 5% above current levels. Still, it remains one of the most compelling cybersecurity firms in the second half of 2025.