Palo Alto Networks Inc. (NASDAQ: PANW) is the world's cybersecurity leader at a time when cybersecurity has never been more critical. From its origins as the leading creator of firewalls, Palo Alto’s business has evolved to meet the growing threats that continue to emerge.
One of those threats comes from artificial intelligence (AI), which has increased the threat risk for companies of all sizes. According to Acumen Research and Consulting, the AI-based cybersecurity market could grow from $14.9 billion in 2021 to a whopping $133.8 billion by 2030.
PANW stock has delivered a total return of approximately 98% over the last three years and conducted a 2:1 stock split in December 2024. However, in this competitive landscape, is PANW your best choice for 2025? There are a few reasons why Palo Alto continues to look like a solid choice for buy-and-hold investors.
1) The Company’s Platformization Strategy Is Paying Off
For years, the cybersecurity community has debated if a platform or “best-of-breed" approach was the right one for companies to take for their cybersecurity. What does this mean? A company like Palo Alto offers security offerings across the entire cyber threat matrix: Network Security, Cloud-Native Application Protection, Security Operations, and Endpoint Security. Now, consider that dozens of cybersecurity companies are offering solutions in one or more of the above categories, and you can see the nature of the debate.
Early in 2024, Palo Alto planted itself firmly in the platform camp by launching its platformization strategy via cloud computing services. This allows customers to get discounts (and sometimes deep discounts) on some of Palo Alto’s security offerings by buying multiple products from the company.
Analysts and investors initially reacted to the announcement with skepticism, but the company is delivering. In its first-quarter earnings report for the fiscal year 2025, Palo Alto reported a 40% year-over-year (YoY) increase in annual recurring revenue (ARR) for next-generation security (NGS) products. It also increased its number of $1 million accounts by 13% YoY and its $5 million accounts by 30% YoY.
2) Looking for a Share of the Growing SIEM Market
Palo Alto is making a concerted effort to enter the Security Information and Event Management (SIEM) market. A SIEM system collects and analyzes security data from different parts of an organization’s IT department, helping organizations detect and respond to security threats. It is essential to businesses of all sizes, particularly as hackers become more sophisticated.
This isn’t exactly a David versus Goliath story, but to make inroads into this market, Palo Alto will have to take market share from established players such as Splunk and Microsoft Corp. (NASDAQ: MSFT). Other competitors of Palo Alto, including Fortinet Inc. (NASDAQ: FTNT), also want their share of this pie.
This is about a $10 billion market that Palo Alto believes will grow into a $30 billion market. Palo Alto’s goal is to become the third-largest player in this space. If the company is correct in sizing up the growth of this market, there will be plenty of market share to go around.
3) Valuation Is Becoming More Attractive
Despite falling approximately 14% from its December high, PANW stock still trades at around 49.5x forward earnings. That’s down from the 56.8x the stock commanded in December 2024, but it’s still a hefty premium among technology stocks and to the sector average of around 32x.
However, value is frequently in the eyes of investors. When compared to 2024 darling CrowdStrike Inc. (NASDAQ: CRWD), Palo Alto’s P/E ratio looks comparatively cheap when you consider that you’re buying an industry leader.
Analysts are forecasting 22% earnings growth for the company on expectations that Palo Alto will continue to make strides in increasing its operating margins. Those same analysts have mixed views on the short-term outlook for PANW stock, but the consensus price target of around $199 suggests that PANW stock will test its split-adjusted December price by the end of 2025.
The article "3 Reasons Palo Alto May Be the Best Cybersecurity Stock in 2025" first appeared on MarketBeat.
