Palo Alto Networks (PANW) started fiscal year 2025 on a strong note, reporting better-than-expected revenue and profitability in Q1. The cybersecurity giant even raised its full-year guidance, signaling confidence in its growth trajectory. Despite this, the stock came under pressure as investors expected an even stronger outlook.
Nonetheless, the dip in Palo Alto Networks stock could be a solid buying opportunity, as the momentum behind the platformization strategy builds. Further, the stock has multiple growth catalysts that could fuel its growth and support its share price. Let’s look at the key growth catalysts that could push PANW stock higher.
Platformization Gains Traction
Palo Alto Networks’ growth centers on its platformization strategy, a critical theme as businesses consolidate vendors and platforms for streamlined cybersecurity solutions. In Q1 FY25, the company added over 70 new platformization deals, with about a third stemming from its acquisition of QRadar SaaS. This brought its total to approximately 1,100 platformizations, reflecting progress in its journey to consolidate cybersecurity services under unified platforms.
The benefits of this strategy extend beyond volume. PANW’s annual recurring revenue (ARR) per platformized customer rose 6% compared to average FY24 levels. This growth was driven by PANW’s ability to secure larger transactions and continuously expand existing deployments with innovative features.
For example, in its network security segment, advanced subscription services and modules like Autonomous Digital Experience Management (ADEM) and Cloud Access Security Broker (CASB) are seeing robust uptake. These tools enhance cybersecurity capabilities and position Palo Alto Networks to deliver cutting-edge artificial intelligence (AI) solutions, which is essential for future-proofing its offerings.
Network Security: A Core Strength
Network security remains a core strength of PANW’s business, and it continues to see strong demand for its products. Customers are upgrading to newer solutions, expanding capacity, and replacing competitors’ offerings with the Palo Alto Networks integrated platform.
The company’s advanced Zero Trust security subscriptions are gaining traction as customers converge their network architectures across three primary form factors: hardware, software, and Secure Access Service Edge (SASE). This convergence simplifies operations, reduces costs, and strengthens security.
Public cloud deployments are another growth area. With 70% of its virtual firewall ARR coming from software deployed in public clouds, Palo Alto Networks is capitalizing on the trend of customers securing cloud environments. Its recent upgrades to address AI use cases further enhance its appeal in this segment.
SASE: A Bright Spot
Secure Access Service Edge (SASE) is driving transformation deals and unlocking new opportunities for PANW. The company’s SASE platform integrates AI-based monitoring, incremental AI application management capabilities, and a recently launched Prisma Access Browser.
The impact is evident in the numbers. SASE customer growth reached 20% in Q1 FY25, and 40% of these customers were new to Palo Alto Networks. This influx of new customers drives revenue and sets the stage for future expansion.
Additionally, SASE is driving large deals, reflected through an increase in transactions of over $1 million. Further, it drives contract value up by 40% in Q1, demonstrating the platform’s appeal to large enterprises seeking comprehensive security solutions.
Expanding Cloud and Cortex Businesses
While network security is a pillar, Palo Alto’s diversification efforts are paying off. Its cloud security business surpassed $700 million in ARR last quarter, and the Cortex security operations segment crossed the $1 billion mark in Q1 FY25.
This performance shows the company’s ability to innovate and address emerging cybersecurity needs. Notably, large platform deals are becoming more common. For example, Palo Alto Networks secured a $50 million deal with a major technology firm in Q1.
AI-Driven Solutions Could be a Game Changer
PANW is capitalizing on the AI revolution with its Secure AI-by-Design portfolio. The company secures over 750 AI applications, which continue to grow rapidly, and integrates AI-powered capabilities into its SASE and cloud security solutions. These innovations address current cybersecurity needs and position Palo Alto Networks to lead in future AI-driven security markets.
Analysts Remain Bullish
Palo Alto Networks is well-positioned to meet its ambitious goal of achieving 2,500 to 3,500 platformization deals by FY30. The company’s strategic focus on platform consolidation and robust demand across network security, cloud, and SASE segments provide a solid foundation for sustained growth.
Wall Street analysts are optimistic about PANW’s prospects, maintaining a “Strong Buy” consensus rating.
Bottom Line
While the market’s initial reaction to PANW’s Q1 results was negative, the company’s fundamentals and outlook tell a different story. The company’s strong platformization momentum, expanding ARR, and opportunities in the AI-enabled cybersecurity market position it as a long-term winner.
