Can AI Infrastructure Demand Boost PANW's Network Security Growth?
Palo Alto Networks PANW is seeing growing demand for network security as companies expand their artificial intelligence (AI) infrastructure. Management expects the AI buildout to require significant new computing capacity, with sovereigns, neoclouds and frontier AI labs emerging as new buyers of security products. In fiscal 2026, Palo Alto Networks saw early traction from sovereigns, neoclouds and frontier AI labs, with multiple seven-figure bookings in the fourth quarter of fiscal 2026. As AI deployments expand, the company expects the resulting increase in traffic and data to create more opportunities for its Network Security business.
The increase in AI-related activity is already affecting the amount of traffic that enterprises need to secure. Agentic traffic on PANW's SASE platform increased 9x over the past nine months as autonomous AI systems became more common. The company expects this trend to continue as AI agents are deployed across network and cloud environments, creating a larger volume of machine-generated traffic and new security requirements. This is important for PANW because securing this traffic requires continuous inspection and real-time protection, areas that are already part of its network and SASE offerings.
This demand is already reflected in the performance of the Network & AI Security business. Network & AI Security revenues increased 17% year over year to $8.35 billion in fiscal 2026. Within the platform, software firewall ARR increased 29% in the fourth quarter and hardware firewall demand remained strong, helped by the adoption of Gen 5 appliances. PANW also displaced legacy providers in nearly 100 accounts, representing more than $400 million in contract value.
PANW expects Network & AI Security revenues to grow at a low-double-digit rate in fiscal 2027. As AI infrastructure expands and enterprises move more AI workloads into production, the need to secure data centers, networks and growing volumes of traffic could provide a steady demand opportunity for PANW. The Zacks Consensus Estimate for fiscal 2027 and 2028 indicates revenue growth of around 23.4% and 15.1%, respectively.
How Competitors Fare Against PANW
Fortinet FTNT is also benefiting from rising demand to secure AI infrastructure. In the second quarter of 2026, its SASE Firewall business grew 34% to more than $2 billion, while product revenues increased 52%. Fortinet said customers are upgrading network security as AI workloads increase traffic and data volumes. The company also highlighted an eight-figure win with a cloud provider to secure AI data centers, following a seven-figure deal with the same customer in the first quarter. These trends show how AI infrastructure growth is driving demand for higher-performance network security.
Zscaler ZS is seeing similar demand as enterprises adopt AI applications and agents. In the fourth quarter of fiscal 2026, Security for AI bookings increased more than 50% sequentially. The company also closed a seven-figure deal with a Fortune 500 transportation customer to secure its full AI lifecycle and another seven-figure deal with a semiconductor manufacturer to secure AI endpoints, agent-to-agent communication and model usage. Zscaler's total ARR increased 25% year over year, supported by growing demand for its Zero Trust platform.
PANW’s Price Performance, Valuation & Estimates
Shares of Palo Alto Networks have rallied 112.4% in the year-to-date period compared with the Zacks Security industry’s appreciation of 95%.
PANW’s YTD Price Return Performance
Image Source: Zacks Investment Research
From a valuation standpoint, Palo Alto Networks trades at a forward price-to-sales ratio of 22.09X compared with the industry’s average of 19.23X. The Zacks Value Score of F suggests that PANW stock is overvalued.
PANW Forward 12-Month P/S Ratio
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for Palo Alto Networks’ fiscal 2027 and 2028 earnings implies year-over-year growth of 8.9% and 17.6%, respectively. The estimates for fiscal 2027 have been revised up by 7 cents over the past 30 days. The same for fiscal 2028 has been revised down by 2 cents over the past 30 days.
Image Source: Zacks Investment Research
Palo Alto Networks currently 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).
