Can Software Firewall Demand Boost PANW's Network Security Growth?
Palo Alto Networks, Inc. PANW is seeing growing demand for its software firewall offerings as businesses expand their cloud and artificial intelligence (AI) workloads. As enterprises deploy more applications and infrastructure across cloud environments, they need security solutions that can protect these workloads. PANW's software firewalls help customers secure their cloud environments while supporting the company's broader Network & AI Security platform.
During the fourth quarter of fiscal 2026, PANW's software firewall annual recurring revenue (ARR) grew 29% year over year. In fiscal 2026, the company's firewall business reported accelerated bookings, supported by demand for its software offerings and latest fifth-generation hardware appliances. PANW is also seeing interest from newer customer groups, including sovereign entities, neocloud providers and frontier AI labs, where the company witnessed multiple seven-figure bookings from these customers during the fourth quarter of fiscal 2026.
Growing AI infrastructure investments could provide further opportunities for PANW's firewall business. As companies build new data centers and expand their AI computing capacity, they need to protect the networks and cloud workloads supporting these operations. PANW believes that every new data center will require security through hardware and software firewalls. This should create further opportunities for the company to expand its firewall offerings as customers scale their cloud and AI workloads.
PANW's Network & AI Security platform generated $8.35 billion in revenues in fiscal 2026, up 17% year over year. Continued growth in software firewalls, supported by rising cloud and AI workloads, could help strengthen this business. The company's established firewall presence and expanding software offerings position it to benefit from rising demand for network security. As of now, sustaining this robust growth will depend on the company’s ability to convert growing customer interest into continued bookings and ARR expansion.
How Competitors Fare Against PANW
Fortinet, Inc. FTNT is also seeing strong demand for its firewall and network security offerings as enterprises expand AI infrastructure. Its unified FortiOS platform combines firewall, SASE and AI security capabilities across enterprise networks, cloud environments and data centers. In the third quarter of 2026, Fortinet's SASE Firewall billings grew 31% year over year. Fortinet's integrated architecture, proprietary FortiASIC technology and focus on network performance are supporting its competitive position in the network security market.
Check Point Software CHKP is strengthening its firewall business to compete for enterprise network security spending as AI workloads expand. In the third quarter of 2026, the company launched its AI Network Firewall, which adds visibility and control over AI traffic to its existing firewall infrastructure. CHKP also introduced the next-generation Maestro Hyperscale Orchestrator, designed to inspect growing volumes of AI traffic in data centers without affecting security or performance. These offerings enable the company to address the growing need to protect AI infrastructure and inspect network traffic at scale.
PANW’s Price Performance, Valuation & Estimates
Shares of Palo Alto Networks have jumped 77.8% in the year-to-date period compared with the Zacks Security industry’s appreciation of 71.3%.
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 18.35X compared with the industry’s average of 16.58X. The Zacks Value Score of D 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 and 2028 have remained unchanged 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).
