Goldman Sachs has released a research report maintaining a "buy" rating for Palo Alto Networks (PANW, Financial) with a target price of $215. Despite uncertainties in industry demand, cybersecurity remains one of the more resilient software sectors this year. Goldman Sachs identifies Palo Alto as one of the three companies capable of driving security strategy and market share growth, alongside Microsoft and CrowdStrike. The firm is expected to continue cross-selling and achieving solid economic benefits in the long term.
Goldman Sachs recently engaged with Palo Alto executives and industry experts. They acknowledged that the macroeconomic environment's growing uncertainty has led to extended sales cycles. However, cybersecurity demand is relatively resilient as most clients prioritize it, especially amid rising geopolitical risks. Palo Alto emphasized its platform advantage in budget-sensitive environments.
Industry feedback from dealers was neutral to negative. Conversations with industry dealers indicated a noticeable slowdown in demand for security products from the U.S. federal government, while commercial demand remains stable, particularly in identity and data protection related to AI adoption.
Regarding tariff impacts, Palo Alto highlighted its unique position as the only large-scale firewall supplier testing and assembling entirely in the U.S. The company believes it can maintain profit margins and be more price-competitive compared to rivals with more Asian supply chains.
In cloud and Cortex business developments, Palo Alto announced the integration of its cloud business with the Cortex platform, requiring significant revisions to the cloud tech stack. Goldman Sachs views this strategic decision as a recognition of disappointing cloud business growth. Additionally, Palo Alto has made progress in transitioning QRadar on Cloud (QRoC) clients to Cortex. The company is primarily focusing on expanding its Cortex business among large enterprise clients, with Google Chronicle, Splunk, and Microsoft as main competitors, while CrowdStrike may hold an edge in the mid-market.
As of the close of the U.S. stock market, Palo Alto shares fell 5.7% to $174.44.
