Palo Alto Networks added a little over $900 million of new annual recurring revenue in the quarter, against the roughly $800 million Barclays had modeled, and guided next year above the numbers even the optimists were carrying.
Most enterprise software has been treated as a casualty of AI spending. Security went the other way, on the argument that every capable new model widens the surface a company has to defend.
"So previously hackers would operate at human speed. Now they're going to be operating at machine speed."
Saket Kalia covers the security sector for Barclays, rates Palo Alto Networks overweight and has a $370 price target on the stock, so the multiple he is about to call stretched is one he is still recommending.
I listened to the full segment so you can skip it.
Here are the 4 takeaways that matter.
👤 Guest: Saket Kalia, the Barclays equity research analyst who covers Palo Alto Networks, with an overweight rating and a $370 price target on the stock
📰 Published: 1 September 2026 on CNBC (Closing Bell Overtime)
🟣 Apple Podcasts | 🔗 Episode page | ⏱️ 3 min
Key Takeaways
Security is being bought as an AI beneficiary rather than an AI casualty Kalia dates the re-rating to early April, when Anthropic's Mythos model was made public
The quarter beat on both the current number and the guide A little over $900 million of net new annual recurring revenue against Barclays' roughly $800 million estimate Next year guided to almost $11.1 billion, ahead of what Kalia calls upside expectations
The same models that find security holes faster also let attackers use them faster One security chief moved a monthly meeting with his chief executive to three times a week
The multiple, not the earnings, is what limits the stock from here Kalia put Palo Alto at 45 to 50 times free cash flow, with sector multiples at multi-year highs
1. Security became the AI trade
The host noted the stock had been hit hard during the regular session, was recovering after hours, and that security has held up better than the rest of software. Kalia agreed and dated the shift precisely.
He put the start of the run in early April, and attached it to a specific model release. "So security has absolutely been in favor over the last couple of months here, especially since early April when Anthropic's Mythos model was made public."
The thesis the market adopted is that AI creates more to defend, not less. Kalia said the story for Palo Alto Networks, CrowdStrike and their peers has been that "security will be a net beneficiary of AI" His one-line version of the mechanism is that AI only expands the attack surface — the total set of systems and entry points an attacker could go after
He said the same pattern is visible in results from several security vendors, not only this one
2. The numbers cleared the bar
The beat was on new subscription revenue, which is the number this industry is judged on. "I mean, just a little over 900 million in net new ARR. I mean, that is well ahead of our about 800 million estimate and the guide for next year, a little over 11 billion, almost 11.1 billion, well ahead of some upside expectations as well." Net new annual recurring revenue is the subscription revenue added over the period, and it is what tells an analyst how fast the installed base is still growing
His reading is that the AI-beneficiary argument is now showing up in reported results rather than in sentiment. That thesis, he said, is showing through in the numbers
3. Hackers at machine speed
The host raised a report that OpenAI has a model that appears to be good at finding security vulnerabilities, and asked whether buyers wait to see if the same technology fixes the problem or spend more across the board. Kalia said it was the second, and gave the reason.
The tool that finds a hole is the tool that exploits it. The reason, he said, is that "not only can AI models find vulnerabilities faster, but they can help hackers take advantage of them faster as well"
The change is a change of pace, and that is what he thinks buyers are reacting to. "So previously hackers would operate at human speed. Now they're going to be operating at machine speed."
His evidence is one customer's calendar. "I ran into a CISO recently that said, hey, I moved my monthly meeting with my CEO from once a month to now three times a week." A CISO is a company's chief information security officer, and Kalia's point is that the job has moved from a monthly report to a standing item
4. No room left in the multiple
Asked where the stock can go from here given it is not cheap, Kalia separated the earnings case from the valuation case and was blunt about the second.
He thinks the shares still work while the AI-beneficiary story holds. "But you know as long as we've got this AI beneficiary narrative around these names, I still think they can work" "The multiples are really at multi-year highs."
He does not expect the valuation itself to do any more of the work. "I mean, listen, there isn't a lot more room left for the multiple. And we were talking about a 45 to 50 times free cash flow multiple here on Palo."
What is left to drive the stock is the margin target. "But I think that that path to 40% free cash flow margin is a really important part of the story." He added that knowing the management team, it is worth watching whether they reach it earlier
Bonus Insights
The host read the company's own framing before the interview started. The line quoted on air was that the "Profitable growth framework continues to scale, effectively reinforcing our confidence in achieving 40% adjusted free cash flow margin in fiscal year 28."
The share price moved in both directions on the day. The host said the stock was hit hard in the regular session and was coming back a little after hours
Kalia's bottom line is that AI has turned cybersecurity into a spending priority that shows up in reported subscription growth, and that from here the stock depends on the free cash flow margin rather than on a higher multiple.
Products, Companies & Tools Mentioned
Palo Alto Networks (The subject of the segment: over $900 million of net new annual recurring revenue, a guide to almost $11.1 billion, and a 45 to 50 times free cash flow multiple Kalia says leaves little room)
CrowdStrike (Named alongside Palo Alto as a stock the AI-beneficiary story re-rated)
Anthropic (Kalia dates the security re-rating to early April, when its Mythos model was made public)
OpenAI (The host cited a report that it has a model good at identifying security vulnerabilities, which prompted the question about demand)
Barclays (Kalia's firm, which had modeled about $800 million of net new annual recurring revenue and rates the stock overweight at $370)
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