This Security Leader Is Turning Surging Cyber Threats Into Recurring Revenue

Cybersecurity is a growth industry if ever there was one. A decade ago, it was just your computer or your phone that was connected to the internet. Today everything from your toaster to your TV has an internet connection.

To make matters worse, artificial intelligence (AI) has made a hacker's job much easier. It used to be that a hacker at least had to take a break to eat or sleep. But now, they can have an AI program running while they get some R&R after a long day of stealing your data.

Finally, quantum computers represent the digital equivalent of nuclear weapons in the cybersecurity arms race. Quantum machines have the theoretical capability to shred even the best encryption in minutes.

Image source: Getty Images.

Mercifully, they're out of reach for the average hacker, but the United States is not the only country working on quantum computers, nor is it the only country with the technical ability to build them.

Fortunately for all the individuals, businesses, and governments threatened by advances on the offensive side of the cybersecurity arms race, there's Palo Alto Networks (NASDAQ: PANW) standing ready with a shield against all the unsavory elements of the 21st century internet.

Building a digital fortress

Based in Santa Clara, California, Palo Alto Networks is a leading cybersecurity company that has clients in business and government the world over.

It offers three platforms that are AI powered and cloud enabled.

First is the Strata cloud manager, which allows a customer to combine all the nodes in their network and manage security across them from a single program. Strata alone has 70,000 customers, including 94 of the fortune 100.

Second is the Prisma Cloud, which is primarily focused on a client's AI applications and uses its own AI software to detect 1.5 million new attacks daily. Prisma is integrated with over 700 partners, giving it widespread reach.

Third and final is Cortex, which is the offensive arm of Palo Alto's product line. It's another AI-enabled program that can stop cyber threats in real time and shorten a client's response time by 98%. Cortex can also automate security responses, reducing manual labor by 75% for cybersecurity teams.

In all, Palo Alto's cybersecurity suite blocks 30.9 billion attacks per day, scans 480 billion security endpoints daily, and results in a 90% reduction in a client's mean time to remediate.

And the company's software clearly works given its extensive customer base, which includes Salesforce, Dell, the NHL, Chipotle, and NBC Universal (subsidiary of Comcast), to name a few. With a client list like that, you'd likely expect the balance sheet to be equally impressive. And you'd be right.

Being a digital bouncer pays well

Let's start with the end of the company's fiscal 2025 and how Palo Alto is continuing its growth streak into its fiscal 2026.

In the fourth quarter of 2025, the company brought in $2.54 billion in revenue, up 16% year over year. Even bigger though was the company's annual recurring revenue (ARR) for the quarter, which topped $5.58 billion, up 32% year over year.

For the full fiscal year 2025, Palo Alto achieved an operating margin of 28.8%, up 150 basis points year over year; its earnings per share (EPS) surged 18% over its fiscal 2024; and its free cash flow hit $3.51 billion, up 12% year over year.

In Q1 of Palo Alto's fiscal 2026, revenue grew 16% over Q1 2025; its ARR grew by 29% over Q1 2025; its operating margin hit 30.2%, up 140 basis points over Q1 2025; its quarterly EPS grew 19% year over year; and its free cash flow grew 17% over Q1 2025.

Palo Alto also grew its cash reserves to just over $3 billion, while its debt stands at just $346 million, down 8.9%. It has the ability to pay off the entirety of its current debt several times over, which is always a nice thing to see.

The company has a target of $20 billion in ARR by the end of the decade. If it keeps growing like this, that should be more than manageable. The company met or exceeded its Q1 2026 guidance (set Oct. 19, 2025) for total revenue, ARR, and diluted EPS .

Palo Alto has more than doubled the S&P 500's return over the past five years. Despite its 3.8% loss over the last year, if it keeps putting up growth numbers like it has been, that dip is likely nothing more than a minor speed bump.

The company is staying ahead of the game. In order to counter quantum computer threats (which it expects to be commercialized by 2029), it has partnered with International Business Machines to find a solution for post-quantum cryptography.

In an increasingly connected world with cyber threats multiplying daily, Palo Alto has emerged as a leader in the arms race against cyber criminals. Any company with numbers like these is worth a look.

James Hires has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Chipotle Mexican Grill, International Business Machines, and Salesforce. The Motley Fool recommends Comcast and Palo Alto Networks and recommends the following options: short March 2026 $42.50 calls on Chipotle Mexican Grill. The Motley Fool has a disclosure policy.