Artificial Intelligence (AI) Has Supercharged This Cybersecurity Stock That Has Shot Up 62% in 2026. It Can Still Soar Higher

The advent of artificial intelligence (AI) is turning out to be a tailwind for the global cybersecurity industry. Cyberattacks are becoming more sophisticated, as bad actors now have access to advanced AI tools which help them find targets easily and scale up attacks rapidly.

This explains why companies and governments are poised to spend heavily on shoring up their cyber defenses. Market research firm IDC estimates that global cybersecurity spending could reach $308 billion in 2026 and $430 billion in 2029. Not surprisingly, the demand for AI-powered cybersecurity tools will play a central role in boosting this market's size.

Fortune Business Insights estimates that the AI-focused cybersecurity market could grow from $44 billion this year to $213 billion in 2034. Palo Alto Networks (NASDAQ: PANW) is already capitalizing on this terrific opportunity. The company released its fiscal 2026 third-quarter results (for the quarter ended April 30) on June 2, and its numbers and guidance clearly indicate that it is making the most of the AI-driven growth in the cybersecurity market.

Let's take a closer look at Palo Alto's performance and check why this cybersecurity stock can be a long-term winner.

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Palo Alto Networks' AI-focused cybersecurity tools will accelerate growth

Palo Alto's fiscal Q3 revenue increased 31% year over year to $3 billion. This included $388 million in revenue from the acquisitions of Chronosphere and CyberArk, which were completed in January and February this year. However, the more important metric to note here is that the company's remaining performance obligations (RPO) increased by 36% year over year to $18.4 billion. Chronosphere and CyberArk contributed $1.8 billion to Palo Alto's RPO last quarter.

RPO is the total value of a company's contracts that are yet to be fulfilled at the end of a quarter. As Palo Alto's RPO increased faster than its revenue, this suggests the company is getting more business than it can fulfill right now. One of the reasons this is happening is the terrific demand for Palo Alto's AI solutions.

More than 300 customers were using its Prisma AIRS platform in the previous quarter, a massive increase of 10x from the year-ago period. That's not surprising, as Prisma AIRS is designed to provide end-to-end security to an organization's AI assets, including AI apps, AI agents, AI models, data, endpoints, and browsers.

Palo Alto management notes that Prisma AIRS is the "fastest scaling product in our history." This platform is helping the company land sizable deals, such as a $20 million contract with a global consulting firm. Meanwhile, Palo Alto's network security business is also getting a big boost due to AI. This is the company's largest business segment, producing 70% of its top line.

Palo Alto points out that it witnessed a 40% year-over-year increase in bookings for its next-generation firewall hardware, which is experiencing healthy demand from AI data centers. Additionally, sales of firewall software to secure AI applications increased by 25% from the year-ago period.

Also, Palo Alto's platformization strategy is gaining favor among customers. The company has consolidated multiple cybersecurity tools and processes into a single platform to provide comprehensive security, greater efficiency, and reduced complexity in performing cybersecurity tasks. Palo Alto ended fiscal Q3 with 2,280 platformizations, up significantly from 1,250 platformization customers in the year-ago period.

The company aims to achieve more than 4,000 platformizations by fiscal 2030, helping it reach $20 billion in annual recurring revenue (ARR) from its next-generation security (NGS) solutions. Palo Alto's NGS ARR jumped by 60% year over year in the previous quarter to $8.1 billion, with 65% coming from platformized customers.

All this suggests that Palo Alto is growing faster than the cybersecurity market, which is why it won't be surprising to see it exceed Wall Street's growth expectations in the long run.

The stock is expensive, but the company's growth potential indicates more upside

Palo Alto stock trades at 20 times sales, well above the tech-focused Nasdaq Composite's sales multiple of 5.3. However, the company's improving pipeline will give it a nice shot in the arm. Palo Alto has increased its fiscal 2026 revenue growth guidance to 24%, well above the 14% growth it was anticipating at the beginning of the fiscal year.

What's more, it anticipates a 32%-33% increase in its RPO in fiscal 2026, nearly double the 17%-18% growth it was forecasting when the fiscal year started. This is probably why analysts have increased their revenue growth expectations for Palo Alto.

Data by YCharts

However, the pace of growth in Palo Alto's RPO and the healthy jump in demand for its AI-focused offerings should ideally lead to a much stronger increase. This potential outperformance could pave the way for further upside in this AI stock, which currently has a 12-month median price target of $330, according to 56 analysts covering it.

That suggests a potential 13% jump, though there is a strong likelihood it will do much better over the long run. Also, 79% of analysts rate Palo Alto a buy, and it is easy to see why, given the points discussed above. In all, Palo Alto's position as one of the top cybersecurity companies makes it one of the best ways to capitalize on the AI boom in this niche.

Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool recommends Palo Alto Networks. The Motley Fool has a disclosure policy.