This Stock Is Up 60% Since Anthropic's Mythos Announcement Last Month. Is It Still a Buy?

On April 7, Anthropic announced its latest large language model, Mythos. However, it refused to release it to the public, citing concerns that it posed too great a cybersecurity threat. Mythos found vulnerabilities in codebases that had been dormant for years. If unleashed into the wild, nefarious actors could use it to find significant exploits, posing too much of a threat.

Instead, Anthropic announced Project Glasswing. It partnered with a select group of businesses, providing them access to Mythos to help protect against the cybersecurity threat.

One Project Glasswing partner has seen its stock take off since the announcement. But after its stock price spiked 60% in a month and a half, should investors still buy Palo Alto Networks (NASDAQ: PANW)?

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AI creates winners and losers in cybersecurity

Many large enterprises are already moving toward consolidating their security software vendors, and artificial intelligence (AI) can accelerate that shift. Palo Alto is capitalizing on that with its platformization strategy, which aims to cover an enterprise's entire security needs by leveraging its broad range of solutions. It's strategically expanding those solutions through acquisitions.

Palo Alto offers platforms for network security, cloud security, and security operations (SecOps). As of the end of its second quarter, it counted about 1,550 platformized customers, up 35% year over year. What's more, its platformized customers generated 119% net recurring revenue and low single-digit churn, indicating customers are using more of its products and paying more for them.

The potential use of AI in developing and deploying cyberattacks underscores the need for cybersecurity that provides broad protection. That favors the largest providers that have been leaning into the vendor consolidation trend, like Palo Alto. Since AI is only as good as the data it's trained on, larger companies with more first-party data have an advantage when it comes to protecting against the kind of threats AI could expose.

Importantly, Palo Alto and other large cybersecurity vendors are well-positioned to gain early access to leading-edge models going forward. We already saw OpenAI favor Palo Alto and select other cybersecurity companies with its Daybreak initiative earlier this month. That gives Palo Alto another big advantage over smaller competitors, which may become acquisition targets down the line, further strengthening its position.

After climbing 60%, though, Palo Alto stock isn't cheap. It trades at 70 times forward earnings and 18.5 times sales expectations. That's certainly a premium price, especially for a business that's growing its revenue in the mid-teens. But Palo Alto is positioned to accelerate revenue growth on the back of AI-fueled security needs while expanding its operating margin as it scales its software-based products and improves pricing amid a consolidating industry. As such, the premium price may be worth paying for a business with significant growth opportunities on the horizon.

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