Why Palo Alto Networks Stock Dropped Today

Palo Alto Networks (NASDAQ: PANW) stock tumbled 4.5% through 10:45 a.m. ET Friday, ending with a proverbial whimper, a week that began with a bang.

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Palo Alto started the week like a firecracker

Palo Alto came roaring into the week after leading AI CEOs Elon Musk, Dario Amodei, and Sam Altman all warned of the dangers of artificial intelligence getting too... artificially intelligent. This set off a rally in cybersecurity stocks that lifted Palo Alto stock 13% Monday, and the stock managed to hold onto those gains all week long.

Until today.

This morning, Bernstein analyst Peter Weed called time out on the momentum driving Palo Alto stock higher. AI fears have helped the stock more than double since early 2026, the analyst observed. What's more, Weed thinks these fears are largely justified, and as StreetInsider.com reports, he says "structural AI-driven demand story for cybersecurity remains intact."

However, thanks to this rally, Palo Alto has rushed past even Weed's upgraded price target of $351, and he says the stock now has only "limited near-term upside."

Can Palo Alto stock keep going up?

I agree. Priced at nearly 940 times trailing earnings at last report, Palo Alto stock looks, on its face, overvalued.

Strong free cash flow of $4.1 billion, more than 10x reported net income, is the stock's saving grace. But even when valued on FCF, the stock trades at a price-to-free cash flow ratio of nearly 75x. With even optimistic analysts estimating that Palo Alto will grow earnings at no more than 17% annually over the next five years, I see the stock as at least 4x overvalued today.

Palo Alto stock is a sell for me.

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