The cybersecurity industry is rapidly growing in both importance and value as businesses face advanced threats in an increasingly online world. palo alto networks (PANW -0.34%) is the world’s leading protection provider.
The city of Palo Alto said in a recent presentation to investors that financially motivated ransomware attacks are up 37% this year compared to 2022. Additionally, hackers are stealing sensitive data from companies at a record pace. A study conducted by research firm McKinsey & Company found similarly alarming results, suggesting that losses from cyberattacks could reach up to $10.5 trillion annually by 2025.
No wonder Palo Alto stock is trading at an all-time high. The company is now betting on advanced technologies such as artificial intelligence (AI) to protect its customers, which could power its next phase of growth. That’s why investors with idle money, or money they don’t need for immediate expenses, might want to consider allocating at least $300 to Palo Alto stock and holding onto it for the next 10 years.
Palo Alto prepares companies for new risks
Cloud computing, which allows businesses to operate online, has forever changed the threat landscape by allowing hackers to attack at any time and from anywhere in the world. However, Palo Alto noted in its recent financial report for the first quarter of fiscal 2024 (ending Oct. 31) that malicious attackers are now also using advanced tools such as generative AI to mount sophisticated attacks. He said that
This represents a new level of risk for cybersecurity. Because generative AI can generate highly persuasive text, images, and videos that can be used to target vulnerable employees in email scams and more. in fact, cloud strike It states that 90% of successful cyberattacks now originate from endpoints, i.e. computers or devices used by staff within an organization.
The use of AI means attackers will attack faster and more often than ever before. Unfortunately, Palo Alto states that 93% of security operations centers within organizations still rely on manual processes managed by humans. This means that 23% of security alerts go uninvestigated due to high load, resulting in unacceptable vulnerabilities. As a result, the only way to combat AI-powered threats is through AI-powered protection.
Palo Alto is rapidly gaining adoption of the new Cortex XSIAM platform, a security operations solution designed to use AI to speed incident response. Although XSIAM was only founded a year ago, he has already amassed $1 billion in bookings, of which $500 million came in the most recent quarter alone. His largest XSIAM customer in Palo Alto has deployed this technology on his over 300,000 endpoints.
But XSIAM is just one AI product in Palo Alto’s arsenal. Last quarter, the company announced that AI was implemented in 35 products (and growing) across all three major categories: cloud security, network security, and security operations.
Palo Alto posted strong profit growth in the first quarter
Palo Alto has always invested heavily in innovation. In fact, the company spent $1.6 billion on research and development last year, while one of its closest competitors, CrowdStrike, spent just $704 million over the same period.
But Palo Alto is not immune to recent broader economic challenges caused by high inflation and rising interest rates, forcing businesses to be more cautious with their spending. This has forced the company to carefully manage its costs to increase profitability, after years of sacrificing revenue to fuel growth.
As a result, Palo Alto’s first-quarter sales rose just 20% year over year to $1.9 billion, the slowest growth in the past four quarters. However, the company achieved $194 million in GAAP net income (income), a significant increase of 971% compared to the same period last year.
However, there are signs of a return to faster revenue growth in Palo Alto’s future, as Palo Alto’s remaining performance obligations (i.e., pipeline of work) increased 26% year over year to $10.4 billion. Additionally, the Next Generation Security division, which has many products focused on cloud and AI, experienced an impressive 53% annual recurring revenue growth.
Why Palo Alto stock is a great place to park $300
As mentioned, Palo Alto stock is currently trading at all-time highs. At the moment, none of our competitors can say the same.
Palo Alto’s valuation is relatively high at a price-to-earnings ratio (P/E) of 52.9x, based on non-GAAP earnings per share of $4.97 over the past 12 months and the current stock price of $263. This is much more expensive than its price-to-earnings ratio of 29.2 times. Nasdaq-100 Technology index.
But that’s why investors need to take a long-term view of this company. Wall Street expects earnings growth to continue in 2024 and 2025, making Palo Alto’s stock look cheaper each year it’s held. More importantly, the cybersecurity industry is poised for explosive growth as the threat landscape continues to evolve.
McKinsey & Company believes the business sector should be spending about $2 trillion a year on cybersecurity software today, but will spend $189 billion by 2023. Unless we invest in protection, there is a good chance that the spending gap will narrow in the coming years.
This is a huge opportunity for cybersecurity providers, especially for Palo Alto as an industry leader.