Have you ever watched a stock you love get absolutely hammered right after it reports solid numbers?
That sinking feeling when the headline says “beat and raise” but the chart looks like someone just pulled the plug. Yeah, we lived that last week with one of our favorite names in the portfolio.
And yet, instead of joining the panic, we did the opposite: we bought more.
Sometimes the Best Opportunities Hide Behind Short-Term Noise
Last Monday we added 40 shares of Palo Alto Networks around $185. That small purchase lifted our total position to 450 shares and brought the weighting up to roughly 2.25%. Not a massive bet, but meaningful enough to show conviction.
Why now? Because the market handed us a discount on a company that keeps taking share in one of the few secular growth categories left in tech: cybersecurity.
Let me walk you through exactly why this dip felt more like a gift than a warning sign.
The Platformization Flywheel Is Still Spinning Fast
If you’ve followed the company for the last couple of years, you’ve heard management hammer the word platformization into the ground. At first I rolled my eyes—another buzzword, right?
Turns out it actually describes something powerful happening under the hood.
Customers are exhausted from stitching together point solutions from ten different vendors. The average enterprise was using 50-70 separate security tools before the pandemic. Today that sprawl has become a liability—too many dashboards, too many alerts, too many gaps.
Palo Alto’s answer? Sell the three big platforms (network security, cloud security, and security operations—as one integrated suite. Buy all three and you get better pricing, simpler operations, and (crucially) better protection.
The proof is in the numbers. Over the last six quarters, the percentage of deals that include all three platforms has roughly doubled. That metric is the closest thing we have to a leading indicator for future revenue durability.
When customers consolidate onto your platform, price becomes secondary to not going back to the old chaos.
That’s not marketing fluff. It’s why annualized recurring revenue keeps accelerating while many peers are still muddling through low-single-digit growth.
Yes, They Announced Two Big Acquisitions—And I Actually Like Them
The morning after earnings, a lot of the selling seemed to center on the $3.35 billion deal for Chronosphere, an observability unicorn. Some investors saw it as expensive and off-strategy.
I see it differently.
Observability is about to become table stakes in the AI era. When models chew through petabytes of logs and metrics. If something breaks, you need to know why in seconds, not hours. Chronosphere’s tech does exactly that at massive scale, and it integrates beautifully with Palo Alto’s existing Cortex XDR platform.
Layer on the pending CyberArk acquisition for identity security, and you start to see the bigger picture: Palo Alto is surrounding the two hottest attack surfaces of the next five years—AI workloads and human/machine identities—with best-in-class tools before most competitors even realize the starting line.
- Network security → already dominant
- Cloud security → fastest growing segment
- Security operations + observability → AI-era differentiation
- Identity → the new perimeter
That feels less like random M&A and more like a deliberate land-grab.
Cyber Budgets Aren’t Disappearing—They’re Consolidating
Every earnings season someone asks, “Are cybersecurity budgets under pressure?”
The honest answer: total spending keeps rising, but the number of vendors getting paid is shrinking.
In a zero-trust world, CISOs would rather write one big check to a strategic partner than twenty small checks to niche players. Palo Alto is winning most of those “winner-take-most” decisions right now.
That dynamic showed up clearly in the latest quarter. Billings growth re-accelerated, remaining performance obligations (RPO) jumped mid-teens, and the company raised full-year guidance again.
Those aren’t the vital signs of a company losing momentum.
Putting the Valuation in Context
After the 8% drop, the stock trades around 55 times forward earnings. Expensive? On the surface, sure.
But dig one layer deeper and the picture changes.
Free-cash-flow margins are expanding toward 40%. Rule-of-40 scores sit comfortably above 50 and are trending higher. If the company grows revenue 18-20% over the next few years (perfectly reasonable given current traction), the current multiple compresses into the low-40s on 2027 numbers.
Add in $4 billion of cash and zero debt on the balance sheet, and the enterprise-value-to-free-cash-flow multiple looks even more attractive.
I’ve found that the best growth compounders rarely look cheap on next-twelve-months earnings. They look reasonable three years out—and by then the multiple has usually contracted anyway because the market finally believes the durability.
CrowdStrike Comparison—And Why We Own Both
We also own shares of CrowdStrike, which reports next week. Some investors treat these names as either/or.
I treat them as AND.
Different architectures, different strengths:
| Focus Area | Palo Alto | CrowdStrike |
| Core Strength | Network + Cloud | Endpoint + Identity |
| Architecture | Hardware-rooted | Cloud-native agent |
| Best At | Prevention | Detection & Response |
| Overlap | Growing | Growing |
Most large enterprises run both. The marginal dollar of security spend still flows to the category, not away from it.
The Bottom Line
Markets hate uncertainty. When a high-expectation name reports numbers that are merely excellent instead of jaw-dropping, the path of least resistance is lower.
But excellent is still pretty rare these days.
We view this pullback as classic sell the news behavior in a name with accelerating fundamentals, a widening moat, and multiple self-funded growth vectors ahead.
At $185, the risk/reward felt heavily skewed in our favor. That’s why we added—and why we’ll keep this position as a core holding for years to come.
Cybersecurity isn’t optional. It’s table stakes for any business that wants to survive the next decade.
And right now, few companies are better positioned to collect those non-discretionary dollars than Palo Alto Networks.
Disclosure: The author’s trust owns shares of PANW and CRWD. Positions can change at any time.
