Palo Alto Earnings on Deck as Stock (NASDAQ: PANW) Approaches Breakout

Palo Alto Networks' stock (NASDAQ: PANW) could be set to challenge resistance, setting up for a potential breakout if earnings come in strong. The company, a cornerstone of the global cybersecurity sector, is prepared to report its fiscal third-quarter 2025 earnings after market close.

With the past four earnings reports all coming in above consensus on both top and bottom lines, markets will likely be expecting more of the same. Even that may not be enough to satisfy the street, with the previous report seeing a dip despite coming in strong.

Momentum in the stock has however been building in recent weeks. Since the April setback, Palo Alto's stock price has rallied 21% over the past month of trading, outpacing both the S&P 500 and the Nasdaq.

Earnings Preview: High Expectations and Margin Scrutiny

Consensus estimates for Q3 2025 call for revenue of $2.28 billion (up nearly 15% year-over-year) and earnings per share of $0.77. This follows a Q1 performance where PANW topped expectations, posting $2.26 billion in revenue and $0.81 EPS.

Yet, the company’s high valuation has made it particularly sensitive to any signs of slowing growth or margin pressure. Notably, analysts are watching for signs of margin compression, as heavy R&D investments in AI-powered security tools could weigh on earnings.

Historically, Palo Alto Networks has outperformed earnings estimates in 70% of quarters over the past five years, with an average post-earnings gain of 7.4%. However, investor reaction to Q1 2025, where the stock fell 4.15% despite an EPS beat, shows that even strong results can be overshadowed by valuation concerns or cautious guidance.

While Palo Alto’s operating metrics remain strong as Q1 saw revenue rise 14% year-over-year, and next-gen security annual recurring revenue jump 40% to $4.5 billion, the company’s valuation continues to raise eyebrows. Its price/sales ratio of nearly 15x dwarfs the sector average of 8.7x.

Strategic Partnerships and Product Innovation Fuel Growth Narrative

A major catalyst for future growth is Palo Alto’s pending acquisition of Protect AI, expected to close by early 2026. This move will integrate advanced AI security capabilities, such as model scanning and posture management, into the Prisma AIRS platform. With AI-related security spending projected to grow at a 24% CAGR through 2030, this acquisition positions PANW at the forefront of a rapidly expanding market.

Palo Alto Networks has made significant strides in expanding its market reach through high-profile partnerships. The recent collaboration with T-Mobile on a managed Secure Access Service Edge (SASE) solution integrates PANW’s Prisma SASE 5G with T-Mobile’s advanced network, targeting enterprises and government agencies seeking secure hybrid work solutions. Similarly, the AT&T Dynamic Defense integration embeds Prisma Access into AT&T’s infrastructure, promising real-time threat prevention and AI-driven security for SaaS and cloud environments. Analysts estimate these partnerships could contribute up to $500 million in incremental revenue by 2026.

On the product front, Palo Alto’s launch of Prisma SASE 3.0 and Cortex XSIAM 3.0 underscores its commitment to platformization—consolidating security workflows to drive operational efficiency for clients. Prisma SASE 3.0 introduces a SASE-native secure browser optimized for GenAI applications, addressing the growing threat from browser-based attacks, which account for nearly half of all security incidents. Cortex XSIAM 3.0, meanwhile, positions PANW as a leader in AI-driven security operations.

Recent View from The Street

The analyst community remains broadly constructive, with price targets ranging from $123 to $235 and a median at $212. Stephens & Co initiated coverage earlier this month with an “Equal Weight” rating, citing a balanced risk-reward profile amid intensifying competition from hyperscalers like Microsoft (NASDAQ: MSFT) and Amazon (NASDAQ: AMZN).

Wedbush and JPMorgan, meanwhile, have set targets at $225, highlighting PANW’s leadership in AI-driven threat detection and robust deal activity in core firewall and SASE offerings. Jefferies have raised the firm's price target on PANW, upping it to $225 from $215 whilst keeping a Buy rating on the shares.

Palo Alto's earnings will likely attract plenty of attention on the street. With the stock once again approaching $200, a push to the upside on strong volume could trigger a run to 52 week highs ($208.39) in the coming weeks and months. Anything less than a strong print however could see a retest of $180. The company’s aggressive push into AI security, platformization strategy, and expanding partner ecosystem all point to long-term leadership, but execution remains key.