By Adam Levine

Cybersecurity firm Palo Alto Networks reported strong fourth-quarter earnings results on Tuesday afternoon. Its shares were up about 5% in after-hours trading, after being down 5.2% in regular hours.

Like last week's earnings for Palo Alto's competitor CrowdStrike, these results confirm that cybersecurity stands out as a likely winner from AI among enterprise software providers.

Palo Alto software defends corporate networks from cyberattacks. And AI actually makes it easier to launch such attacks.

"AI is a long-term tailwind for cybersecurity," Palo Alto CEO Nikesh Arora said on the earnings call.

Adjusted earnings per share for Palo Alto were $1.02, up from 95 cents last year, ahead of Wall Street projections of 98 cents. Earnings per share were heavily impacted by the dilution from 112 million shares issued to CyberArk shareholders when Palo Alto acquired it in February for $21 billion.

Revenue for the quarter reached $3.41 billion, better than expectations of $3.35 billion, and up 34% on the year. Sales growth was juiced by the CyberArk deal, as well as another acquisition in January, Chronosphere. Palo Alto didn't break out the contribution from the two acquisitions as it did last quarter.

Two closely watched metrics-backlog and software annual recurring revenue-also beat the Wall Street consensus.

Guidance for all these metrics for the first quarter and the full fiscal year 2027 also impressed investors. This fiscal year is a key one for Palo Alto as it integrates the acquisitions, and tries to make good on the promises of demand fueled by artificial intelligence.

"Validating, interpreting context and resolving these issues requires broad cybersecurity platforms, working alongside frontier AI," CEO Arora said. "This synergy is essential to stress test environments, manage agentic actions, and trigger machine speed remediation during an active threat."

The stock had been caught up in the negative narrative that was plaguing the enterprise software industry: that artificial intelligence would upend the business, cutting into sales and profitability. From its then-record high in October, the stock fell 38% through February.

But then the realization came that AI wasn't a headwind for security software. To the contrary, AI enables traditional attacks to be carried out by automated agents at a scale and speed that no human can match.

Just recently, OpenAI agents in a testing environment went rogue and coordinated to hack their way into not only OpenAI's internal systems, but the network of Hugging Face, an AI model repository. The attacks began in May and weren't uncovered until July. That all happened without any malicious intent by people, but there is an urgent need to protect corporate networks from bad actors who have AI hacking agents at their disposal.

As enterprises begin to deploy agents on their own networks to automate business processes, the agents themselves become an attack surface. At last month's Def Con security convention in Las Vegas, there were several demonstrations of simple "prompt injection" attacks which turn benign agents into malevolent ones. The need to prevent prompt injections is growing.

Palo Alto makes hardware firewalls and offers a range of security software, which the company has been adding to through acquisitions. It is well placed to be one of the key vendors in this fight against AI attacks. At Tuesday's close, the stock was up 159% from that February low, and traded at 87 times the midpoint for Palo Alto's new earnings-per-share guidance range for next year.

Write to Adam Levine at adam.levine@barrons.com

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September 01, 2026 17:34 ET (21:34 GMT)