Palo Alto Networks has shown that artificial intelligence can benefit cybersecurity instead of threatening it. The company’s third-quarter results, released Tuesday, beat all major expectations and support the idea that AI increases the need for security work rather than replacing security companies. Shares fell 4.8% in Wednesday’s premarket after rising 4.3% in after-hours trading on Tuesday, as investors considered the results and the costs of recent acquisitions. Here’s what the results reveal and why agent identity security could become the next big growth area for the sector.
Adjusted earnings per share came in at 85 cents, topping the 80-cent consensus and last year’s 80 cents. Revenue reached $3 billion, up 31% from a year ago and slightly above the $2.94 billion estimate. The company’s backlog increased to $18.4 billion, a 36% rise that beat analyst expectations. Palo Alto also gave strong guidance for the fourth quarter and raised its annual outlook.
Earnings grew more slowly than revenue because Palo Alto integrated five AI-related acquisitions over the past year. Without these deals, organic sales growth was 14%. The biggest acquisition was CyberArk, an identity security company bought for about $25 billion in cash and stock. That deal closed in February.
By acquiring CyberArk, Palo Alto is preparing for what could be the next big challenge in cybersecurity: agent identity security. AI agents need access to private data, email, web browsers, and external communications to work, which creates new risks for enterprise networks. Experts think these agents will soon outnumber people on company networks, so each one will need careful identity management to prevent attacks like prompt injection. Okta’s stock jumped 30% last week after it reported strong potential from its own agent identity software, showing the opportunity in this area. CyberArk offers similar software, which Palo Alto will add to its larger security platform.
