Palo Alto Networks stock has underperformed in 2026. Like many other software stocks, it has been hit by concerns over AI disruption. Second quarter1 earnings for fiscal 2026 showed that the cybersecurity company continues to grow at a rapid pace, however. Here’s a look at some highlights from the Q2 report, and some details on an acquisition announced on the same day as the quarterly results.
Next-Generation Security Revenue Growth Remains Strong
For Q2, Palo Alto Networks generated revenue of $2.6 billion, up 15% year over year. Next-Generation Security annualized recurring revenue (ARR) increased 33% year over year to $6.3 billion while remaining performance obligation (RPO) rose 23% year over year to $16.0 billion.
In terms of profitability, non-GAAP net income for the quarter was $732 million, or $1.03 per diluted share (versus 94 cents2 expected). These figures were up 29% and 27% year over year respectively.
Commenting on the Q2 earnings, Chairman and CEO Nikesh Arora said that the company saw continued strength in platformizations (Palo Alto’s comprehensive cybersecurity platforms) during the quarter. He noted that the platformization trend is accelerating due to AI as customers are keen to both modernize and normalize their cybersecurity stacks.
He also said that the group saw “steady and strong” adoption of AI security. The company expects this to be a long-term trend.
Guidance for Q3 and Fiscal 2026
Zooming in on guidance, Palo Alto Networks said that for Q3, it expects:
Total revenue growth of 28-29% year over year
Next-Generation Security ARR growth of 56%
Diluted non-GAAP net income per share in the range of $0.78 to $0.80
For the full year, it anticipates:
Total revenue growth of 22-23% year over year
Next-Generation Security ARR growth of 53-54%
Diluted non-GAAP net income per share in the range of $3.65 to $3.70 (versus previous guidance of $3.80 to $3.90)
Note that while Q3 revenue guidance was in line with estimates, Wall Street had been looking for EPS of 92 cents for the quarter. This guidance miss, and the lowering of guidance for full-year earnings, were the main drivers of the share price weakness immediately after the earnings.
An Agentic AI Acquisition
Now, shortly before Palo Alto’s Q2 earnings were released, the company announced the acquisition3 of Israeli cybersecurity firm Koi. It’s a specialist in agentic endpoint security.
In the announcement, Palo Alto noted that as AI transforms workforce productivity, it has created a “dangerous, unmanaged attack surface” on every endpoint since AI agents operate with deep access to sensitive data and unrestricted permissions yet bypass traditional security controls. It believes that Koi will help it protect organizations from the threat of AI agents, enabling its customers to deploy agentic tools with confidence.
Wall Street Remains Bullish on PANW Stock
Immediately after the Q2 earnings and Koi deal, PANW stock saw some price target reductions on Wall Street due to the fact that earnings guidance for the year was lowered. However, analysts remain overwhelmingly bullish on the cybersecurity stock with the average price target sitting at $2124.
Analysts at Piper Sandler5 said that they still see PANW as a “clear winner long-term in securing AI end-to-end.” Meanwhile, analysts at Truist Securities6 said that with accelerating top-line growth and durable margin execution, they would “lean in on weakness” ahead of the integration narrative stabilizing and as AI-driven security tailwinds intensify through FY26 and beyond.
Footnotes:
1Palo Alto Networks Reports Fiscal Second Quarter 2026 Financial Results, as of February 17, 2026
2CNBC, Palo Alto Networks slumps 7% as third-quarter profit guidance falls short, as of February 17, 2026
3Palo Alto Networks Announces Intent to Acquire Koi to Secure the Agentic Endpoint, as of February 17, 2026
4Investing.com, Palo Alto Networks Inc (PANW), as of February 17, 2026
5Newsfile.Refinitiv, Palo Alto Networks drops on lowered annual profit forecast, as of February 18, 2026
6Newsfile.Refinitiv, Palo Alto shares fall as deal costs pile up amid AI security push, as of February 18, 2026
