PANW Q2 Deep Dive: Large Platform Deals and AI Security Drive Outlook

August 19, 2025 at 09:20 AM EDT

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Cybersecurity platform provider Palo Alto Networks (NASDAQ: PANW) reported Q2 CY2025 results beating Wall Street’s revenue expectations, with sales up 15.8% year on year to $2.54 billion. Guidance for next quarter’s revenue was better than expected at $2.46 billion at the midpoint, 0.9% above analysts’ estimates. Its non-GAAP profit of $0.95 per share was 7.3% above analysts’ consensus estimates.

Is now the time to buy PANW? Find out in our full research report (it’s free).

Palo Alto Networks (PANW) Q2 CY2025 Highlights:

Revenue: $2.54 billion vs analyst estimates of $2.50 billion (15.8% year-on-year growth, 1.4% beat)
Adjusted EPS: $0.95 vs analyst estimates of $0.89 (7.3% beat)
Adjusted Operating Income: $768.2 million vs analyst estimates of $719.6 million (30.3% margin, 6.8% beat)
Revenue Guidance for Q3 CY2025 is $2.46 billion at the midpoint, above analyst estimates of $2.44 billion
Adjusted EPS guidance for the upcoming financial year 2026 is $3.80 at the midpoint, beating analyst estimates by 3.2%
Operating Margin: 19.6%, up from 10.9% in the same quarter last year
Billings: $3.71 billion at quarter end, up 6.1% year on year
Market Capitalization: $117.7 billion

StockStory’s Take

Palo Alto Networks delivered Q2 results that surpassed Wall Street’s expectations, with management crediting the growth to strong customer demand for platformization and next-generation security solutions. CEO Nikesh Arora emphasized that a record volume of large, multi-product deals and increased adoption of AI-powered security offerings were the main contributors. He specifically highlighted robust bookings growth, stating, “the record-breaking number of platformization deals this quarter demonstrates that customers are not just buying products, they are buying into a strategic partnership.” The company also benefited from continued momentum in software-based firewalls and SASE (secure access service edge) solutions, which saw heightened demand as organizations pursued cloud and AI transformation initiatives.

Looking forward, management pointed to accelerating demand for integrated security platforms—particularly in AI and identity protection—as key themes shaping guidance. Arora said, “the clear validation of our strategy is in the landmark deals we’re signing,” referencing the company’s confidence in achieving its long-term targets. The upcoming acquisition of CyberArk and continued investments in AI security platforms are expected to further enhance Palo Alto Networks’ ability to address new cyber threats. CFO Dipak Golechha added that operating margin expansion and a higher mix of software-driven revenue are set to support both profitability and free cash flow growth. Management remains focused on executing its platformization strategy and capitalizing on the growing need for end-to-end security solutions.

Key Insights from Management’s Remarks

Management attributed the quarter’s performance to strong execution on platformization, increased adoption of next-generation security products, and strategic customer partnerships.

Platformization momentum: The company saw a surge in large, multi-product deals, with several customers committing to platform-wide agreements rather than individual products. Management noted a $100 million cloud security and SASE contract with a global consulting firm, as well as substantial expansion within Fortune 500 clients.
AI security adoption: Rapid enterprise adoption of generative AI (GenAI) tools fueled new demand for security solutions. The launch of Prisma AIRS, an AI security platform, generated significant pipeline interest, with management citing an 890% increase in GenAI traffic among customers in 2024 and a corresponding rise in related security incidents.
Software firewall and SASE growth: The shift from hardware to software-based firewalls continued, with over 60% of network security bookings now software-driven. SASE was highlighted as the fastest-growing product, with broad-based adoption and several multi-million seat deals closed in the quarter.
Cortex Cloud and XSIAM traction: Management called out the growing importance of real-time cloud security and autonomous security operations, with the Cortex Cloud and XSIAM platforms gaining momentum. These products enable customers to detect and respond to threats across hybrid environments more efficiently, and XSIAM’s average ARR per customer surpassed $1 million.
Leadership transition and M&A: The quarter marked the announced retirement of founder Nir Zuk and the elevation of Lee Klarich to Chief Product and Technology Officer and board member. Additionally, the proposed acquisition of CyberArk was discussed as a move to strengthen identity security offerings, which management believes will be critical as AI adoption accelerates.

Drivers of Future Performance

Management expects accelerating demand for integrated AI and identity security platforms to shape growth and profitability in the coming quarters.

AI-driven security platform expansion: Management is betting that accelerated adoption of AI across enterprises will create larger attack surfaces, making comprehensive AI security platforms like Prisma AIRS increasingly essential. The company anticipates continued growth in AI-related security incidents and expects its unified platform approach to drive greater customer retention and upsell opportunities.
Identity security and CyberArk integration: The planned acquisition of CyberArk is expected to establish Palo Alto Networks as a leader in identity security, a domain management believes is at an inflection point due to the rise of agentic AI and credential-based breaches. The ability to unify identity protection with existing platforms is viewed as a significant long-term growth driver.
Margin expansion through software mix: A higher proportion of software-based revenue and operational efficiencies are expected to support further expansion of operating and free cash flow margins. Management highlighted confidence in achieving a 40%+ adjusted free cash flow margin within three years, underpinned by scalable business processes and increased annual contract billings.

Catalysts in Upcoming Quarters

Looking ahead, the StockStory team will focus on (1) the integration process and customer uptake of CyberArk’s identity security solutions, (2) continued adoption and monetization of AI security offerings like Prisma AIRS, and (3) further progress in shifting customers toward software-based firewalls and multi-platform agreements. Execution on these priorities, along with sustained operating margin expansion, will be key markers for Palo Alto Networks’ performance.

Palo Alto Networks currently trades at $187.20, up from $176.40 just before the earnings. In the wake of this quarter, is it a buy or sell? The answer lies in our full research report (it’s free).

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