Palo Alto Networks in the AI stack

The business and what the filings show

Palo Alto Networks sells network, cloud and security-operations products, increasingly as integrated platforms in what its 10-K calls a platformization strategy. Over its latest four quarters it reported $11.5B of revenue, +24% on the year before, at a 70% gross margin and a 6% operating margin, with free cash flow of $4.1B and remaining performance obligations of $21.2B.

It reaches most customers through channel partners: two distributors each accounted for more than 10% of its revenue in fiscal 2026, although no single end customer did. AI shows up in three places: products that secure customers’ AI applications and models (its Network & AI Security platform), AI inside its security-operations platform, and demand from customers adding AI to their networks.

The platform strategy is a bet that customers will consolidate security spending with fewer vendors as threats driven by AI multiply. That can raise revenue per customer over time. Its revenue growth against the layer and its operating margin over the next few years show whether consolidation, and the AI security products inside it, are paying off.

How AI shows up in the numbers

AI shows up at Palo Alto Networks as security for AI applications and agents, as AI in its own products, and as a driver of demand for network and cloud security. Its filings do not separate AI revenue, so the evidence is in growth, remaining performance obligations and how specific its earnings releases are about AI results.

For scale, Palo Alto Networks’s revenue over the latest four quarters equals 2% of the $566B the five largest buyers spent on capital projects over their latest four quarters. Their capex rose +81% on the year before, while Palo Alto Networks’s revenue grew +24%: slower than the spending, so it is capturing a smaller share of each new capex dollar, or more of its business sits outside the build-out.

How it talks about AI

In its latest earnings release, furnished to the SEC on September 1, 2026, Palo Alto Networks mentioned AI 8 times in 1,367 words of narrative text, about 5.9 mentions per 1,000 words. Of its 6 sentences about AI, 1 included a number: a revenue figure, a growth rate, a customer count or another measurable result. Across the 8 releases we read, back to November 20, 2024, AI mentions per 1,000 words went from 1.8 to 5.9.

Specific claims are easier to check against the numbers than general enthusiasm, which is why the share of AI sentences that carry a figure is worth watching alongside how often AI is mentioned. The sentences below are quoted from the release as published, after removing safe-harbor text and company boilerplate.

• “The latest advancements in AI are elevating cybersecurity to the top of the CIO priority list, and will serve as durable tailwinds as we progress towards our $20 billion FY30 NGS ARR target.”
• “We delivered a strong finish to a record year and exceeded our guidance across the board, fueled by strength across our Network & AI Security, Cortex, and Idira platforms," said Dipak Golechha, chief financial officer of Palo Alto Networks.”

Source: earnings release (Form 8-K, Exhibit 99.1), September 1, 2026.

The trend in the numbers

Since the start of 2023, Palo Alto Networks’s largest quarter by revenue was Q2 2026 at $3.4B, and its highest gross margin was 75% in Q3 2023. The latest quarter set the revenue record for the period.

Quarter by quarter, Palo Alto Networks’s revenue grew +16% in Q3 2025, +15% in Q4 2025, +31% in Q1 2026, +34% in Q2 2026 on the same quarter a year earlier. Growth has been accelerating.

Gross margin in the latest quarter was 68%, against 73% a year earlier, so more of each new dollar is passing through to costs. Operating margin moved from 20% to 5% over the same span. Over the latest four quarters it turned 40% of its revenue into operating cash flow and spent 4% of revenue on capital projects, against 3% a year earlier.

Where it sits in the stack

Palo Alto Networks sits in the software and applications layer of the AI stack. It sits at the top of the stack, where revenue from end customers has to come from; its own spending flows to AI clouds.

Among the 27 companies in this layer on our map, it ranks number 6 by revenue and number 10 of 27 by revenue growth. Its gross margin of 70% compares with 78% for the layer as a whole, so it keeps less of each dollar than the layer average. The full layer analysis is on the software page.

Latest four quarters for 10-Q filers; latest fiscal year for 20-F filers. Companies under $100 million of revenue are left out.

Against the 27 US-listed companies in its layer, Palo Alto Networks grew +24% over the latest year versus +19% for the layer combined, and converted 36% of revenue into free cash flow versus 33% for the layer. It is taking share of the layer’s revenue.

What has to go right, and what could go wrong

What has to go right. Customers have to consolidate security onto fewer platforms as AI raises the stakes, and Palo Alto Networks has to be one of the platforms they choose, with AI security as a reason.

What could go wrong. If CrowdStrike, Microsoft, Zscaler and the clouds win the same consolidation, or AI security becomes a feature bundled into cloud platforms, growth could slow even as the security problem gets bigger.

These describe the conditions the business depends on, as the filings show them. They are not a view on the stock.

Through the lens of Investing in AI

Rob May’s book offers six mental models for telling AI moats from traps. The one most useful for Palo Alto Networks’s layer is “AI challenges traditional SaaS assumptions”: Per-seat pricing, zero marginal cost, smooth ARR curves, and automatic land-and-expand break down when software does work on your behalf. The mistake is not using SaaS instincts. It is using them automatically.

The question it asks of any company is: What work is this product actually doing, and how does pricing map to it? Applied to Palo Alto Networks, the filings on this page are the place to start: the margin trend shows whether it holds scarce value or passes it through, the customer and financing disclosures show who it depends on, and the commitments show what it has promised before the revenue arrives.

Customers and concentration

US companies must disclose any customer that accounts for 10% or more of revenue, and foreign filers usually describe their largest customers. Concentration matters because a company’s growth is only as durable as the handful of buyers behind it, and in the AI stack those buyers are often the same few companies.

• “For fiscal 2026, two distributors represented 10% or more of our total revenue, representing 15% and 15%, respectively.” 10-K, September 10, 2026
• “No single end-customer accounted for more than 10% of our total revenue in fiscal 2026, 2025, or 2024.” 10-K, September 10, 2026

Commitments and backlog

• Backlog. Palo Alto Networks reports $21.2B of remaining performance obligations, 1.8 times its revenue over the latest four quarters: contracted revenue not yet earned.
• Purchase commitments. $8.2B of unconditional purchase obligations as of July 31, 2026 (10-K): what it has contracted to buy from its own suppliers.

What to watch

Palo Alto Networks’s next quarterly report will cover the quarter ending around October 30, 2026. Large companies must file a 10-Q within 40 days of a quarter’s end and a 10-K within 60 days of the fiscal year’s end, so the new figures should arrive by about December 29, 2026 at the latest. This page, the layer pages and the next quarterly report all update from that filing.

• Revenue growth and remaining performance obligations, which show whether platform deals are adding up.
• Operating margin as the platform strategy matures.
• Distributor concentration in the 10-K, since two distributors each pass on more than a tenth of revenue.
• Its place in the next quarterly AI Stack Report, which updates every company on the map from the new filings.

Figures from Palo Alto Networks’s SEC filings, latest period ended July 31, 2026. Other companies: all company pages.