Palo Alto Networks (Palo Alto Networks (PANW)) reported fiscal third-quarter 2026 results after the market close Tuesday, beating Wall Street expectations on revenue and earnings while raising its full-year outlook. But the real headline came from CEO Nikesh Arora, who warned that artificial intelligence is fundamentally changing the speed and scale of cyber threats.

Revenue, Earnings Top Estimates

Revenue rose 31% year over year to approximately $3 billion, topping analyst estimates of $2.94 billion. Adjusted earnings came in at 85 cents per share, ahead of consensus estimates of 80 cents per share.

The cybersecurity company also reported remaining performance obligations (RPO) of $18.4 billion, up 36% from a year earlier, reflecting strong demand and future revenue visibility.

Next-Generation Security Growth Accelerates

Annual recurring revenue (ARR) for Palo Alto's Next-Generation Security business reached $8.13 billion, up 60% year over year and above company guidance. Excluding contributions from CyberArk and Chronosphere, organic NGS ARR increased 28%.

Current RPO climbed 34% to $8.3 billion, while total RPO increased 36% to $18.4 billion. On an organic basis, total RPO grew 22%.

Services revenue increased 31% to $2.4 billion, while product revenue rose to $594 million during the quarter.

SASE ARR reached $1.6 billion, up 40% year over year, driven by demand for integrated hybrid-security platforms.

The company also reported strong firewall demand. Software firewall ARR grew 25%, while next-generation firewall bookings increased nearly 40%, marking the strongest hardware demand environment in a decade.

XSIAM ARR surpassed $600 million, doubling from a year ago. The platform now serves 740 customers, with most achieving incident response times of less than 10 minutes.

Net retention rate was 120%, while churn remained in the low single digits.

Outlook Raised

For the fiscal fourth quarter, Palo Alto Networks expects revenue of $3.35 billion to $3.36 billion, above analyst estimates of $3.28 billion. Adjusted earnings are projected between 96 cents and 98 cents per share, compared with consensus estimates of 94 cents.

The company raised its full-year revenue outlook to $11.42 billion-$11.43 billion from its prior forecast of $11.28 billion-$11.31 billion. Analysts were expecting $11.30 billion.

Palo Alto also increased its full-year adjusted earnings outlook to $3.77-$3.79 per share from $3.65-$3.70 per share. Analysts were projecting $3.69 per share.

The company expects full-year NGS ARR of $8.9 billion-$8.95 billion, representing growth of 59%-60%.

AI Threats Drive Security Urgency

Palo Alto executives said the rapid advancement of artificial intelligence is creating a new wave of cybersecurity spending.

During the earnings call, CEO Nikesh Arora warned that frontier AI models can identify and weaponize software vulnerabilities in minutes, compared with a process that previously took months of manual effort.

He added that the company's Unit 42 researchers recently simulated a ransomware attack from initial access to data exfiltration in just 25 minutes, highlighting the growing urgency for enterprises to adopt AI-driven security defenses.

Price Action And Analyst Outlook

Palo Alto Networks shares were down 3.43% at $287.00 during premarket trading on Wednesday. The stock is approaching its 52-week high of $302.95, according to market data.

Despite today's drop, Wall Street sentiment remains overwhelmingly positive. The stock carries a Buy rating with an average price forecast of $263.08. Recent analyst moves include:

• Benchmark: Buy (Raises forecast to $340.00) (June 3)
• DA Davidson: Buy (Raises forecast to $345.00) (June 3)
• Stephens & Co.: Equal-Weight (Raises forecast to $300.00) (June 3)