Palo Alto Networks' (PANW) fiscal Q3 results indicated increasing customer demand for platform-based cybersecurity services as artificial intelligence adoption grows, Morgan Stanley said in a note Wednesday.
According to the note, the company delivered upside across multiple areas, including CyberArk, SASE, Prisma AIRS, XSIAM and its core firewall business, with all segments outperforming expectations.
Customers are consolidating vendors not only because it is cost-efficient but also to reduce security vulnerabilities, especially as cyber threats become more severe, the note said.
Morgan Stanley said this trend remains in its early stages, with Palo Alto still holding only a single-digit share of the overall cybersecurity market, leaving a significant runway for future growth.
"[W]e expect growth to accelerate in the next year, even as the company cautions the pace, providing a continued positive catalyst for the name," the note said.
Meanwhile, the stock's relatively flat reaction following earnings likely reflects a pause after its 61% gain over the past month, Morgan Stanley said, adding that investors are now focused on how quickly customers adopt AI security tools, not on whether they will.
Morgan Stanley raised its price target on Palo Alto to $320 from $253, while keeping its overweight rating.
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