What spooked Palo Alto investors in 2025 could accelerate growth in 2026

Palo Alto Networks may be quietly writing a story for investors looking for a cybersecurity comeback story. 2025 performance: 1.2% Forward price-to-earnings multiple: 43.7 versus a five-year average of 53, according to FactSet data. Our rating: Buy equivalent 1 Our price target: $225 per share PANW YTD mountain PANW stock performance YTD. Palo Alto's shares appear to have had a quiet year, rising roughly 1% in 2025, but there was a precarious situation beneath the surface. Particularly in the second half of the year, shares were held back by investors' concerns about CEO Nikesh Arora's deal-making spree. Despite creating a bump in shares, Palo Alto's acquisitions of CyberArk and Chronosphere position the cybersecurity giant for a stronger 2026; because more customers want to combine security tools from different vendors. This aligns with Arora's long-term strategy called platformization, which is a plan to create an integrated security platform that includes network, cloud, identity, observability and threat intelligence. Rather than selling siled products, Palo Alto consolidates security operations, allowing customers to easily detect and respond to threats in one place. Rival cybersecurity provider CrowdStrike, another name for Club, also emphasizes its platform approach, so Palo Alto isn't the only game in town. That makes Palo Alto's two biggest acquisitions this year particularly important. The $25 billion CyberArk acquisition, announced in late July, will provide Palo Alto with an increasingly important layer of identity security at one of the most targeted entry points for hackers. The deal, expected to close in early 2026, is expected to generate more than $1.5 billion in annual recurring revenue and free cash flow of about $400 million, according to Citigroup, which has a buy rating and $235 price target on Palo Alto shares. Palo Alto expects to end its fiscal year with $7 billion to $7.1 billion in annual recurring revenue, with unreconciled cash flow projections of about $4 billion, according to FactSet. The second major deal is Palo Alto's $3.35 billion acquisition of Chronosphere; This deepens Palo Alto's access to security observability, which are tools used to help customers monitor and understand what's happening on their systems in real time. The acquisition will also help Palo Alto build long-term relationships with a new generation of fast-growing AI startups, many of whom covet Chronosphere's low-cost observability solution, Citi analysts said. The Palo Alto-Chronosphere deal, announced in November, is expected to be completed in the second half of 2026. While these two multibillion-dollar deals carry some execution risk and dilute existing shareholders, the moves underscore that Palo is moving into the AI cybersecurity era where threats become more automated. Citi argues that the stock could take off next year if Palo Alto continues its platformization strategy by offering more cost-effective solutions to its customers. This is a view we share. Morgan Stanley is also bullish on Palo Alto next year. “As we move into CY26, we continue to like the stock setup, believing there is still a meaningful upside in results as the year has more backend load, acquisitions close/integrate, and AI becomes a stronger tailwind,” they wrote in a Dec. 18 note to clients. Palo Alto stocks have taken a breather this year, but better days are ahead. (Jim Cramer's Charitable Trust is long PANW. See here for a full list of stocks.) When you subscribe to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trading alert before buying or selling a stock in his charitable foundation's portfolio. If Jim talked about a stock on CNBC TV, he waits 72 hours after issuing the trading alert before executing the trade. THE ABOVE INVESTMENT CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY, TOGETHER WITH THE DISCLAIMERS. NO CIVIL OBLIGATIONS OR DUTIES EXIST OR SHALL BE RESULTING FROM YOUR RECEIVING ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTMENT CLUB. NO SPECIFIC RESULT OR PROFIT CAN BE GUARANTEED.