Palo Alto Networks reported fiscal second-quarter results that beat consensus on the top and bottom lines, but the cybersecurity firm tempered those gains with weaker guidance that weighed on its shares.
Management announced quarterly earnings per share of $1.03, above analyst estimates of $0.94, and revenue of $2.6 billion, narrowly topping the $2.58 billion consensus. Despite the quarterly beat, leadership issued guidance that fell short of expectations for both the next quarter and the fiscal year.
The company projected third-quarter EPS in a range of $0.78 to $0.80, below the analyst forecast of $0.92. For fiscal 2026, Palo Alto Networks set an EPS outlook of $3.65 to $3.70, beneath the $3.87 consensus estimate.
Shares reacted sharply to the outlook, opening down by roughly 10% on Wednesday before paring some losses to trade around 5% lower later in the session. The stock move occurred amid broader selling pressure in software names as market participants weigh the potential impact of new AI tools that can accelerate enterprise workflows or automate tasks.
During an earnings call on Tuesday, CEO Nikesh Arora pushed back on the notion that AI poses an existential threat to cybersecurity vendors. "I'm still confused why the market is treating AI as a threat to at least cybersecurity," he said, adding that while he could not speak for all software companies, Palo Alto Networks is seeing customers demand more consistency across their security stacks to enable faster response when using AI.
Arora emphasized that AI will not replace cybersecurity "anytime soon" and highlighted the company’s own investments in artificial intelligence. He noted that Palo Alto Networks has been investing heavily in AI and introduced new agentic tools in the fourth quarter. "Every security product has some version of a copilot that now runs in tandem with the product," he explained.
The CEO described these AI initiatives as a direct reaction to market inflections the company observes and said early customer feedback has been encouraging. He framed the developments as the beginning of a next phase of AI adoption within security products rather than a replacement of existing security capabilities.
The earnings beat showed near-term strength, but the lowered forward guidance highlighted uncertainty for investors assessing the stock amid rapid changes in AI-enabled enterprise tools. Market participants weighed the stronger quarterly performance against commentary and guidance that suggested a more cautious outlook for upcoming periods.
As the company navigates its AI investments and product launches, the immediate market response underscored sensitivity to guidance and to broader questions about how AI will reshape software demand and vendor economics.