Palo Alto Networks "F3Q Expectations Continue to Rise" (Neutral) Boyd

Research evidence excerpt

Palo Alto Networks "F3Q Expectations Continue to Rise" (Neutral) Boyd

Palo Alto Networks UBS Research

Thoughts into the Q

According to our Firewall market model (see below), the product revenue cycle now

appears to peak in 1Q26, with estimates pointing to growth moderating beginning in

2Q26, consistent with cycles seen in 2018 and the 2021-2022 super cycle. On a

multiyear basis, we would argue that overall product revenue growth is in the low

double digits, with a slight downward trajectory towards high-single-digits over the past

10 years.

Figure 1: Firewall Market

l Marke

Firewal

t

Source: FactSet, Company Reports, UBSe

Investors have been debating the current strength of the firewall market, evident in

Fortinet's 41% 1Q products growth. Relative to prior cycles, the spike in 1Q growth

stands out, and we think to some extent shows the advanced buying some partners are

pointing to. Furthermore, the current environment of price increases across the firewall

is increasing more quickly to a greater degree. In CY21-22 we saw vendors make

multiple smaller price increases, relative to the larger increases many vendors have

affected in 2026.

Figure 2: Total Software Revenue

Tot al

Sof

twa Rev

re

enu

e

Source: Company Reports, UBSe

Increasingly we think PANW could direct investors towards a total software revenue or

total software ARR number that would include the subscriptions revenue line as well as

the software components of the product line (term-licenses for software firewalls and

on-prem CyberArk). Above we frame out what this metric has looked like on an organic

basis (excluding CyberArk). Like subscriptions revenue, the growth rate on total

software revenue has continued to decelerate, excluding accelerations in F4Qs which