Palo Alto shares sink 8%, CEO defends cybersecurity from AI threat

“I’m still confused why the market is treating AI as a threat to at least cybersecurity,” he said Tuesday. “I can’t speak for all of software, but one thing we’re definitely seeing is that customers have figured out that they need to drive more consistency in their security stack to be able to respond faster using AI.”

Shares sank 7% Wednesday following the cybersecurity company’s fiscal second-quarter results, which topped Wall Street estimates. However, third-quarter earnings guidance fell short of expectations.

The rise of new AI tools creating enterprise workflows or websites in a matter of seconds has intensified a selloff in software stocks in recent weeks.

These new tools, from the likes of Anthropic and OpenAI, have left investors fretting over whether AI will permanently disrupt their business models.

So far this year, the iShares Expanded Tech-Software Sector ETF has slumped more than 23%. Palo Alto Networks has dropped 11% year to date and 21% over the last year.

But Arora believes AI is far from displacing the security products.

“It’s not a secret,” he said. “Every one of us is working hard. Almost every AI, every security product has some version of a copilot that now runs in tandem with the product.”

Palo Alto has been betting big on AI in recent months and launched a suite of new agentic tools in the fourth quarter.

The company has also invested heavily in new acquisitions to scale cybersecurity capabilities for customers in the age of sophisticated AI.

Earlier this month, the company closed its massive $25 billion acquisition of identity security company CyberArk and completed its purchase of AI observability platform Chronosphere in January. Palo Alto announced on Tuesday that it’s buying Israeli cybersecurity startup Koi.

“These investments are a direct response to the inflections we see taking shape in the market,” Arora told analysts. “While it’s still early, the initial feedback from our customers has been very encouraging. We believe we’re now entering the next phase of AI adoption.”