Palo Alto Networks, Inc. PANW shares have lost 4.3% since it reported financial results for the third quarter of fiscal 2025 on May 20. Although the company’s top and bottom lines exceeded the Zacks Consensus Estimate for the third quarter, several challenges persist.

The year 2025 has remained highly volatile for PANW stock due to ongoing geopolitical issues and tariff-related uncertainties. PANW shares have risen 2.3% year to date.

The stock has also underperformed other cybersecurity players, including CrowdStrike CRWD and Zscaler ZS. The underperformance of Palo Alto Networks’ share price, along with the business concerns, raises the question: Should investors buy, hold or sell PANW stock?

Year-to-Date Performance ChartZacks Investment Research

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Key Headwinds for Palo Alto Networks

PANW is experiencing shortened contract durations and a slowdown in transition to PANW’s cloud-based AI-powered platforms from its legacy platforms. Palo Alto’s Cortex Cloud platform, which is a replacement for one of its key offerings, Prisma Cloud, is still in its early stages and has not yet achieved the scale necessary to optimize cost efficiencies, leading to PANW experiencing contraction in margin.

Moreover, PANW’s $1 million-plus deals are shifting from multi-year payments to annual payments, causing the shortening of the sales cycle and affecting top-line stability. These factors, along with the United States' stance toward China, Europe and other major economies related to tariffs, have kept the stock highly volatile in recent times.

Palo Alto Networks also faces significant competition from other cybersecurity players like CrowdStrike and Zscaler. CrowdStrike’s Falcon Extended Detection and Response (XDR) competes with Palo Alto Networks’ Cortex XDR.

PANW’s Prisma Cloud and Access offerings compete with Zscaler’s Secure Web Gateway, Secure Access Service Edge and zero trust network architecture. The cutthroat competition in the cybersecurity market also forces PANW to stay competitive, raising its operational costs. However, for investors, not everything is gloom and doom.

Positive Industry Trends Favor PANW’s Prospects

Despite the challenges, Palo Alto Networks is well-positioned to capitalize on the growing demand for advanced cybersecurity solutions. According to Fortune Business Insights, the global cybersecurity market is projected to expand from $193.73 billion in 2024 to $562.72 billion by 2032, representing a massive addressable market. As cyber threats become more sophisticated, enterprises are increasingly prioritizing multi-layered security platforms, which directly contribute to PANW’s strengths.

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The company’s continued innovation in AI, automation and cloud security positions it ahead of its competitors. Its strategic partnership with NVIDIA to develop AI-powered private 5G security solutions highlights its focus on next-generation technologies. This collaboration strengthens PANW’s capabilities in protecting data and networks in 5G environments, a rapidly growing market segment.

Furthermore, Palo Alto Networks’ transition to a platform-based model has been a game-changer. By bundling multiple security products into a comprehensive cybersecurity platform, the company generates recurring revenue streams, boosting financial stability and customer stickiness.

PANW’s platformization strategy has enabled PANW to secure 90+ net new platformization deals in third-quarter fiscal 2025 alone. In its recent earnings call, PANW also announced that its customers with multiple platformizations grew nearly 70% year over year, contributing massively to the top line. The Zacks Consensus Estimate for PANW’s fiscal 2025 revenues is set at $9.18 billion, indicating a year-over-year rise of 14.3%.Zacks Investment Research

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PANW’s Valuation Offers Upside Potential

Palo Alto Networks is currently trading at a low price-to-sales (P/S) multiple, far below the Zacks Security industry. PANW’s forward 12-month P/S ratio sits at 12.05X, lower than the Zacks Security industry’s forward 12-month P/S ratio of 13.8X.

PANW is also trading at a lower P/S multiple than other cybersecurity companies, including Zscaler and CrowdStrike. Currently, Zscaler and CrowdStrike have a P/S multiple of 12.75X and 21.66X.

Palo Alto Networks Forward 12-Months (P/S) ChartZacks Investment Research

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Conclusion: Hold PANW Stock for Now

Although Palo Alto Networks is dealing with multiple financial and competitive headwinds, the company has enormous resources to drive innovation and be at the forefront of the Cybersecurity industry in the future. A robust demand environment and discounted valuation make it a stock worth holding at present.

PANW carries a Zacks Rank #3 (Hold) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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