Palo Alto Networks Sees AI Boom Driving Firewall Demand

The AI data center boom and false positives in cutting-edge AI models like Anthropic’s Claude Mythos Preview will fuel opportunities for Palo Alto Networks.

The Silicon Valley-based platform security firm’s participation in Anthropic’s Project Glasswing bolstered its confidence that human oversight will remain essential since many of Mythos’ findings were false positives, according to Chairman and CEO Nikesh Arora. Palo Alto Networks expects strong demand for AI governance through firewalls as network traffic from agentic AI tools unnerved enterprises, he said.

“Six months ago, cybersecurity stocks were doomed because AI was going to protect every one of us, and we were all out of jobs, right?” Arora told investors Tuesday. “And suddenly, we’re hiring more people, AI is not taking jobs away and you can’t execute a cyber protection scenario without using a platform cybersecurity vendor.”

What Data Centers Demand Means for Network Firewalls

Arora said Palo Alto Network’s customers need guardrails around the vast amount of network traffic they are generating.

“Unlike simple chatbots, autonomous agents trigger a massive volume of secondary machine-to-machine interactions, consistently accessing tools and data to complete complex workflows,” Arora said. “This creates a surge in nonstop high-volume traffic that must be secured at runtime.”

The growth of AI infrastructure will benefit Palo Alto Networks for the next several years, Arora said. Hyperscalers like Microsoft and Amazon operated 1,360 large data centers by the end of 2025, accounting for nearly half of the world’s data centers, Synergy Research Group’s data shows.

Neoclouds, which are GPU-as-a-Service platforms that offer infrastructure for training and running complex AI models, are expanding at unprecedented speeds, growing revenues by 220% year-over-year in the last three months of 2025.

“As more traffic traverses networks, more inspection is needed. When more inspection is needed, hardware is the cheapest and fastest throughput mechanism to inspect the data,” Arora said. “Our Q3 results [fiscal quarter ended April 30] featured the strongest hardware performance in a decade, with next-generation firewall bookings rising nearly 40% year over year.”

Combined with a 10% lift in hardware pricing, Arora said Palo Alto Networks expects to benefit from the trend for at least a few more quarters, if not years.

AI-Assisted Vulnerability Discovery is Falling Short

Another source of optimism for Palo Alto Networks comes from the realization that AI remains far from replacing human analysts, according to Arora. Having accessed Mythos since April, Arora said the company found 25% of the AI model’s vulnerability findings were false positives.

“An AI model can say, ‘Oh my god, I see a vulnerability,'” Arora said. “And one time out of four, it’s not seeing the right vulnerability, which means if you let AI do the job, it could try and patch something that’s working perfectly fine. And you let AI go protect that, you might have screwed up something else.”

When it comes to remediation, Arora said Mythos also falls short on the last mile, leaving gaps in that can be devastating to an entire network. Arora said customers prefer to “see, observe and approve” actions recommended by AI agents and are not ready to let AI operate autonomously. Although AI is expediting security defense processes, human verification remains a critical step in the workflow.

“If you thought that the terminal value of cybersecurity was gone, like many SaaS companies, this terminal value is here to stay,” Arora said.

Revenue Surges and Expectations Heighten

Palo Alto Networks’ revenue of $3 billion in the quarter ended April 30 beat Seeking Alpha’s sales estimate of $2.94 billion. And the company’s non-GAAP earnings of $0.85 per share bested Seeking Alpha’s non-GAAP estimate of $0.80 per share.

The company’s stock is down $9.43 – 3.17% – to $287.75 per share in after-hours trading Tuesday. For the quarter ending July 31, Palo Alto Network expects diluted non-GAAP net income of $0.96 to $0.98 per share on revenue of between $3.345 billion and $3.355 billion. Analysts had been expecting non-GAAP earnings of $0.94 per share on sales of $3.28 billion, according to Seeking Alpha.