Palo Alto Networks, Inc.

(NASDAQ Global Select)
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Bullish +75

2 Bad News Buys: Why Palo Alto and Zscaler Are Screaming Deals - MarketBeat

AI-generated analysis

πŸ“‰ Both Palo Alto Networks and Zscaler have sold off sharply, dropping up to 55% from peaks and over 20% in 2026, creating potential buying opportunities.

πŸ’Ό Institutional investors have reversed course since late 2025, accumulating shares at a pace of more than $2 bought for every $1 sold.

πŸ“Š Technical indicators show oversold conditions with stochastic oscillators at historical lows and MACD divergence suggesting a market bottom.

πŸš€ Palo Alto Networks is forecast to grow at a high-teens CAGR while Zscaler targets a low-to-mid 20% CAGR over the next decade.

πŸ’° Valuation analysis suggests PANW trades at 12x long-term forecasts and ZS at 8x, implying 100% to nearly 200% upside potential.

πŸ›‘οΈ Both companies maintain industry-leading gross margins between 70% and 80% due to their unified, platform-based security approaches.

πŸ€– AI is driving efficiency for enterprises but simultaneously empowering cybercriminals, increasing demand for advanced cybersecurity solutions.

πŸ“ˆ Zscaler trades significantly below the low end of its analyst target range with potential for an 85% upside at consensus.

πŸ”’ Palo Alto Networks offers over 20 products across cloud, networking, and systems security, while Zscaler leads in cloud-native zero-trust architecture.

Bullish Signals
  • Institutional buying has overtaken selling since late 2025, with data revealing institutions accumulating at a rate of more than $2 bought for each $1 sold.
  • Short-covering is currently underway in both stocks, providing additional upward price pressure as shorts cover their positions.
  • Palo Alto Networks and Zscaler deliver industry-leading gross margins ranging from 70% to 80%, significantly higher than legacy hardware-based providers.
  • The cybersecurity industry is projected to grow at a 10% to 15% compound annual growth rate over the next decade, with leaders growing even faster.
  • Valuation metrics show both stocks trading at deep discounts relative to long-term forecasts, with PANW at 12x and ZS at 8x their respective future earnings.
  • Technical analysis indicates strong support levels and bullish divergence on weekly charts, suggesting a high-probability market reversal.
  • Both companies are well-positioned for the accelerating digitization of services and increasing regulatory requirements in the digital economy.
Risk Factors
  • Valuation concerns persist as Palo Alto Networks trades near 40x current year earnings and Zscaler near 36x, which may limit immediate upside if growth slows.
  • Analysts played a role in the recent stock price corrections by collectively reducing price targets, placing these markets at the low end of their target ranges.
  • Institutions sold heavily in Q3 2025 to cap gains, which drove prices lower and contributed to the current depressed valuation levels.
Full Analysis
Palo Alto Networks (PANW) and Zscaler (ZS) are presented as compelling investment opportunities after significant price corrections, having dropped up to 55% from their peaks. The article argues that these cybersecurity leaders offer robust growth trajectories in a market driven by digitization, regulatory requirements, and AI threats. Both companies utilize unified, platform-based approaches that deliver industry-leading gross margins between 70% and 80%, significantly outperforming legacy hardware providers. Technical indicators suggest the stocks are oversold and ready for a rebound. Monthly and weekly charts show stochastic oscillators at historical lows and MACD divergence, indicating bears are losing control while bulls gain momentum. Institutional activity has shifted from heavy selling in Q3 2025 to accumulation in Q4 2025 and early 2026, with institutions buying more than twice the volume they sold. Short interest is also declining as short-covering begins. Valuation metrics indicate deep value relative to long-term forecasts. While current P/E ratios are high (approx. 40x for PANW), these stocks trade at only 12x and 8x their respective long-term earnings forecasts, suggesting substantial upside potential of 100% to nearly 200% to align with broad market averages. Analyst consensus targets imply further upside, with Zscaler trading below the low end of its target range and Palo Alto Networks near a potential floor. The cybersecurity industry is expected to grow at a 10% to 15% CAGR over the next decade, with leaders like PANW and ZS growing at accelerated rates of high-teens and low-to-mid 20% respectively. Despite some analysts recommending other stocks, MarketRank ratings remain strong for both companies, with moderate buy consensus and price targets set well above current trading levels.