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Shares of Palo Alto Networks sliding here, despite topping earnings estimates for the third quarter. Morningstar equity analyst Malik Ahmed Khan joins us now to discuss. So, um, we're seeing the shares go down. As far as we could tell, at first blush, all of the numbers seem to beat estimates. They were raising some ranges for earnings going forward. Um, what stands out to you here?

Yeah, uh, we also thought it was a, it was, it was a pretty solid quarter. Um, we were really happy to see NGS ARR continue to grow. RPO, which is forward-looking indicator, continued to, uh, grow faster than the top line, and, uh, continuing to see a lot of strength, uh, in the NGS, uh, business, whether it's cortex or sassy or, uh, uh, or other initiatives that the company's taking in AI. Uh, we thought it was a good print. Uh, again, we'll have to unpack some of the numbers and see, uh, what's going on, but at first blush, as you said, we think it was another solid quarter by Palo Alto.

Malik, if you had the chance to ask Nikesh Arora a question or two, what would be top of mind for you?

First of all, I, I, I think, I think a lot of investors are really interested in what the AI opportunity is within cyber security in, in particular, when we're thinking about security operations. And the company has talked a lot about XSIAM, uh, which is their AI-driven security operations platform to see what the long-term market opportunity is, and what the long-term profitability opportunity is when we're thinking about this NGS business, I think would be sort of, uh, one of the questions I'd ask.

Um, what's your views more broadly, sort of, of the competition between Palo Alto and some of its competitors and how successful has Palo Alto been in, in taking market share?

So Palo Alto has been one of the top cyber security companies for a number of years now, and we've actually commended the company for, uh, catalyzing vendor consolidation with this platformization strategy that the firm announced in February 2024. Uh, so clearly it's been taking market share, moving beyond its core firewall market into cloud security, security operations, the convergence of networking and security. Uh, and I think investors have, have rewarded the company if you look at the stock chart over the last five or two years.

Malik, you know the analysts at Wedbush who cover this name, they are fans. Uh, I know they tell their clients, one of their favorite cyber security names to own over the next 12 to 18 months. Do you agree with that, Malik? Would you recommend this one?

For sure. Uh, we, we tend to have a longer, uh, sort of, uh, investment horizon. But as, as we think about the next 5 to 10 years, we certainly like, uh, Palo Alto as one of the highest quality cyber security names. Some of the other ones that I'd throw out, uh, for, for people listening are, are CrowdStrike, uh, Fortinet and ZScaler. We think these four companies combined, uh, are the platform vendors that stand to benefit from vendor consolidation within cyber security.

Um, and when you look at the, the outlook for this industry as a whole, given some of the macroeconomic headwinds that we have talked a lot about, whether it be tariffs, whether it be consumer sentiment, how much of that is feeding through to enterprise spending if, if any at this point?

So there, there, there's a lot of ways you can sort of look at this question, right? The first one you can do is, you can look at surveys of CIOs and CFOs to think about spending priorities in the upcoming years, and you'll see AI and cyber security as number one and number two in, in, in, in many of those surveys. So that's another thing to keep in mind is that cyber security spending is relatively insulated. It's probably one of the last things that gets on the chopping block for a company to look, uh, that's looking to reduce enterprise spending. At the same time, I think, uh, customers are looking for, um, if they can get the similar amount of coverage, cyber security coverage for a cheaper price via bundling, which CrowdStrike, Palo Alto, all these companies have been trying to get investor or customers interested in, um, uh, they're definitely going to go for that, especially in, in this, in this tight macro.

Malik, you know, final question here, CEO Nikesh Arora, his, his seven-year anniversary, work anniversary coming up here, Malik. He was, he was named CEO on June 1st, 2018. I'm just curious, you know the company very well, how would you grade his time there as CEO? What, what's he done right?

I think he's, I think he's done a terrific job. Um, and I'm not just saying this because he may be listening, but uh, uh, he's, he's done, he's done a really good job, really, uh, playing into vendor consolidation and, uh, you know, setting Palo Alto up to be that sort of, not a one-stop shop. So I don't think that's possible in security, but certainly have Palo Alto's fingers in many different cyber security pies. And again, if you look at, you know, the seven-year stock chart of Palo Alto, you'll tell, you, you can see how the stock market has graded Nikesh's performance.

Okay, thanks so much. Appreciate it.

Thank you.