Palo Alto Networks Surpasses $5 Billion in Next-Generation Security ARR, Reaches Inflection Point in NGS Story
Nikesh Arora, Chairman and Chief Executive Officer of Palo Alto Networks, expressed his delight with the Q3 results on the company's conference call. The progress made in its platformization strategy is becoming increasingly clear, as organizations aspire to simplify and modernize their security architectures in the age of AI with data at the center.
One notable highlight from the quarter is that Palo Alto Networks crossed an important milestone of $5 billion in next-generation security ARR (annual recurring revenue), up 34% year-over-year. This delivers industry-leading growth at scale, demonstrating the company's success in its platformization strategy and AI-powered innovations.
The net new ARR growth also showed positive momentum in the third quarter, with a growing majority of incremental growth this year derived from Palo Alto Networks' AI-powered XSIAM (Extended Security Operations Management), Sassy (Cloud-Managed Firewall), and software firewalls. These offerings have large TAMs (total addressable markets) that should help underpin confidence in the sustainability of the company's NGS ARR growth as it marches towards its $15 billion ARR target for FY '30.
On the profitability front, Q3 continues to show the leverage in Palo Alto Networks' business model. The company drives efficiencies from its scale and benefits from economies of larger, multiproduct deals in addition to continuing to drive AI efficiency benefits slowly and steadily. This generates healthy free cash flow while continuing to manage its transition from a billing focus to RPO (Revenue-Recognized Over Period).
The urgency to adopt AI is omnipresent among Palo Alto Networks' customers. It is no longer a choice but a strategic imperative for every customer, as the risk of an action is too high. This has created a higher sense of urgency amongst customers to undertake their technology transformation, which requires a fundamental change in infrastructure.
As enterprises reaccelerate their investment in cloud migrations, this is good news for cybersecurity. The need to protect the underlying data models and infrastructure will become paramount as AI becomes more deeply integrated into businesses. Over the next year, an estimated $300 billion will be spent on AI infrastructure alone, providing a significant opportunity for Palo Alto Networks to grow its business.
The company's commitment to innovation and platformization is evident in its recent developments. With XSIAM, Sassy, and software firewalls at the forefront of growth, Palo Alto Networks is well-positioned to achieve its $15 billion ARR target by FY '30.
As Palo Alto Networks continues to make progress on its platformization strategy and drive innovation through AI-powered solutions, it's clear that the company has reached an inflection point in its next-generation security story. With a strong track record of growth and profitability, investors should feel confident about the sustainability of its NGS ARR growth.
In conclusion, Palo Alto Networks' Q3 2025 earnings demonstrate the company's success in delivering industry-leading growth at scale. Its commitment to innovation and platformization has set the pace for its industry, making it an attractive investment opportunity for those looking to capitalize on the growing demand for cybersecurity solutions in the age of AI.
