Palo Alto Networks Inc at Citi TMT Conference Summary

The following is excerpted from the question-and-answer section of the transcript.

Question: Fatima Boolani - Citi Infrastructure Investments LLC - Analyst : The $120 billion market cap asset with $10 billion in revenue, largest pure-play cybersecurity vendor in the market and in the space, you naturally have a seat at every single large important organization in the world across verticals. So as -- probably not a fly on the wall, but with a lot of talking points sitting at these tables with these very large companies, what have you determined are and have been becoming the most common patterns and pain points and discussion threads on how some of your largest customers are tackling cyber hygiene against and in preparation for operationalizing an AI strategy? And I want to go back to something you said, there is a frantic AI spending frenzy right now, everyone's throwing spaghetti on the wall as to how AI is going to improve their business and work for their business. So your seat at that table, what implications does that have from a cyber hygiene perspective?

Question: Fatima Boolani - Citi Infrastructure Investments LLC - Analyst : It says seven. The source. There you go.

Question: Fatima Boolani - Citi Infrastructure Investments LLC - Analyst : Nikesh, what I'm hearing from you is -- and by the way, I think this is one of the most fervent debates in the investor community right now, specifically with the software investor community on who gets paid on AI. I mean, certainly there is a case to be made on the application software side where maybe there's not that much inspiration on that side right now, but certainly a ton of debate that's fomenting on who is actually going to get paid on AI. And what I'm hearing from you is that there is a lack of maturation, and frankly, critical mass of productionized AI environments for you to step in to wrap guardrails around that, right? So with that precursor and that preamble in mind, you said something interesting and I think I'm going to go on that thread. You always say interesting things so -- is there necessarily a prerequisite of an IT infrastructure and IT architectural evolution for you to then step in to provide the safeguards from an AI perspective? Like how we saw in COVID where the sassy transformations begot network transformations, which happened because of COVID, which created this impetus because all of us ended up working from home, right? So a long-winded way to ask you, is there a chicken and egg situation where we have to wait for the underlying infrastructure at most large organizations to evolve and modernize before AI security can be of a juggernaut on its own?

Question: Fatima Boolani - Citi Infrastructure Investments LLC - Analyst : Look at this cool AI app Citigroup has.

Question: Fatima Boolani - Citi Infrastructure Investments LLC - Analyst : I think you've had very strong and prescient views on the impact of AI. That's very apparent. You've also made very bold and early bets with Prompt AI, which was a deal you did earlier this summer.

Question: Fatima Boolani - Citi Infrastructure Investments LLC - Analyst : There you go. Yes. Tomato, tomato. What does Palo Alto's portfolio look like from an AI security perspective? And is the ultimate vision to own the entire AI value/supply chain from a protection standpoint?

Question: Fatima Boolani - Citi Infrastructure Investments LLC - Analyst : Dismay.

Question: Fatima Boolani - Citi Infrastructure Investments LLC - Analyst : Now imagine the very incipient and embryonic stage we are at with every single day we have these mammoth innovations coming out of the foundational model companies. And you alluded to Anthropic and they're around. So clearly a lot of value creation happening there. But how does that -- REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 04, 2025 / 4:00PM, PANW.OQ - Palo Alto Networks Inc at Citi TMT Conference

Question: Fatima Boolani - Citi Infrastructure Investments LLC - Analyst : And spending happening. How does an allocator of research and development capital around AI, AI security, and all of the niches that you talked about, how does that complicate or empower your R&D strategy where you might be chasing innovation that might prove to be a flash in the pan in six months or becomes commoditized very, very quickly because we're having these very shallow cycles, right? So how are you thinking about that? And ultimately, from a dollars and cents perspective, driving yield and leverage from your R&D investments because you're obviously trying to skate to where the puck is going with respect to AI.

Question: Fatima Boolani - Citi Infrastructure Investments LLC - Analyst : And what about the M&A process? Because you haven't been shy about being acquisitive in, again, very bleeding edge areas. I mean, you were --

Question: Fatima Boolani - Citi Infrastructure Investments LLC - Analyst : Oh, we'll get to that. Don't worry. You've definitely taken a very strong stance on acquiring bleeding edge assets to drive velocity around category creation and category absorption, right? So how does, again, the rate and pace of innovation in the broader AI industrial complex influence the way you think about M&A from here? Because the obsolescence -- again, to emphasize the fact that the obsolescence factor and risk factor is so much higher.

Question: Fatima Boolani - Citi Infrastructure Investments LLC - Analyst : I know investors like to -- and certainly I do as well, like to think about transformations with some historical precedent and analogs, right? So as you think about the evolution within the AI security space, both security for AI and AI for security, so with both those lenses, how much of what we saw in the cloud realm and cloud security realm where there was so much alphabet soup of CSPM, CWPP, CIPM, how much of that are you seeing repeated in this gold rush for AI security? And you said it yourself, right? We're going down the path of sprawl before we consolidate it. Again, how much -- how valid of an analog do you think that is?

Question: Fatima Boolani - Citi Infrastructure Investments LLC - Analyst : Well, speaking of credentials, we've got to talk about CyberArk.

Question: Fatima Boolani - Citi Infrastructure Investments LLC - Analyst : We'll come back to that. So it's actually refreshing to hear you're less hyperbolic about agentic AI, but in the context --

Question: Fatima Boolani - Citi Infrastructure Investments LLC - Analyst : It gets everyone all excited. There's so much sizzle, right? But let's get down to Brass Tacks. You announced your intention to acquire CyberArk this summer. By all accounts, it is your single, largest, most transformational transaction in your seven and change years at the company. Now, look, I can fully appreciate that you've bucked conventional wisdom time and time again, but I think there is a lot of trepidation on a number of different facets as to what this means for you. What bets are you making that CyberArk is better under the Palo Alto umbrella thean independent. So just help us understand what the bulls are maybe not bullish enough on and what the bears are totally getting wrong with a $25 billion check to CyberArk.

Question: Fatima Boolani - Citi Infrastructure Investments LLC - Analyst : There's more bears than bulls.

Question: Fatima Boolani - Citi Infrastructure Investments LLC - Analyst : Exactly.

Question: Fatima Boolani - Citi Infrastructure Investments LLC - Analyst : I don't know if you can stick --

Question: Fatima Boolani - Citi Infrastructure Investments LLC - Analyst : That's how we make market. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 04, 2025 / 4:00PM, PANW.OQ - Palo Alto Networks Inc at Citi TMT Conference

Question: Fatima Boolani - Citi Infrastructure Investments LLC - Analyst : I don't know if you're conspicuous in not mentioning this, but how does CyberArk advance the AI strategic roadmap and the agentic AI product roadmap? And maybe you can put Lee Klarich's hat on. You don't have a sideburn, so I don't know if you can fit the bill but --

Question: Fatima Boolani - Citi Infrastructure Investments LLC - Analyst : Let's talk about keeping the lights on at Palo Alto. And what I mean by that is all this AI opportunity and the secular tailwinds are great, but you're running a core business that is a stalwart, right? And I think one of the pieces that gets a lot of investors hot and bothered is the firewall franchise, right? There is absolutely cyclicality in that business. I think you've not been shy about expressing that. But in terms of the whole notion of the death of the firewall being greatly exaggerated, where are we on this curve of disillusionment after several years of atypical and aberrant trends? And when you think about, again, AI, what does that do to the medium and long-term trajectory of how all of us should think about the firewall business?

Question: Fatima Boolani - Citi Infrastructure Investments LLC - Analyst : I'm pretty happy.

Question: Fatima Boolani - Citi Infrastructure Investments LLC - Analyst : And what I'm happier about is using that as the linchpin to build what is a $5.6 billion next-generation security business. This was, by my count, a three-quarter -- $0.25 billion business seven years ago when you came.

Question: Fatima Boolani - Citi Infrastructure Investments LLC - Analyst : So virtually zero, we'll round down to zero. So sub $300 million, closer to zero. You've 20x to this business in the last seven years, in excess of 30% growth, pretty consistently. You've got goals to 2.5x this franchise in the next five years, right? And this is, as a reminder, completely on an organic footing. This is --

Question: Fatima Boolani - Citi Infrastructure Investments LLC - Analyst : Not including CyberArk. These are big numbers. So I want to get a better sense from you on the micro, the bottoms-up factors that are going to help you achieve these objectives that are going from roughly 6 to 15 in the next five years.

Question: Fatima Boolani - Citi Infrastructure Investments LLC - Analyst : Platformization was a new vocabulary word you coined about 1.5 years ago and really shook everybody up a little bit. So you got 18 months of platformization selling underneath your belt. The sales org is better, faster, stronger, more mature in articulating that vision to the customer. But I'm going to posit to you that does that potentially come as a double-edged sword? Because what you are championing is a lot of your very large customers continue to incrementally consolidate their product footprint with you, but also their risk footprint with you, right? So on the one hand, how are you mitigating some of the natural, maybe pushback you're getting on, well, I can't have one vendor do so much of my cybersecurity because that's a systemic risk issue just from a cyber hygiene perspective. And please feel free to disagree. And then secondarily, from a financial model perspective, these are potentially multi-year, very large deals that you're doing, right? $50 million, $100 million-plus deals. Just from a financial model volatility standpoint, how do you mitigate some of the effects of, hey, you're going to have some renewal cliffs happen every three to five years where you have these big, chunky customers due for $100 million-plus renewal? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 04, 2025 / 4:00PM, PANW.OQ - Palo Alto Networks Inc at Citi TMT Conference

Question: Fatima Boolani - Citi Infrastructure Investments LLC - Analyst : Nikesh, my last question for you is, three years ago, you made a prediction that you're going to be a $100 billion market cap company. that's absolutely come to fruition. And I think it's worth mentioning you were a $20 billion market cap company seven years ago. So I wouldn't be a tiger mom if I didn't ask you, where is the next $100 billion of market cap going to come from and what things absolutely have to go right to have that outcome? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 04, 2025 / 4:00PM, PANW.OQ - Palo Alto Networks Inc at Citi TMT Conference

Question: Fatima Boolani - Citi Infrastructure Investments LLC - Analyst : Well, we'll be watching from the sidelines.

Question: Fatima Boolani - Citi Infrastructure Investments LLC - Analyst : I like it. Make it [$300 billion].

Question: Fatima Boolani - Citi Infrastructure Investments LLC - Analyst : All right. Fantastic. And I think that's a great place to put a pin in it. Thank you so much for an awesome conversation.