Chapter 1: What is the main topic discussed in this episode?
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Let's dig into earnings a little bit more now, but this time it's Palo Alto Networks, a cybersecurity firm reporting 16% increase in revenue. That was yesterday, but it also announced a $3.4 billion plan to acquire Chronosphere. It's a boost to its AI-enabled cybersecurity offerings. Palo Alto Networks CEO Nikesh Arora joins us for more now.
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Chapter 2: What recent acquisition did Palo Alto Networks announce?
If I can go spend $30 billion and buy $5 billion of AR five years from now, I do that every day.
Let's go back to the fundamentals of where you are already. RPO in particular, remaining performance obligation growth. It was strong in the quarter just announced, but when you're pushing out to fiscal 2026, our own intelligence analysts just a little bit worried about the slowdown in growth. Are you worried about it?
You know, when I started 7.5 years ago, we were a $2 billion company. Well, our peer right now is $15.5 billion. We set a target of $20 billion in ARR. Those are big numbers. So I think part of what people fail to understand is absolute numbers get bigger and bigger. On the margin, growth rates change, but I think from a capability perspective, if we start doing $20 billion in ARR,
Chapter 3: How does Chronosphere enhance Palo Alto's AI capabilities?
we'll be generating $10 or $15 billion of free cash flow a year. That's a far cry from where we started at a few hundred million dollars seven years ago. I think you have to look at it from a slightly multi-year perspective. From that perspective, we think we're well-positioned. We think this is going to be the largest cybersecurity company in the world.
We have aspirations to take it and double or triple it from where we are.
Right now, any given technology company might use a dozen, several dozen different tools across cyber and AI, right? And your pitch is you just put everything in one place, offer a suite of things in one place. Is that strategy working to convince software companies in particular that it's better to come to Palo Alto Networks than do business with a handful of different players?
Yes, of course, it is working. We call that platformization at Palo Alto. We continue to add 50 to 75 customers every quarter and sometimes more in about the fourth quarter. But I think more importantly, if you look at the evolution of technology, almost every industry vertical in technology has started that way from the application perspective. People had 15 or 20 different vendors.
Chapter 4: What is the significance of M&A for Palo Alto Networks?
did the entire solutioning for CRM. Today, we see single vendors, platforms in CRM. Same thing in HR. When I used to work in programming 25 years ago, we used to have multiple applications that solved the problem. Today, there's one platform. Same thing in ITSM. I think the same thing is coming to cybersecurity. Cybersecurity is a 20-year-old industry.
It usually takes 30, 35 years to build that platform capability in industries and make them become ubiquitous. I think we're at the right place, right time. We are seeing that move towards platformization. If you look at what happened most recently, a few weeks ago, there was an attack using an AI LLM.
That means AI was used by bad actors to go and attack customers, and they were able to do it in real time. You have to have real-time capability on your side to defend yourself. The only way to deliver real-time capability on your side is to not have a mess of 40 or 50 products.
The idea is to have them all be consolidated, running on a singular data layer, and building agents that go and defend you just the way bad actors are using agents to come attack you.
Nikesh, we just very briefly dropped into negative territory on the NASDAQ 100, having been up at 1.2.4%. And the story this morning when I woke up was that NVIDIA's forecast, its print, was soothing fears that we have about an AI market bubble. This might be the last chance I get for a while, so I'm going to do it. Give me the Nikesh Aurora call. Are we or are we not in an AI bubble?
Look, we are in an exuberant phase of AI. I think it is the fastest technology evolution we've seen in our lifetimes, and I don't think it's about to stop. You can see huge bets being made by almost everybody. I think there is a lot of promise. You are seeing the consumer case.
I think we underestimate how much the entire consumer landscape is changing and is going to change in the next 24 months. The idea of having applications where we have to go do all the work ourselves is gonna become arcane. You'll have agents that'll go book your Uber, will go get you your food from DoorDash, We'll book your airline ticket. We can all imagine a future like that.
We all want a future like that. That's going to require significant amounts of compute at the end. I think from an infrastructure perspective, in history, we've never had a situation where we built infrastructure, it didn't get consumed, and we wanted more. I don't think the infrastructure problem is a real problem.
Whether the demand comes right away or it comes an year or two later, I think that time will tell. but from a demand, from a technology fit, we're there. From an AI perspective, enterprises are slightly lagging that consumer adoption, but I think they're actually working hard to get there. Every time we do some AI experimentation internally, we come back and say, wow, That is cool.
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