PANW · Q2 2026 Earnings

Cautious

Palo Alto Networks

Reported February 17, 2026

30-second summary

Palo Alto delivered $2.59B revenue (+15% YoY) and $1.03 non-GAAP EPS, with NGS ARR of $6.3B (+33% YoY) crushing the $6.11–6.14B prior guide. But the FY26 reset is the story: revenue raised $775M at midpoint (+7.4%) to absorb CyberArk and Chronosphere, while non-GAAP EPS was cut from $3.80–3.90 to $3.65–3.70 (-4%), operating margin guide pulled down 100bps to 28.5–29.0%, and FCF margin guide lowered from 38–39% to 37%. The acquisitions are diluting the profitability glide path faster than last quarter's framing implied.

Headline numbers

EPS

Q2 FY2026

$1.03

+9.6% vs est.

Revenue

Q2 FY2026

$2.59B

+15.0% YoY

+0.5% vs est.

Gross margin

Q2 FY2026

73.6%

Operating margin

Q2 FY2026

15.3%

Key financials

Q2 FY2026

Metric	Q2 FY2026	YoY	Q1 FY2026	QoQ
Revenue	$2.59B	+15.0%	$2.47B	+4.9%
EPS	$1.03	—	$0.93	+10.8%
Gross margin	73.6%	—	74.2%	-60bps
Operating margin	15.3%	—	12.5%	+280bps

Guidance

Guidance is issued for both next quarter and the full year. Both may appear below.

Actuals vs prior guidance

Metric	Period	Prior guide	Actual	Δ	Result
Revenue	Q2 FY2026	$2.57B to $2.59B	$2.594B	in-line	Met
EPS (non-GAAP)	Q2 FY2026	$0.93 to $0.95	$1.03	+0.08 to +0.10 above guide	Beat
Next-Generation Security ARR	Q2 FY2026	$6.11B to $6.14B (28% YoY)	$6.3B (33% YoY)	+0.16B to +0.19B above guide; +5 points YoY growth above guide	Beat
Remaining Performance Obligation	Q2 FY2026	$15.75B to $15.85B (21-22% YoY)	$16.0B (23% YoY)	+0.15B to +0.25B above guide; +1 point YoY growth above guide	Beat
Non-GAAP Operating Margin	Q2 FY2026	29.5% to 30.0%	30.3%	+0.3 points above guide	Beat
Revenue YoY Growth	Q2 FY2026	14% to 15%	15%	at high end of guide	Beat

Changes to prior guidance

Metric	Period	Prior guide	New guide	Δ	Result
EPS (non-GAAP)	FY2026	$3.80 to $3.90	$3.65 to $3.70	-$0.15 to -$0.20 (midpoint -$0.15)	Lowered
Revenue	FY2026	$10.50B to $10.54B	$11.28B to $11.31B	+$0.74B to +$0.81B (midpoint +$0.775B, +7.4%)	Raised
Next-Generation Security ARR	FY2026	$7.00B to $7.10B (26-27% YoY)	$8.52B to $8.62B (53-54% YoY)	+$1.42B to +$1.62B (midpoint +$1.52B, +21.5%); YoY growth accelerated +26-28 points	Raised
Remaining Performance Obligation	FY2026	$18.6B to $18.7B (17-18% YoY)	$20.2B to $20.3B (28% YoY)	+$1.5B to +$1.7B (midpoint +$1.6B, +8.6%); YoY growth accelerated +10-11 points	Raised
Non-GAAP Operating Margin	FY2026	29.5% to 30.0%	28.5% to 29.0%	-100 to -150 basis points	Lowered
Adjusted Free Cash Flow Margin	FY2026	38% to 39%	—	—	Lowered

Segment performance

Q2 FY2026

Segment	Q2 FY2026
Product Revenue	$514M

Platform metrics

Q2 FY2026

Segment	Q2 FY2026	YoY
Next-Generation Security ARR	$6.3B	+33.0%
Next-Generation Security ARR	$6.3B	—
Next-Generation Security ARR YoY Growth	33%	—
Remaining Performance Obligation	$16.0B	—
Remaining Performance Obligation YoY Growth	23%	—
Total Revenue YoY Growth	15%	—

Profitability

Q2 FY2026

Segment	Q2 FY2026
Non-GAAP Operating Margin	30.3%
Gross Margin	73.6%

Management tone

Q3 FY25 platformization-as-thesis → Q1 FY26 platform-plus-observability-plus-identity → Q2 FY26 absorbing the bill

Last quarter management raised the FY30 NGS ARR target to $20B with a clean product bridge and put a 37% FY26 FCF margin floor in writing. This quarter that 37% floor became the actual guide, not a floor — and the EPS guide was cut 4.5%, the operating margin guide cut 100bps. The framing in the press release leans on "continued strength in platformizations, a trend that is accelerating due to AI," but the numbers say management is absorbing more near-term dilution than the Q1 narrative implied. The signal: integration costs are landing earlier and heavier than guided three months ago, and the "deploying the same playbook of operational excellence across CyberArk and Chronosphere" line reads as expectation-setting for a multi-quarter margin reset.

The Q&A confidence remained high on demand (Nikesh: "Faster customer adoption of AI security than cloud security adoption previously"), and Nikesh did acknowledge enterprise AI adoption is running slower than consumer adoption — a small tonal moderation versus the Q1 framing of AI as a present-tense tailwind, even as Prisma AIRS customer count tripled to over 100 in a single quarter.

The CyberArk/Chronosphere economics disclosure in Q&A (CyberArk $1.2B NGS ARR, Chronosphere $200M, total M&A contribution to FY26 provided) is more transparent than typical for Palo Alto on M&A. Management is preempting the organic-vs-inorganic decomposition question because they know the FY26 NGS ARR raise from $7.0B to $8.6B will be scrutinised as acquisition mathematics rather than organic acceleration. The transparency is a defensive move, not a confidence signal.

Q&A highlights

Rob Owens · Piper Sandler

Comparison of AI era to cloud cycle in 2018-2019. Is M&A the primary lever again, or does Palo Alto's starting position differ from the cloud cycle beginning?

Nikesh explained that cloud required refactoring security services and acquiring cloud security capabilities. AI era shows different dynamics: customers are consolidating vendors and platformizing rather than fragmenting. Seeing faster AI security adoption than cloud security adoption. Expects platformization and consistency to be key trends, not just M&A.

Best quarterly platformization numbers outside Q4 seasonalityFaster customer adoption of AI security (Prisma AIRS) than cloud security adoption previouslyTrend toward consolidation and platformization rather than point products

Brad Zelnick · Deutsche Bank

Will LLMs kill SOC/SIEM tools? How should we think about balance of opportunity vs. threat of LLMs doing traditional SOC functions?

LLMs are additive, not replacements. They excel at pattern recognition and data classification but fail on accuracy requirements (need 99.9% vs. current state). Security requires 100% accuracy, not 95%. Palo Alto creates proprietary domain-specific threat data LLMs cannot replicate. Every security company using AI as augmentation tool, not replacement.

LLMs useful for DLP data classification and pattern findingSecurity requires 99.9%+ accuracy; LLMs not yet at threat thresholdPalo Alto generates proprietary threat data and security logs LLMs cannot replace

Saket Kalia · Barclays

Joint pipeline opportunity with CyberArk. How does opportunity unfold? How much CyberArk ARR in FY2026?

Joint go-to-market plans underway with overlapping pipeline identified for next 3-6 months. Already seeing cross-selling momentum organically (CyberArk reps finding PALO opportunities). Systems currently manual integration but improving. CyberArk NGS ARR ~$1.2B as of December 2025; total M&A contribution to FY2026 guidance provided.

CyberArk NGS ARR $1.2 billion as of December 2025Chronosphere $200 million ARR contributionTotal M&A contribution to FY2026 provided for investor modeling3-6 month joint opportunity pipeline identified

Adam Tindall · Raymond James

Key attributes of Chronosphere nine-figure AI provider deal. Displacement, timing, rationale, pipeline outlook? Clarification on organic NGS ARR net new calculation.

Chronosphere displacing incumbent vendor; scalable architecture costs ~50% less than competitors. Six-month partnership with LLM provider passed technical hurdles. $200M ARR includes major LLM vendor portion with expected 6-12 month full transition. Organic NGS ARR roughly in line with consensus for Q3; full year reiterated.

Chronosphere costs approximately 50% less than incumbent observability vendorsNine-figure deal includes transition over 6-12 months from competing vendorPart of $200M Chronosphere ARR from major LLM providerOrganic NGS ARR in line with consensus; full year guidance reiterated

John DeFucci · Guggenheim

If AI is positive for security, when will it show up in numbers? Seems like AI security adoption is not yet reflected in results.

Nikesh drew analogy to cloud security adoption lag. Enterprise AI adoption lagged consumer by 2-3 years. Currently only coding apps seeing enterprise adoption (not resource-intensive on infrastructure). Prisma AIRS customer trajectory following XIM's early pattern. Waiting for infrastructure consumption from $600B data center buildout. Laying groundwork now for future AI security market.

Enterprise AI adoption lags consumer adoption significantlyOnly coding apps (Codex, Cursor, Cloud Code) seeing enterprise use currentlyPrisma AIRS customer trajectory similar to early XIM adoption pattern$600 billion data center buildout expected to drive future AI traffic

Answers to last quarter's watch list

NGS ARR organic growth ex-acquisitions — Q2 actuals of $6.3B beat the pre-acquisition guide of $6.11–6.14B by ~$190–220M and accelerated headline growth to 33% from the 28% guided. Per the CFO's prepared remarks, organic NGS ARR was up 28% year over year, matching the prior guide trajectory. The FY26 raise from $7.0B to $8.6B is almost entirely CyberArk ($1.2B) and Chronosphere ($200M), meaning organic acceleration is not the story. Status: Continue monitoring

Chronosphere standalone disclosure — management disclosed Chronosphere ARR at $200M, described as "well above our expectations," and confirmed the multi-year nine-figure expansion deal with a leading AI model provider. Status: Resolved positively

CyberArk close timing and day-one synergy specifics — CyberArk closed and contributed $1.2B NGS ARR as of December 2025. Joint go-to-market pipeline identified for the next 3-6 months; cross-selling already happening organically. Day-one accretion clearer than expected. Status: Resolved positively

Non-GAAP operating margin holding 30%+ — Q2 printed 30.3%, third consecutive quarter above 30%. But the FY26 guide was cut from 29.5–30.0% to 28.5–29.0%, implying margin compression in H2 below 30%. The Q2 print is favorable, but the forward guide flagged the dilution earlier than expected. Status: Resolved negatively

Adjusted FCF margin trajectory toward 37% floor — the 37% "floor" from last quarter is now the actual FY26 guide. The floor became the ceiling. Status: Resolved negatively

What to watch into next quarter

Organic NGS ARR ex-CyberArk/Chronosphere — Q3 guide of $7.94–7.96B (+56% YoY) is now heavily acquisition-loaded, with $1.47B of M&A contribution disclosed. Watch whether management continues to disclose the organic number cleanly or buries it in consolidated reporting.

Non-GAAP operating margin landing inside 28.5–29.0% FY guide — Q2 printed 30.3%; the cut FY26 guide implies H2 average around 27–28%. Watch whether Q3 prints below 30% (confirming the dilution is landing) or holds above (suggesting the FY guide is conservative).

Adjusted FCF margin print and full-year trajectory — FY26 guide cut to 37% flat. Watch whether Q3 FCF margin compresses meaningfully and whether the FY28 40%+ target is reaffirmed or quietly softened.

CyberArk and Chronosphere standalone ARR disclosure — the $1.2B and $200M figures came from Q&A. Watch whether management formalises this disclosure in the press release or pulls back to consolidated reporting (which would obscure organic deceleration).

Q3 EPS at $0.78–0.80 guide vs. Q2's $1.03 print — implies a 23–24% sequential EPS decline. Watch whether the actual matches the guide (confirming acquisition dilution is well-modeled) or undershoots (suggesting further integration drag).

Sources

Palo Alto Networks Q2 FY2026 earnings press release, filed via SEC EDGAR, February 17, 2026 — https://www.sec.gov/Archives/edgar/data/1327567/000132756726000003/ex991q226earningsrelease.htm
Palo Alto Networks Q2 FY2026 earnings call prepared remarks and Q&A (transcript excerpts as supplied)

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