Anticipated Valuations: Two Stocks Poised to Surpass Palo Alto Networks' Worth within Two Years
Palo Alto Networks, often abbreviated as PANW, is one of the leading players in the cybersecurity industry. Its stock has seen remarkable growth over the past two years, rising 157%, surpassing the 78% gain of the Nasdaq-100 Technology Sector index. With a market cap of $123 billion, the company is setting its sights on even greater heights.
The driving force behind Palo Alto's growth is the increasing adoption of AI in the cybersecurity market. The company's revenue pipeline has been boosted by the growing use of its AI-specific tools. This was evident in the 20% year-over-year growth in Palo Alto's remaining performance obligations (RPO) in Q1 of fiscal 2025, which ended on Oct. 31, 2024. This growth was faster than the 14% increase in the company's revenue to $2.1 billion during the same period.
Analysts anticipate that Palo Alto's earnings growth will accelerate in the coming years. Expectations call for a 13% increase in the next fiscal year, followed by a 17% boost in the following year. While Palo Alto's growth prospects are promising, two other companies are hot on its heels, poised to deliver faster growth in the near future.
1. Marvell Technology
Marvell Technology, with a market cap of $108 billion, is not far behind Palo Alto. What sets Marvell apart is its projected faster earnings growth, which could potentially surpass Palo Alto's market cap.
Consensus estimates predict that Marvell's earnings will surge by an impressive 79% in fiscal 2026 to $2.79 per share, following a moderate 3% increase in fiscal 2025 to $1.56 per share. This growth is attributed to the central role of AI in Marvell's operations. The company's data center business has thrived in recent quarters, primarily due to strong demand for its AI-specific processors and networking chips.
Marvell's data center revenue skyrocketed an impressive 98% year-over-year in Q3 of fiscal 2025 to $1.1 billion. The company initially anticipated $1.5 billion in AI-related revenue for fiscal 2025, but it now believes it will significantly exceed this target. Strong relationships with major cloud computing providers like Amazon have played a significant role in this success.
In addition, Marvell has secured contracts to make custom AI chips for a third customer in 2025, suggesting that its AI revenue could surge even further in the coming years. The company's data center business could continue its ascent beyond the next couple of fiscal years due to the vast opportunity available in the AI custom chip market.
Marvell's forward earnings multiple of 46 is also more attractive compared to Palo Alto's forward earnings multiple of 55, making it a more appealing investment option.
2. Lam Research
Semiconductor manufacturing equipment supplier Lam Research, with a market cap of nearly $109 billion, is another company that poses a threat to Palo Alto's dominance. Despite a challenging past year, which saw the company's shares rise just 3%, a recovery in semiconductor equipment spending could propel Lam to new heights.
Industry association SEMI forecasts that sales of semiconductor manufacturing equipment will increase by 6.5% in 2024 to $113 billion, followed by a 7% rise in 2025 to $121 billion, and a substantial 15% jump in 2026 to $139 billion. Lam's sales are expected to rebound during this period, which, combined with its relatively lower valuation, could push its market cap above Palo Alto's.
Lam's revenue in its most recent fiscal year (ending June 30, 2024) dipped 14% from the previous year to $14.9 billion. However, Q1 of fiscal 2025 saw a significant improvement, with revenue increasing 20% year-over-year to $4.17 billion, and non-GAAP earnings rising 25% year-over-year to $0.86 per share. Lam's guidance of $4.3 billion for the current quarter would bring its revenue for the first half of the fiscal year to $8.47 billion, a 17% increase from the same period last year.
Consensus estimates project Lam to close the current fiscal year with $17.3 billion in revenue, an increase of 16% from the previous one, and its earnings are expected to rise by 16% to $3.53 per share. Lavish growth prospects and a more attractive valuation make Lam an intriguing investment option.
In conclusion, while Palo Alto Networks remains a dominant player in the cybersecurity market, Marvell Technology and Lam Research pose significant threats due to strong earnings growth prospects and attractive valuations. Investors should carefully consider these factors and their individual investment strategies before making any decisions.
Investors interested in the technology sector might also consider Marvell Technology, with its projected earnings growth of 79% in fiscal 2026. This growth is driven by the company's strong performance in its data center business, primarily due to high demand for AI-specific processors and networking chips.
In the realm of semiconductor manufacturing equipment, Lam Research, with a market cap nearly equal to Palo Alto's, is another compelling investment opportunity. Its market cap could surpass Palo Alto's if semiconductor equipment spending recovers, as forecasted by industry association SEMI. This expected growth, along with Lam's relatively lower valuation, makes it an attractive investment option. In both cases, these companies' focus on AI and the technology industry make them viable alternatives for those looking to invest in the growing field of finance and technology.
