⚠ The Landlord Sells Locks TooModerate threat

Palo Alto Networks (PANW) — threat to the moat

The clouds that sell Palo Alto's firewall in their marketplaces also build security into their own platforms.

The companies that sell Palo Alto's cloud firewall in their marketplaces also sell security of their own. Palo Alto names Alphabet and Microsoft among the "large companies that incorporate security or observability features in their products"1, and its results release lists "competition from cloud infrastructure providers offering native security capabilities" as a risk2.

Growth, fiscal 2026 (%)29%Software firewall ARR, Q417%Network and AI Security revenueQ4 FY2026 earnings call, Motley Fool transcript
The cloud firewall outgrows the platform it belongs to.

The cloud provider has advantages Palo Alto cannot match inside its own cloud: its security is built in, often included in the price, and configured with the same tools as everything else. A customer that runs only on one cloud may find the native option good enough.

Palo Alto's answer is that most large customers use several clouds and want one set of rules across all of them. That argument is strongest for the largest customers and weakest for smaller ones committed to a single provider.

Microsoft's own security business is described on its page in this collection. What matters here is the asymmetry: Palo Alto lists Alphabet and Microsoft as rivals in its 10-K3 and sells through their marketplaces in the same document4. A partner that is also a competitor can change the terms of the partnership.

So far the tenants are staying: software firewall ARR grew 29% in the fourth quarter5. Growth falling below 15% would mean the landlords' own locks are taking the tenants.

References
  1. ReportedPalo Alto names Alphabet and Microsoft among the "large companies that incorporate security or observability features in their products", and its results release lists "competition from cloud infrastructure providers offering native security capabilities" as a risk.
    Palo Alto Networks Form 10-K for fiscal 2026 (year ended 31 July 2026) - Item 1 business and Item 7 MD&A: platforms, customers, channels, employees, revenue by type and geography. — FY2026 · publ. 10 September 2026 · source ↗
  2. ReportedPalo Alto names Alphabet and Microsoft among the "large companies that incorporate security or observability features in their products", and its results release lists "competition from cloud infrastructure providers offering native security capabilities" as a risk.
    Palo Alto Networks fourth-quarter and fiscal 2026 results release, Form 8-K exhibit 99.1 - income statement, non-GAAP reconciliation, balance sheet, cash flow, Next-Generation Security ARR, remaining performance obligations and fiscal 2027 guidance - fourth-quarter and full-year results, balance sheet and cash flow. — Q4 FY2026 · publ. 1 September 2026 · source ↗
  3. ReportedWhat matters here is the asymmetry: Palo Alto lists Alphabet and Microsoft as rivals in its 10-K and sells through their marketplaces in the same document.
    Palo Alto Networks Form 10-K for fiscal 2026 (year ended 31 July 2026) - Item 1 business and Item 7 MD&A: platforms, customers, channels, employees, revenue by type and geography. — FY2026 · publ. 10 September 2026 · source ↗
  4. ReportedWhat matters here is the asymmetry: Palo Alto lists Alphabet and Microsoft as rivals in its 10-K and sells through their marketplaces in the same document.
    Palo Alto Networks Form 10-K for fiscal 2026 (year ended 31 July 2026) - Item 1 business and Item 7 MD&A: platforms, customers, channels, employees, revenue by type and geography. — FY2026 · publ. 10 September 2026 · source ↗
  5. ReportedSo far the tenants are staying: software firewall ARR grew 29% in the fourth quarter.
    Palo Alto Networks fourth-quarter fiscal 2026 earnings call transcript (Motley Fool) - platform revenue, platformized cohort retention, large deals and fiscal 2027 modelling points. — Q4 FY2026 · publ. 1 September 2026 · source ↗
Sources
Generated September 26, 2026