Dan Niles talks about Palo Alto Networks (PANW) ahead of its earnings after the close on Tuesday amid a stark sell-off in software stocks. He believes Palo Alto will weather the storm but warns valuations will serve as a headwind if growth projections come in less than stellar. Dan turns to the greater AI trade and talks about why Nvidia (NVDA) and Broadcom (AVGO) both serve critical roles in Big Tech development. Tom White offers an example options trade for Palo Alto.
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0:22Look, I mean, are the markets, Dan, do you think going to be able to look past what we're seeing as far as the AI trade is concerned today when we hear from Palo Alto?
We're back on Morning Trade Live. Palo Alto Networks will be in the spotlight this afternoon when the cybersecurity firm reports second-quarter earnings. Analysts are expecting adjusted earnings per share of $0.93 on revenue of $2.58 billion. Shares, though, are down nearly 10% in 2026. We are under pressure today by the tune of 3.5% at 161.14.
Let's go inside out on Palo Alto Networks and the larger tech space. Joining us now, very pleased to say, is Dan Niles, who is the founder and portfolio manager at Niles Investment Management. Thanks so much for your time today. Look, I mean, are the markets, Dan, do you think going to be able to look past what we're seeing as far as the AI trade is concerned today when we hear from Palo Alto?
Yeah, I don't think so. I mean, here's the thing. It'll be interesting to see how Palo Alto reacts to earnings because what you've seen so far during earnings season is even if software companies have had a good quarter, good guidance, that's not what investors are worried about. What they're worried about is how their business is going to look, you know, 3 to 5 years from now in the sense that is AI going to take over large portions of what they do. Now, and remember, software has been in favor really since you could argue Marc Andreessen wrote that piece for the Wall Street Journal in 2011 saying software is eating the world. And for the last 14 years, it's been a one-way trade higher for that sector. And so, it's got, I think it's going to take some time. You're not going to solve what AI is disrupting or not in 5 months, but I do think security and then databases are the two more resilient sectors within that. But in the near term, it's going to be kind of caught up with everything else, I think.
Yeah, it certainly seems like it's getting caught up. And I mean, it's just like a sell-off by association with some of these names. But what about Palo Alto Networks in particular, given that it's been so acquisitive, of course, with CyberArk and Chronosphere? What do we anticipate to hear on that front?
Well, I mean, I think you're going to hear them being very bullish as they always are. But, you know, if you look at it from a valuation perspective, you can say, "Well, the stock is trading at 40 times and it's growing revenue in the mid-teens including these acquisitions." So, are they doing these acquisitions to be defensive and that growth is really slowing? Or is this really putting them on the offensive? And in this market, you know, people are shooting first, asking questions later, and it has to make you somewhat nervous on why are they doing what they're doing.
Yeah, I've been reading about how some analysts do think that the AI disruption fears are perhaps a convenient headline, but there have been some of the valuations and bubble concerns sort of under the surface as well. I'm just wondering with Nvidia, the next Mag 7 name off the rank, what you anticipate to hear from it given that it's been interesting listening to these hyperscalers and the capex indigestion we've seen in these markets. Yet, chips have been rallying on the expectation that they're going to benefit from all this money. So, what can we expect to hear from that name?
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