Cybersecurity company Palo Alto Networks reports its third-quarter earnings on Tuesday afternoon as it spends the year integrating acquired companies. Like its nearest competitor, CrowdStrike, Palo Alto is building a suite of security services for the artificial-intelligence age to augment its platform.
This year the company is likely to see outsized sales growth from the acquisitions, but reduced profit margin and share dilution should weigh on earnings. Wall Street analysts expect third-quarter adjusted earnings per share of 80 cents, flat with last year, on sales of $2.9 billion, up 29%.
Key among the company's five AI-related acquisitions from the past year is identity-security company CyberArk, which Palo Alto agreed to acquire in a cash-and-stock deal announced last year that valued CyberArk at about $25 billion. The merger closed in February.
AI brings a host of new security issues to enterprise networks. AI enables traditional cyberattacks to be carried out at greater scale and speed, and networks need to be hardened to address the threat. But the bigger issue may be AI agents, software that can use AI models to accomplish a complex series of tasks from simple conversational commands.
In order to be useful, agents must be granted access to private data, web browsers, email, and other external communications. That also turns them into a new attack surface, with emerging classes of exploits such as prompt injection.
One of the primary ways experts hope to lock down agents is through identity security. People on an enterprise network have their identities managed so that they have the privileges they need, and are blocked from everything else. For example, reporters at Barron's have access to editorial tools but are prevented from using financial software. If predictions are correct, agents will soon outnumber people on enterprise networks, and they will need strict identity governance.
Agent identity security came into even sharper focus after last week's earnings report from Okta, one of the leaders in identity security. Sales upside potential from its agent identity software drove the stock up 30% the next day. CyberArk has similar software, announced late last year. CyberArk's software will be integrated into Palo Alto's broad platform of security services.