Best Stocks: A cybersecurity giant with a red hot AI business and shares poised for a breakout

CNBC

a day ago

(This is The Best Stocks in the Market , brought to you by Josh Brown and Sean Russo of Ritholtz Wealth Management.) Josh — We've written about two cybersecurity giants in our Best Stocks column in recent weeks, CrowdStrike and Zscaler, both of which remain on the list and represent solid leadership within the software industry group. If you've been making money on those names, you'll be delighted to hear that we've got another write-up in the group. When Palo Alto Networks (PANW) hit the list last week, Sean was pumped to get the opportunity to talk about it. Palo Alto is a 20-year old company that was added to the S & P 500 in 2023. It is currently the largest cybersecurity stock in America with a $130 billion market cap, just ahead of CrowdStrike. With Palo Alto, investors get three businesses in one: Strata is their network security platform while Prisma secures the cloud. And then there is Cortex, the AI and automation business, which is currently on fire. Last week CEO Nikesh Arora, one of the most respected executives in Silicon Valley, announced a consolidation of Prisma under the Cortex brand in order to underscore the importance of AI within the company. Speaking at the Bank of America Global Technology Conference on June 3rd, Arora reaffirmed Palo Alto's target to double the business over the next five years. This is a strong stock in a strong sector. Sean's going to lay out the backdrop for you and then share some stuff about why this name is acting so well. Best stock spotlight: Palo Alto Networks Inc (PANW) On the list since: 6/6/2025 Sean — Tech is increasingly becoming the engine of this market. Tariffs may be dominating the headlines, but tech has held its ground, continuing its relative strength that we've seen over the past decade. Via Factset, first-quarter earnings reported by the Mag 7 exceeded estimates by 14.9%, compared to 8.2% for all S & P 500 companies. The Mag 7's actual earnings grew 27.7% from the same period a year ago. Alphabet, Amazon, and Nvidia were among the top 5 contributors to earnings growth for the S & P 500 in Q1. Within the Mag 7, the software-oriented names have outperformed the hardware/discretionary names: The top 2 performers YTD are Meta up 20% and Microsoft up 13%, while the bottom 2 performers are Apple down 19% and Tesla down 18%. Within tech, software is one of the best-performing industries. The iShares Expanded Tech-Software Sector ETF (IGV) , a popular Software ETF, is up 7% YTD and up 33% over the past year, compared to the Invesco QQQ Trust (QQQ) up 4% YTD and up 12% over the past year. Looking at all software-classified stocks within the S & P 500, 90% are currently trading above their 50-day moving average, and 68% are above their 200-day moving average. These stocks sit a median of 9% below their 52-week highs and have a median Relative Strength Index of 58. In comparison, the QQQs show slightly weaker breadth: 85% of its constituents are above their 50-day moving average and 63% are above their 200-day. The Qs are a median 13% below 52-week highs, with a median RSI of 59. This indicates that while both groups are exhibiting strength, Software stocks within the S & P 500 are showing slightly better technical positioning relative to the broader tech-heavy index. Software is the best-in-breed of an already high-performing tech sector. On our list, software makes up the most populous industry with 9 companies: ANSS , CDNS , CRWD , INTU , MSFT , PANW , PLTR , ROP , and ZS . Major breakout? PANW was added to the list late last week. Palo Alto Networks is a platform-based cybersecurity firm focused on network security, cloud security, and general security operations with over 80k enterprise customers. This is PANW's quarterly gross profit since inception, up and to the right: As of PANW's latest earnings report, the company reported $5 billion in annualized recurring revenue (ARR) from its next-generation security (NGS) offerings — a 34% YoY increase. The company expects this momentum to continue, projecting $5.52 billion to $5.57 billion in ARR for Q4, representing 31–32% growth. This strong performance is being driven by demand for AI-powered security solutions, SASE, and software firewalls. The company is also seeing deep traction with large enterprises: 130 customers now generate over $5 million in ARR, and 44 bring in over $10 million. Management's strategy is to have 60–70% of ARR come from these "platformized" clients, supporting long-term scalability and revenue durability. According to management, with this growth trajectory and customer engagement, Palo Alto remains confident in its path toward a $15 billion ARR target by fiscal 2030. (data via Quartr) The stock just recently bounced off its 50- and 200-day moving average. If it can get to the $200 range, we could be in for a major breakout, joining an elite software industry thus far in 2025. Risk management Josh — That bounce Sean is referring to happened exactly where the bulls needed it to. After PANW reported earnings on May 20th, it gapped lower but the buyers stepped up at the $182-$185 level. They bought it at the 200-day and it never closed below. I'd keep it simple and watch for a close below to tell me something's changed. As far as an entry is concerned, a true technician would wait for the breakout above $200 and watch for convincing volume before starting a position. The risk of anticipating the breakout is more chop below that level and potentially being stopped out. 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