Why Palo Alto Networks Stock Keeps Going Down

Palo Alto Networks (PANW 8.84%) stock took its investors on a rollercoaster ride this week, surging Tuesday morning amid rumors of a collaboration between artificial intelligence giant Anthropic and cybersecurity companies such as Palo Alto — then crashing yesterday on worries these rumors may prove false.

Palo Alto continues to slide in Friday morning trading, down 7.1% as of 10 a.m. ET.

Will Claude Mythos save Palo Alto — or kill it?

Here’s the basic story of what’s happening, as retold by Benchmark analyst Yi Fu Lee: On Tuesday, April 7, Anthropic finally unveiled its Claude Mythos general-purpose language model, demonstrating the LLM’s “significant capabilities in identifying security vulnerabilities” — i.e., cybersecurity.

Investors had been worrying about Mythos for weeks. But on the date of the reveal, the story changed to one of how Anthropic’s Mythos could be good news for Palo Alto, by (1) highlighting the threat to cyber from AI-enabled hackers, at the same time as potential use of Mythos by companies like Palo Alto would expand demand for cybersecurity.

What it means for Palo Alto Networks

Lee believes Mythos’s arrival will grow the annual market for cybersecurity products by about $1 billion annually. Investors, both yesterday and today, seem less certain about that — but honestly, nobody knows how this will play out.

What we do know is this:

Palo Alto already does nearly $10 billion in annual business, so a $1 billion-a-year bump in the total addressable market — not all of which will go to Palo Alto — won’t be a world-changing event for Palo Alto, if it even happens. Meanwhile, Palo Alto stock’s selling for about 100 times earnings, with annual earnings growth projected in the low teens.

I see a whole lot more risk than reward in this one.