Speaker 1: Bloomberg Audio Studios, podcasts, radio news. Let's stick into earnings
Speaker 1: a little bit more now, but this time is Palo
Speaker 1: Alto Networks, a cybersecurity firm reporting sixteen percent increase in revenue.
Speaker 1: That was yesterday, but it also announced a three point
Speaker 1: four billion dollar plan to acquire a Chronosphere. It's a
Speaker 1: boost to its AI enabled cybersecurity offerings. Paral Alto Network
Speaker 1: CEO Nikesha Urora joins us for more now. And look,
Speaker 1: your stock is lower because many are saying it's an
Speaker 1: M and a well digestion risk that maybe is being
Speaker 1: faced here. You put twenty five billion dollar offer into
Speaker 1: cyber Arc now another M and a piece. Why does
Speaker 1: it work for you?
Speaker 2: Well, Carol, I'm nice to see you.
Speaker 3: This is our twenty eighth acquisition in about seven and
Speaker 3: a half years, and we've demonstrated to the market that
Speaker 3: we have been able to establish our business and adjacent
Speaker 3: markets for the last seven years by being attention to
Speaker 3: the market, looking at where the puck is going, understanding
Speaker 3: what is important for our customers. And I think Coronasphare,
Speaker 3: which is our latest acquisition, fits right.
Speaker 2: Banks make in the middle where the market's going.
Speaker 3: If you look at what you guys were talking about
Speaker 3: before this, You're talking about.
Speaker 2: In Vidia AMD.
Speaker 3: Eventually, all this compute power is going to result in
Speaker 3: people building faster and more and more relevant applications the
Speaker 3: end consumer or enterprises. All those applications have to be
Speaker 3: observed and make sure they don't have problems or go down.
Speaker 2: And that's what Coronos Fair does.
Speaker 3: It observes applications and infrastructure, make sure you have nine
Speaker 3: nine point nine percent uptime, and then we are going
Speaker 3: to combine that with our agentic capabilities to make sure
Speaker 3: agents will go fix that if they go down. So
Speaker 3: I think it's a phenomenal opportunity going forward. That's fine,
Speaker 3: the stock will recover. I think investors are beginning to
Speaker 3: understand the story, all right.
Speaker 1: I mean, obviously has an outperformed price target two fifty,
Speaker 1: well above where you are, and they're saying, look, you're
Speaker 1: a top TIS software vendor seeing AI tailwinds as it
Speaker 1: grows ahead of industry pairs. But how does observability take
Speaker 1: you into a whole new ecosystem. We are now fighting
Speaker 1: data job dina trace, Why is that the right total
Speaker 1: addressable market for you? As well as security?
Speaker 2: Look observability is a space.
Speaker 3: As I said, as we get more and more AI deployed,
Speaker 3: we're going to need more and more real time capability,
Speaker 3: real time capability and actions, real time capability and applications.
Speaker 3: Real time capabilities required ninety nine point nine nine percent availability,
Speaker 3: which means you have to make sure your infrastructure is
Speaker 3: always up and running. If it has a problem, you
Speaker 3: should be able to fix it right away, sort of
Speaker 3: similar to security. We also have to watch security on
Speaker 3: a constant basis, make sure something happens, we fix it
Speaker 3: right away. So actually, over the last ten to fifteen years,
Speaker 3: if we look, there are companies who tried to play
Speaker 3: in both spaces, and.
Speaker 2: Typically that ended up really well in one side not
Speaker 2: the other. We've not made a foray into.
Speaker 3: Observability because we never thought we could build it organically.
Speaker 3: We don't have the skill set. But we went out
Speaker 3: looking for data pipelining. We found Cronospare. Curnis Fair has
Speaker 3: some of the best engineers in the space. Observably suffers
Speaker 3: from two problems. One is too expensive and two it
Speaker 3: doesn't scale well well. Curnis Fair solve that problem. It
Speaker 3: is two and a half times cheaper than anybody else
Speaker 3: on the market. And two it gets scale to giggle
Speaker 3: what size in terms of what.
Speaker 2: Is needed from an AI perspective.
Speaker 3: So we think the time is right, the asset is right,
Speaker 3: and the opportunity is right.
Speaker 4: Taken in aggregate, that is an astonishing amount of M
Speaker 4: and A. Is there any reason why you can't just
Speaker 4: keep going and keep using M and A as the
Speaker 4: tool to position the platform where you want it in.
Speaker 3: Akesh look, in the last seven and a half years,
Speaker 3: i'd say thirty percent of our opportunity has been created
Speaker 3: by strategic and timely M and A. Seventy percent of
Speaker 3: our opportunity has been on organic innovation as a company.
Speaker 2: Now, that's worked out really well for us.
Speaker 3: Even now we've announced two big deals, cyber Arc and Chronosware. Collectively,
Speaker 3: we're going to spend slightly hundred and thirty billion dollars.
Speaker 3: But that gave us the confidence to increase our targets
Speaker 3: for ARR in five thirty five billion dollars. If I
Speaker 3: can go spend thirty billion dollars and buy five billion
Speaker 3: dollars of AR five years, so now I do that
Speaker 3: every day.
Speaker 1: Let's go back to the fund mentals where you are
Speaker 1: already RPO, in particular remaining performance obligation growth. It was
Speaker 1: strong in the court to just announce. But when you're
Speaker 1: pushing out to fiscal twenty twenty six, our own intelligence,
Speaker 1: ANEL is just a little bit worried about the slowdown
Speaker 1: in growth.
Speaker 2: Are you worried about it?
Speaker 3: You know, when I started seven and a half, he's
Speaker 3: go a two billion dollar company. RPR nows fifteen and
Speaker 3: a half billion dollars, set a target of twenty billion
Speaker 3: dollars in ARR. Those are big numbers. So I think
Speaker 3: part of what people fail to understand is absolute numbers
Speaker 3: get bigger and bigger on the margin growth rates change.
Speaker 3: But I think from a pero capability perspective, if we
Speaker 3: start doing twenty billion dollars in ARR, we'll be generating
Speaker 3: ten or fifteen billion dollars a free.
Speaker 2: Cast flow year.
Speaker 3: That's a far cry from where we started at a
Speaker 3: few hundred dollars seven years ago. So I think you
Speaker 3: have to look at it from a slightly multi year perspective.
Speaker 2: From that perspective, we think we're well positioned.
Speaker 3: We think this is going to be the largest cybersecurity
Speaker 3: company in the world, and we have aspirations to take
Speaker 3: it and double the triple for where we.
Speaker 2: Are right now.
Speaker 4: Any given technology company might use a dozen several dozen
Speaker 4: different tools across cyber and AI, right and your pitch
Speaker 4: is you just put everything in one place, you know,
Speaker 4: offer a suite of things in one place. Is that
Speaker 4: strategy working to convince software companies in particular that it's
Speaker 4: better it's come to paramount to networks then do business
Speaker 4: with a handful of different players.
Speaker 3: Yes, of course it is working. We call that platformization
Speaker 3: at Power. So we continue to at fifty to seventy
Speaker 3: five customers every quarter and sometimes more in about the
Speaker 3: fourth quarter. But I think more importantly look at the
Speaker 3: evolution of technology. Almost every industry, vertical and technology has
Speaker 3: started that way. From the application perspective, people had fifteen
Speaker 3: or twenty different vendors that you did the entire solutioning
Speaker 3: for CRM. Today we see single vendors platforms in CRM,
Speaker 3: same thing in HR. When I used to work in
Speaker 3: programming twenty five years ago, we used to have multiple
Speaker 3: applications that solved the problem. Today there's one platform, same
Speaker 3: thing in ITSM.
Speaker 2: I do.
Speaker 3: The same thing is coming to cyber security. Cybersecurity is
Speaker 3: a twenty year old industry. It usually it takes thirty
Speaker 3: thirty five years to build that platform capability in industries
Speaker 3: and make them become ubiculous. So I think we're the
Speaker 3: right place right time. We are seeing that move towards platformization.
Speaker 3: If you look at what happened most recently a few
Speaker 3: weeks ago, there was an attack using an AILLLM.
Speaker 2: That means the I was used.
Speaker 3: By bad actors to go and attack customers, and they
Speaker 3: were able to do it in real time. You have
Speaker 3: to have real time capability on your side to defend yourself.
Speaker 3: The only way deliver real time capability in your side
Speaker 3: is to not have a mess of forty or fifty products.
Speaker 3: The idea is to have them all be consolidated, running
Speaker 3: on a singular data layer, and building agents that go
Speaker 3: and defend you, just the way bad actors are using
Speaker 3: agents can attack you.
Speaker 4: In case, we just very briefly dropped into negative territory
Speaker 4: on the Nasdaq one hundred, having been up at one
Speaker 4: point two point four percent, And the story this morning
Speaker 4: when I woke up was that in Vidia's forecast, it's
Speaker 4: print with soothing fears that we have about an AI
Speaker 4: mark hit bubble. This might be the last chance I
Speaker 4: get for a while, So I'm going to do it.
Speaker 4: Give me the nikeshur nikesh Aurora.
Speaker 2: Cool. Are we or are we not?
Speaker 4: In an AI bubble?
Speaker 2: Look, we are in an exuberant phase of AI.
Speaker 3: I think it is the fastest technology evolution we've seen
Speaker 3: in our lifetimes, and I don't think it's about to stop.
Speaker 3: You can see huge bets being made by almost everybody.
Speaker 3: I think there's a lot of promise you are seeing
Speaker 3: the consumer case. I think we underestimate how much the
Speaker 3: entire consumer landscape is changing, and it's going to change.
Speaker 2: In the next twenty four months.
Speaker 3: The idea of having applications where we have to go
Speaker 3: to all the work ourselves is going to become our gane.
Speaker 3: You know, you'll have agents that will go book your Uber,
Speaker 3: We'll go get your food from door dash, we'll book
Speaker 3: your airline ticket.
Speaker 2: We can only imagine a future like that. We all
Speaker 2: want a future like that.
Speaker 3: That's going to require significant amounts of compute at the end.
Speaker 3: So I think, from an infrastructure perspective in history, if
Speaker 3: you've never had a situation where we built infrastructure get
Speaker 3: consumed if we want it more so, I don't think
Speaker 3: the infrastructure problem is a real problem. Whether the demand
Speaker 3: comes right away or it comes an ear or two later.
Speaker 3: I think that time will tell. But from a demand
Speaker 3: from a technology fit, we're there. From an AI perspective,
Speaker 3: enterprises are slightly lagging that consumer adoption, but I think
Speaker 3: they're actually working hard to get there. You know, every
Speaker 3: time we do some AI experimentation internally, we come back
Speaker 3: and say, Wow, that is cool. I wish we could
Speaker 3: deploy that faster across the entire enterprise. So I think
Speaker 3: the demand's going to come. The timing is to you guys.
Speaker 3: You guys follow that on a daily basis.
Speaker 2: We don't.
Speaker 3: We put our heads down and see where am I
Speaker 3: going to be three to five years from now? How
Speaker 3: do I position power out a network in that context?
Speaker 3: And are we going to plot our way there? And
Speaker 3: if we think that AI opportunity is going to create
Speaker 3: explosive opportunity for almost every technology subsector and even cybersecurity.
Speaker 4: Palo Alto Network CEO Nikesha Rora, it's great to have
Speaker 4: you back on Bloomberg Tech