WEBVTT - Palo Alto Networks CEO Talks Earnings, Acquiring Chronosphere

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news. Let's stick into earnings

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<v Speaker 1>a little bit more now, but this time is Palo

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<v Speaker 1>Alto Networks, a cybersecurity firm reporting sixteen percent increase in revenue.

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<v Speaker 1>That was yesterday, but it also announced a three point

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<v Speaker 1>four billion dollar plan to acquire a Chronosphere. It's a

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<v Speaker 1>boost to its AI enabled cybersecurity offerings. Paral Alto Network

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<v Speaker 1>CEO Nikesha Urora joins us for more now. And look,

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<v Speaker 1>your stock is lower because many are saying it's an

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<v Speaker 1>M and a well digestion risk that maybe is being

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<v Speaker 1>faced here. You put twenty five billion dollar offer into

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<v Speaker 1>cyber Arc now another M and a piece. Why does

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<v Speaker 1>it work for you?

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<v Speaker 2>Well, Carol, I'm nice to see you.

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<v Speaker 3>This is our twenty eighth acquisition in about seven and

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<v Speaker 3>a half years, and we've demonstrated to the market that

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<v Speaker 3>we have been able to establish our business and adjacent

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<v Speaker 3>markets for the last seven years by being attention to

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<v Speaker 3>the market, looking at where the puck is going, understanding

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<v Speaker 3>what is important for our customers. And I think Coronasphare,

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<v Speaker 3>which is our latest acquisition, fits right.

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<v Speaker 2>Banks make in the middle where the market's going.

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<v Speaker 3>If you look at what you guys were talking about

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<v Speaker 3>before this, You're talking about.

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<v Speaker 2>In Vidia AMD.

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<v Speaker 3>Eventually, all this compute power is going to result in

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<v Speaker 3>people building faster and more and more relevant applications the

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<v Speaker 3>end consumer or enterprises. All those applications have to be

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<v Speaker 3>observed and make sure they don't have problems or go down.

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<v Speaker 2>And that's what Coronos Fair does.

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<v Speaker 3>It observes applications and infrastructure, make sure you have nine

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<v Speaker 3>nine point nine percent uptime, and then we are going

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<v Speaker 3>to combine that with our agentic capabilities to make sure

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<v Speaker 3>agents will go fix that if they go down. So

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<v Speaker 3>I think it's a phenomenal opportunity going forward. That's fine,

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<v Speaker 3>the stock will recover. I think investors are beginning to

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<v Speaker 3>understand the story, all right.

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<v Speaker 1>I mean, obviously has an outperformed price target two fifty,

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<v Speaker 1>well above where you are, and they're saying, look, you're

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<v Speaker 1>a top TIS software vendor seeing AI tailwinds as it

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<v Speaker 1>grows ahead of industry pairs. But how does observability take

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<v Speaker 1>you into a whole new ecosystem. We are now fighting

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<v Speaker 1>data job dina trace, Why is that the right total

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<v Speaker 1>addressable market for you? As well as security?

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<v Speaker 2>Look observability is a space.

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<v Speaker 3>As I said, as we get more and more AI deployed,

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<v Speaker 3>we're going to need more and more real time capability,

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<v Speaker 3>real time capability and actions, real time capability and applications.

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<v Speaker 3>Real time capabilities required ninety nine point nine nine percent availability,

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<v Speaker 3>which means you have to make sure your infrastructure is

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<v Speaker 3>always up and running. If it has a problem, you

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<v Speaker 3>should be able to fix it right away, sort of

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<v Speaker 3>similar to security. We also have to watch security on

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<v Speaker 3>a constant basis, make sure something happens, we fix it

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<v Speaker 3>right away. So actually, over the last ten to fifteen years,

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<v Speaker 3>if we look, there are companies who tried to play

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<v Speaker 3>in both spaces, and.

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<v Speaker 2>Typically that ended up really well in one side not

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<v Speaker 2>the other. We've not made a foray into.

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<v Speaker 3>Observability because we never thought we could build it organically.

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<v Speaker 3>We don't have the skill set. But we went out

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<v Speaker 3>looking for data pipelining. We found Cronospare. Curnis Fair has

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<v Speaker 3>some of the best engineers in the space. Observably suffers

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<v Speaker 3>from two problems. One is too expensive and two it

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<v Speaker 3>doesn't scale well well. Curnis Fair solve that problem. It

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<v Speaker 3>is two and a half times cheaper than anybody else

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<v Speaker 3>on the market. And two it gets scale to giggle

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<v Speaker 3>what size in terms of what.

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<v Speaker 2>Is needed from an AI perspective.

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<v Speaker 3>So we think the time is right, the asset is right,

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<v Speaker 3>and the opportunity is right.

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<v Speaker 4>Taken in aggregate, that is an astonishing amount of M

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<v Speaker 4>and A. Is there any reason why you can't just

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<v Speaker 4>keep going and keep using M and A as the

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<v Speaker 4>tool to position the platform where you want it in.

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<v Speaker 3>Akesh look, in the last seven and a half years,

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<v Speaker 3>i'd say thirty percent of our opportunity has been created

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<v Speaker 3>by strategic and timely M and A. Seventy percent of

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<v Speaker 3>our opportunity has been on organic innovation as a company.

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<v Speaker 2>Now, that's worked out really well for us.

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<v Speaker 3>Even now we've announced two big deals, cyber Arc and Chronosware. Collectively,

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<v Speaker 3>we're going to spend slightly hundred and thirty billion dollars.

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<v Speaker 3>But that gave us the confidence to increase our targets

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<v Speaker 3>for ARR in five thirty five billion dollars. If I

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<v Speaker 3>can go spend thirty billion dollars and buy five billion

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<v Speaker 3>dollars of AR five years, so now I do that

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<v Speaker 3>every day.

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<v Speaker 1>Let's go back to the fund mentals where you are

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<v Speaker 1>already RPO, in particular remaining performance obligation growth. It was

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<v Speaker 1>strong in the court to just announce. But when you're

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<v Speaker 1>pushing out to fiscal twenty twenty six, our own intelligence,

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<v Speaker 1>ANEL is just a little bit worried about the slowdown

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<v Speaker 1>in growth.

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<v Speaker 2>Are you worried about it?

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<v Speaker 3>You know, when I started seven and a half, he's

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<v Speaker 3>go a two billion dollar company. RPR nows fifteen and

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<v Speaker 3>a half billion dollars, set a target of twenty billion

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<v Speaker 3>dollars in ARR. Those are big numbers. So I think

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<v Speaker 3>part of what people fail to understand is absolute numbers

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<v Speaker 3>get bigger and bigger on the margin growth rates change.

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<v Speaker 3>But I think from a pero capability perspective, if we

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<v Speaker 3>start doing twenty billion dollars in ARR, we'll be generating

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<v Speaker 3>ten or fifteen billion dollars a free.

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<v Speaker 2>Cast flow year.

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<v Speaker 3>That's a far cry from where we started at a

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<v Speaker 3>few hundred dollars seven years ago. So I think you

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<v Speaker 3>have to look at it from a slightly multi year perspective.

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<v Speaker 2>From that perspective, we think we're well positioned.

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<v Speaker 3>We think this is going to be the largest cybersecurity

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<v Speaker 3>company in the world, and we have aspirations to take

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<v Speaker 3>it and double the triple for where we.

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<v Speaker 2>Are right now.

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<v Speaker 4>Any given technology company might use a dozen several dozen

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<v Speaker 4>different tools across cyber and AI, right and your pitch

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<v Speaker 4>is you just put everything in one place, you know,

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<v Speaker 4>offer a suite of things in one place. Is that

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<v Speaker 4>strategy working to convince software companies in particular that it's

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<v Speaker 4>better it's come to paramount to networks then do business

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<v Speaker 4>with a handful of different players.

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<v Speaker 3>Yes, of course it is working. We call that platformization

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<v Speaker 3>at Power. So we continue to at fifty to seventy

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<v Speaker 3>five customers every quarter and sometimes more in about the

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<v Speaker 3>fourth quarter. But I think more importantly look at the

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<v Speaker 3>evolution of technology. Almost every industry, vertical and technology has

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<v Speaker 3>started that way. From the application perspective, people had fifteen

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<v Speaker 3>or twenty different vendors that you did the entire solutioning

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<v Speaker 3>for CRM. Today we see single vendors platforms in CRM,

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<v Speaker 3>same thing in HR. When I used to work in

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<v Speaker 3>programming twenty five years ago, we used to have multiple

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<v Speaker 3>applications that solved the problem. Today there's one platform, same

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<v Speaker 3>thing in ITSM.

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<v Speaker 2>I do.

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<v Speaker 3>The same thing is coming to cyber security. Cybersecurity is

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<v Speaker 3>a twenty year old industry. It usually it takes thirty

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<v Speaker 3>thirty five years to build that platform capability in industries

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<v Speaker 3>and make them become ubiculous. So I think we're the

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<v Speaker 3>right place right time. We are seeing that move towards platformization.

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<v Speaker 3>If you look at what happened most recently a few

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<v Speaker 3>weeks ago, there was an attack using an AILLLM.

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<v Speaker 2>That means the I was used.

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<v Speaker 3>By bad actors to go and attack customers, and they

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<v Speaker 3>were able to do it in real time. You have

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<v Speaker 3>to have real time capability on your side to defend yourself.

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<v Speaker 3>The only way deliver real time capability in your side

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<v Speaker 3>is to not have a mess of forty or fifty products.

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<v Speaker 3>The idea is to have them all be consolidated, running

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<v Speaker 3>on a singular data layer, and building agents that go

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<v Speaker 3>and defend you, just the way bad actors are using

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<v Speaker 3>agents can attack you.

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<v Speaker 4>In case, we just very briefly dropped into negative territory

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<v Speaker 4>on the Nasdaq one hundred, having been up at one

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<v Speaker 4>point two point four percent, And the story this morning

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<v Speaker 4>when I woke up was that in Vidia's forecast, it's

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<v Speaker 4>print with soothing fears that we have about an AI

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<v Speaker 4>mark hit bubble. This might be the last chance I

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<v Speaker 4>get for a while, So I'm going to do it.

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<v Speaker 4>Give me the nikeshur nikesh Aurora.

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<v Speaker 2>Cool. Are we or are we not?

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<v Speaker 4>In an AI bubble?

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<v Speaker 2>Look, we are in an exuberant phase of AI.

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<v Speaker 3>I think it is the fastest technology evolution we've seen

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<v Speaker 3>in our lifetimes, and I don't think it's about to stop.

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<v Speaker 3>You can see huge bets being made by almost everybody.

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<v Speaker 3>I think there's a lot of promise you are seeing

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<v Speaker 3>the consumer case. I think we underestimate how much the

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<v Speaker 3>entire consumer landscape is changing, and it's going to change.

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<v Speaker 2>In the next twenty four months.

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<v Speaker 3>The idea of having applications where we have to go

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<v Speaker 3>to all the work ourselves is going to become our gane.

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<v Speaker 3>You know, you'll have agents that will go book your Uber,

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<v Speaker 3>We'll go get your food from door dash, we'll book

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<v Speaker 3>your airline ticket.

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<v Speaker 2>We can only imagine a future like that. We all

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<v Speaker 2>want a future like that.

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<v Speaker 3>That's going to require significant amounts of compute at the end.

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<v Speaker 3>So I think, from an infrastructure perspective in history, if

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<v Speaker 3>you've never had a situation where we built infrastructure get

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<v Speaker 3>consumed if we want it more so, I don't think

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<v Speaker 3>the infrastructure problem is a real problem. Whether the demand

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<v Speaker 3>comes right away or it comes an ear or two later.

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<v Speaker 3>I think that time will tell. But from a demand

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<v Speaker 3>from a technology fit, we're there. From an AI perspective,

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<v Speaker 3>enterprises are slightly lagging that consumer adoption, but I think

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<v Speaker 3>they're actually working hard to get there. You know, every

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<v Speaker 3>time we do some AI experimentation internally, we come back

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<v Speaker 3>and say, Wow, that is cool. I wish we could

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<v Speaker 3>deploy that faster across the entire enterprise. So I think

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<v Speaker 3>the demand's going to come. The timing is to you guys.

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<v Speaker 3>You guys follow that on a daily basis.

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<v Speaker 2>We don't.

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<v Speaker 3>We put our heads down and see where am I

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<v Speaker 3>going to be three to five years from now? How

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<v Speaker 3>do I position power out a network in that context?

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<v Speaker 3>And are we going to plot our way there? And

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<v Speaker 3>if we think that AI opportunity is going to create

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<v Speaker 3>explosive opportunity for almost every technology subsector and even cybersecurity.

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<v Speaker 4>Palo Alto Network CEO Nikesha Rora, it's great to have

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<v Speaker 4>you back on Bloomberg Tech