Palo Alto Networks (PANW -0.20%) stands as a formidable leader within the cybersecurity sector, showcasing its prowess as a lucrative investment option over the last two years. The company has witnessed a remarkable increase in share prices by an impressive 157%, significantly outperforming the Nasdaq-100 Technology Sector index, which recorded gains of 78% during the same timeframe. This growth trajectory underlines the company’s robust market positioning and strategic initiatives aimed at capitalizing on the burgeoning demand for cybersecurity solutions.
As a result of this impressive performance, Palo Alto Networks has achieved a market capitalization of $123 billion. Looking ahead, the stock appears poised for further appreciation, driven primarily by the rapid integration of artificial intelligence (AI) into the cybersecurity landscape. This technological shift not only enhances the company’s offerings but also positions it favorably in a competitive market, enabling it to harness new opportunities for growth and innovation.
The company’s revenue pipeline reflects a positive trend as clients increasingly utilize its AI-driven tools. Recent data illustrates a remarkable 20% year-over-year increase in Palo Alto’s remaining performance obligations (RPO) during the first quarter of fiscal 2025 (ending on October 31, 2024), reaching an impressive $12.6 billion. This growth outpaced the company’s revenue increase of 14%, totaling $2.1 billion, demonstrating strong demand for its advanced solutions. RPO, representing the total value of unfulfilled contracts, signals promising future revenues and solidifies expectations for ongoing success.
Analysts project an acceleration in the company’s earnings growth, estimating an increase of 13% in the upcoming fiscal year, followed by a further 17% growth in the subsequent year. These optimistic forecasts highlight the confidence in Palo Alto’s strategic direction and its ability to adapt to evolving market demands, particularly in the AI-enhanced cybersecurity domain.
Data by YCharts.
Despite Palo Alto’s strong performance, two other companies are closely trailing in terms of market capitalization and possess the potential to outpace Palo Alto in growth. It is essential to examine these organizations closely and explore the reasons they might surpass Palo Alto’s market cap within the next two years.
1. Accelerating Growth Potential of Marvell Technology
With a market cap of $108 billion, Marvell Technology (MRVL 0.68%) is rapidly closing the gap with Palo Alto Networks. Analysts forecast that Marvell is set to experience significantly higher earnings growth than Palo Alto, which could enable it to surpass Palo Alto’s market capitalization in the near future.
Consensus projections suggest that Marvell’s earnings are expected to grow by an impressive 79% in fiscal year 2026, starting next month, reaching $2.79 per share, in stark contrast to the modest 3% growth seen in fiscal 2025 ($1.56 per share). Moreover, Marvell is anticipated to sustain this momentum into fiscal 2027, with an estimated 33% increase in earnings per share, showcasing its strong growth trajectory.
Data by YCharts.
The pivotal role of artificial intelligence in driving Marvell’s earnings growth cannot be overstated. The surge in demand for its custom AI processors and networking chips has propelled the company’s data center business to new heights in recent quarters. Notably, Marvell’s data center revenue skyrocketed by 98% year-over-year during the third quarter of fiscal 2025 (ending November 2, 2024), amounting to a substantial $1.1 billion.
Initially, Marvell anticipated generating $1.5 billion in AI-related revenue for fiscal 2025; however, it now projects that it will significantly exceed this target. This optimistic outlook is bolstered by Marvell’s strengthened partnership with Amazon, which has been leveraging the company’s designs to create custom AI processors to optimize its operations.
Furthermore, Marvell is set to begin manufacturing custom AI chips for an additional client in 2025, reinforcing its growth strategy. This positions Marvell to potentially surpass its AI revenue forecast of $2.5 billion for fiscal 2026. With a vast market opportunity in the AI custom chip sector, Marvell’s data center business is likely to thrive well beyond the coming fiscal years.
From a valuation perspective, Marvell appears more attractive, boasting a forward earnings multiple of 46 compared to Palo Alto’s forward earnings multiple of 55. This combination of anticipated robust earnings growth and a more favorable valuation framework positions Marvell as a strong contender to evolve into a more valuable entity than Palo Alto Networks.
2. Lucrative Growth Opportunities for Lam Research
Another contender in the race for market capitalization is Lam Research (LRCX -2.43%), a leading supplier of semiconductor manufacturing equipment, currently valued at nearly $109 billion. Despite a challenging year for Lam Research investors, with shares climbing only 3% over the past year, the outlook for the upcoming years appears much brighter.
A projected recovery in semiconductor equipment spending is anticipated to catalyze significant growth for Lam Research. According to industry association SEMI, sales of semiconductor manufacturing equipment are expected to rise by 6.5% in 2024 to $113 billion, with a further increase of 7% in 2025, reaching $121 billion, and a remarkable 15% surge in 2026 to $139 billion.
This anticipated uptick in spending on semiconductor equipment over the next two years is likely to positively impact both Lam’s revenues and earnings. Notably, Lam’s revenue in its most recent fiscal year (ending June 30, 2024) experienced a decline of 14% year-over-year to $14.9 billion. However, a turnaround was evident in the first quarter of fiscal 2025 (ending September 29, 2024), where the company reported a 20% increase in revenue from the previous year, totaling $4.17 billion.
Lam’s non-GAAP (adjusted) earnings surged by 25% year-over-year to $0.86 per share. The company’s guidance for the current quarter indicates revenue of $4.3 billion, projecting a total revenue of $8.47 billion for the first half of the fiscal year, reflecting a 17% increase from the same period last year.
Analysts expect Lam to conclude the current fiscal year with $17.3 billion in revenue, representing a 16% increase over the previous year. Additionally, earnings per share are projected to rise by 16% to $3.53. Importantly, Lam’s earnings are expected to continue expanding in the mid-teens over the next couple of fiscal years, establishing a solid growth trajectory.
LRCX EPS Estimates for Current Fiscal Year data by YCharts
The market is likely to reward Lam’s anticipated strong earnings growth with a more favorable valuation. Currently, the stock trades at 26 times trailing earnings and 22 times forward earnings, making it considerably less expensive than Palo Alto. Given that Lam’s earnings growth outlook aligns closely with Palo Alto’s, it presents a more attractive investment opportunity considering its relative valuation.
Moreover, if Lam Research begins trading in line with the tech-heavy Nasdaq-100 index’s earnings multiple of 32 in a couple of years due to improving growth prospects, the stock could experience substantial appreciation, potentially surpassing Palo Alto’s market capitalization.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon and Lam Research. The Motley Fool recommends Marvell Technology and Palo Alto Networks. The Motley Fool has a disclosure policy.
