Trump administration has proposed a $1.23 billion trim to cybersecurity spending across civilian agencies in its budget proposal for fiscal 2026 – a 10% decline compared to 2024 levels.
Reduced spending could mean fewer or delayed contracts, lower margins, and slower adoption of advanced security platforms, all of which could prove a major headwind for the likes of Palo Alto Network Inc (NASDAQ: PANW) that view federal contracts as a key driver of future growth.
Still, Evercore ISI analyst Peter Levine says PANW’s federal business isn’t really at risk under the Trump administration. Palo Alto Networks stock is up roughly 5.0% in premarket today on a strong Q4 release.
Why Palo Alto Networks’ federal business not at risk?
While federal budget cuts have raised alarms across the cybersecurity sector, Levine downplayed the impact on Palo Alto Networks.
“The federal business for Palo is less than four or five percent,” he said in a CNBC interview today. Levine dubbed PANW “one of the largest vendors within the federal government” – but said for the Nasdaq-listed firm, it’s a low single digit business only.
More importantly, Palo Alto Networks’ core business – networking and firewall infrastructure – is deeply embedded and unlikely to be displaced. “You’re not going to rip out these firewalls,” the analyst noted, emphasizing the company’s resilience.
Even amid federal transformation efforts, Palo Alto Networks shares is among “best positioned” names to outperform in the public sector, he added.
CyberArk acquisition is a big positive for PANW shares
Levine also addressed skepticism surrounding Palo Alto Networks’ recent acquisition of identity security firm CyberArk, calling it a strategic move that strengthens the company’s AI security stack.
“Identity has become central to modern cyber-attacks,” he explained. CyberArk governs who has access to sensitive models, while Palo Alto Networks controls what users can do once inside.
“Together, you’re taking networking, cloud, and endpoint data – all these attributions combined tell a powerful story around securing AI.”
With AI adoption accelerating and new vulnerabilities emerging, the integration of privileged access management fills a critical gap in Palo Alto Networks’ platform.
Levine believes the deal gives PANW stock “the full stack” needed to lead in next-gen security.
Palo Alto Networks stock rallies on a strong Q4 print
Last night, the cybersecurity giant reported a market-beating Q4 and issued encouraging guidance for the future, which Levine dubbed a “very healthy print” in the CNBC interview.
PANW benefitted from its entrenched enterprise brand in the fourth quarter, which confirm “cyber is still mission critical.” The firm’s positioning around AI workflows and transformation initiatives helped drive momentum, the analyst noted.
With geopolitical tensions and threat landscapes intensifying – Palo Alto Networks Inc’s platform consolidation strategy and expanding capabilities, now bolstered by CyberArk, appear to be sitting well with customers and investors alike.
Note that PANW shares do not currently pay a dividend, though.
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