Palo Alto Networks, one of the cybersecurity leaders, reports its fourth-quarter earnings on the heels of a wild year for the company and the share price.

The stock had been caught up in the negative narrative that was plaguing the enterprise software industry: that artificial intelligence would upend the business, cutting into sales and profitability. From its then-record high in October, the stock fell 38% through February.

But then the realization came that AI was not a headwind for security software. To the contrary, AI enables traditional attacks to be carried out by automated agents at a scale and speed that no human can match.

Just recently, OpenAI agents in a testing environment went rogue and coordinated to hack their way into not only OpenAI's internal systems, but the network of Hugging Face, an AI model repository. The attacks began in May and were not uncovered until July. That all happened without any malicious intent by people, but there is an urgent need to protect corporate networks from bad actors who have AI hacking agents at their disposal.

As enterprises begin to deploy agents on their own networks to automate business processes, the agents themselves become an attack surface. At last month's Def Con security convention in Las Vegas, there were several demonstrations of simple "prompt injection" attacks which turn benign agents into malevolent ones. The need to prevent prompt injections is growing.

Palo Alto makes hardware firewalls and offers a range of security software, which the company has been adding to through acquisitions. It's well placed to be one of the key vendors in this fight against AI attacks. The stock is up 174% from that February low, and trades at 89 times next year's projected earnings.

For the fourth quarter, Palo Alto's results will be heavily impacted by two acquisitions that closed this winter, both bringing crucial AI services to the company's platform. CyberArk cost $21 billion, mostly in shares, and was an identity security company. Chonosphere provided monitoring tools-"observability"-and came with a $3 billion price tag, mostly cash. Identity and observability are expected to be the important tools to lock down agents.

When the company reports earnings after the bell today, Wall Street analysts expect fourth-quarter sales to rise 32% to $3.4 billion, but that includes a significant contribution from the acquisitions. Last quarter saw 31% sales growth, but excluding CyberArk and Chronosphere, that came down to 14%.

Adjusted earnings per share are impacted by the dilution from the 112 million shares which were issued to CyberArk shareholders. Adjusted EPS are expected at 98 cents, just a 3 cent rise from last year.

This report will cap off a transitional year for Palo Alto, and so fiscal 2027 guidance, should the company offer any, will be key to understanding the market reaction. Wall Street expects adjusted EPS of $4.10 on sales of $13.8 billion.