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What do the latest cited results say?
The periods differ, so the reported growth rates are useful context, not a like-for-like comparison. Cloudflare’s fiscal year follows the calendar year; Palo Alto Networks’ fiscal year ends July 31.
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| Company and period | Revenue and growth | Profitability and cash flow | Forward outlook |
|---|---|---|---|
| Cloudflare, Q2 FY2026 ended June 30, 2026 | $696.1 million; up 36% year over year | 71.8% GAAP gross margin; GAAP operating loss of $205.7 million, or 29.6% of revenue; non-GAAP operating income of $96.1 million, or 13.8% of revenue; free cash flow of $56.4 million, or 8% of revenue | FY2026 revenue of $2.864–$2.870 billion; non-GAAP operating income of $443–$445 million; non-GAAP EPS of $1.25–$1.26 |
| Palo Alto Networks, FY2026 Q4 and full year | Q4 revenue of $3.410 billion; up 34% year over year | FY2026 adjusted free-cash-flow margin of 38.4% | FY2027 revenue of $14.10–$14.20 billion, implying 23%–24% growth; next-generation security ARR of $11.075–$11.175 billion, implying 22%–23% growth; non-GAAP operating margin of 29.5%; adjusted free-cash-flow margin of 38.0%; non-GAAP EPS of $4.16–$4.19 |
These are company-reported figures and guidance from the companies’ 2026 releases. Cloudflare’s quarter grew faster than Palo Alto Networks’ FY2026 Q4, but the periods are not identical. Palo Alto’s FY2027 guidance is forward-looking, not a result, and management says it reflects current market conditions and expectations.
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How should you read the profitability difference?
Cloudflare reports both a GAAP loss and adjusted operating income
Cloudflare’s Q2 FY2026 GAAP operating loss was $205.7 million, while its non-GAAP operating income was $96.1 million. Those measures are not interchangeable: non-GAAP results exclude items included in GAAP reporting. Its $56.4 million of reported free cash flow is a separate cash-flow measure, not proof of GAAP operating profitability.
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Palo Alto’s margins are guidance on a non-GAAP basis
Palo Alto Networks’ 29.5% FY2027 operating-margin and 38.0% adjusted free-cash-flow-margin figures are guidance, not realized FY2027 results. The company says its non-GAAP measures exclude share-based compensation and certain acquisition-related and other expenses. They should not be compared directly with Cloudflare’s GAAP operating loss as though both figures used the same accounting basis or period.
Which company has more scale?
Palo Alto Networks’ FY2027 revenue guidance of $14.10–$14.20 billion is roughly five times Cloudflare’s FY2026 revenue guidance of $2.864–$2.870 billion. That rough comparison uses different fiscal years and compares guidance with guidance; it illustrates scale, not relative value, expected returns or operational superiority. Palo Alto also guided to $11.075–$11.175 billion in next-generation security ARR for FY2027, a distinct recurring-revenue measure.
Rank #2
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Cloudflare ended Q2 FY2026 with $4,162.8 million in cash, cash equivalents and available-for-sale securities. The balance-sheet figure provides financial context but does not, by itself, settle how much investors should pay for the shares.
What could make either stock the better buy?
Cloudflare may fit a growth-oriented thesis
The case to investigate is whether its reported revenue growth can continue and translate into stronger GAAP economics over time. The company’s Q2 release also conveyed management’s view of demand: CEO Matthew Prince said, “As the web shifts to AI answer engines and agent-driven commerce, we are seeing a fundamental rewrite of the Internet for machine-to-machine traffic.” This is management’s thesis about future demand, not independent confirmation that it will materialize.
Rank #3
The trade-off visible in the cited quarter is rapid growth alongside a large GAAP operating loss. Cloudflare’s FY2026 outlook is non-GAAP for operating income and EPS, so it does not remove the need to assess the gap between adjusted and GAAP results.
Palo Alto Networks may fit a scale-and-margin thesis
The cited results and guidance show a much larger revenue base, continued guided growth, and positive FY2027 non-GAAP operating and adjusted free-cash-flow margins. The question for an investor is whether that expected growth and margin profile is already reflected in the share price, and whether the company can deliver its outlook.
Rank #4
What risks should you weigh?
Cloudflare’s disclosed risk areas
Its Q2 FY2026 Form 10-Q discusses risks that include continued losses; retaining customers and expanding product sales, including to larger customers; sales-cycle timing; rapid technological change, including AI; macroeconomic and geopolitical conditions; and convertible notes. These are risks identified by the company, not predictions that any one event will occur.
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The same filing says directors, executive officers, holders of more than 5% and their affiliates held 66.0% of voting power as of June 30, 2026; founders Matthew Prince and Michelle Zatlyn together held approximately 49.3%. It also describes proposed capitalization changes, including a possible non-voting Class C share class and a two-for-one split. Treat those as stated plans and risks in that filing, not completed changes unless confirmed in a later filing.
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Palo Alto Networks’ risks need company-specific review
Palo Alto Networks’ FY2026 Form 10-K is the appropriate filing for assessing its current risk factors. The financial figures cited here are not enough to rank the companies’ overall risk or establish that either is categorically safer.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.How can you decide whether either is attractively priced?
The available figures do not establish date-matched share prices, market capitalizations or enterprise values, or comparable valuation multiples for Cloudflare and Palo Alto Networks. Without those inputs, it is not possible to say which stock is cheaper or which is the better buy today. A growth rate or margin forecast alone cannot answer a price-sensitive investment question.
- Use prices from the same date. Record both share prices and shares outstanding from sources current to that date; use market capitalization or enterprise value consistently.
- Choose comparable measures. Compare valuation multiples using the same definition and period for each company. If one measure is forward-looking, apply the same forecast horizon and clearly distinguish estimates from reported results.
- Check the denominator. A multiple based on revenue, earnings or free cash flow can tell a different story. Account for the difference between GAAP and non-GAAP measures and review what each company excludes.
- Test the expectations embedded in the price. Ask what growth and margin outcomes would be needed to justify each valuation, and how the thesis changes if guidance is missed.
- Read the latest filings and guidance. Company outlook can change; confirm that the cited fiscal-year forecasts and reported capital-structure details remain current before relying on them.
Cloudflare’s FY2025 Form 10-K includes a hypothetical historical-return comparison: $100 invested at year-end 2020 would have had a year-end 2025 value of $259.44, compared with $182.25 for the S&P 500 and $248.07 for the S&P 500 Information Technology Index. Cloudflare says historical returns are not indicative of, or intended to forecast, future performance. Those figures are not a buy signal or a substitute for current valuation.
What is the practical takeaway?
On the cited operating evidence, Cloudflare offers the faster recent quarterly revenue growth, alongside a substantial GAAP operating loss; Palo Alto Networks offers much greater revenue scale and guided FY2027 non-GAAP margins. The evidence does not identify a valuation winner. A “better buy” conclusion requires current, comparable pricing and a judgment about whether each company can meet the expectations built into that price.
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