Historical Trends Suggest a Nasdaq Uptick in 2025. One Splittable Stock Worth Investing in Prior to This Upward Shift.
The Nasdaq Composite has been on an uninterrupted upward trajectory for a couple of years now, driven by several factors such as the recovering economy, advancements in artificial intelligence (AI), and beneficial interest rate adjustments from the Federal Reserve Bank.
The index, with its tech-focus, saw a surge of 43% in 2023 and has gained approximately 33% so far in 2024, as per current records. Looking back, it seems the Nasdaq might continue its surge in 2026.
Well-established bull markets usually last an average of five years. The ongoing rally passed its second anniversary in October, which indicates further growth may be in store.
Records show that when the Nasdaq gains 30% or more in a year, the following year generally sees a rise of about 19%, on average. This suggests a promising year ahead for investors.
Another factor fueling the market's ascent is the revival of stock splits. A growing number of investor-favorites are reaching new heights and splitting their shares due to strong financial performance. This renewed interest in stock-split stocks is prompting investors to reconsider their investment choices.
One such company is Palo Alto Networks (PANW -1.23%). Over the past decade, the stock has surged by approximately 768%, and a 23% rise in 2024 as per the latest figures, leading to a 2-for-1 forward stock split, carried out just this month.
Despite its recent gains, there's reason to believe that Palo Alto's remarkable streak could continue into 2026. Keep reading to find out why.
A revolutionary strategy
Palo Alto Networks has never shied away from challenging the norm, as evident in its strategies over the past year. In a bid to persuade customers to switch from a multitude of security solutions to a unified platform, the company initiated a move that could potentially revolutionize the industry early this year.
Customers are often hesitant to integrate their cybersecurity solutions, primarily due to multiple contractual obligations with varying execution periods and expiration dates. Terminating agreements early can result in financial penalties from the service provider.
Palo Alto addressed this issue by offering free services to its customers, enabling them to transfer their services to its platforms without penalties, encouraging consolidation.
Initially, investors were skeptical, but management's strategic vision came into focus. The lifetime value of customers using two platforms is five times higher than those using a single platform, and customers using three platforms boast a lifetime value that's 40 times higher.
By offering free services for a limited period, Palo Alto is effectively setting itself up for long-term gains that will benefit it for years to come. Skeptical investors soon embraced the company's approach.
For its first quarter of fiscal 2026 (ending Oct. 31), revenue increased by 14% year-over-year to $2.1 billion, while earnings per share (EPS) surged 77% to $0.99. However, the standout figure was the annual recurring revenue from the company's next-generation security (NGS) services, which rose 40% to $4.5 billion. Since future revenue is growing faster than current sales, it indicates that customers are responding positively to the company's offer.
As a cherry on top, management raised its full-year projections, expecting revenue of $9.15 billion, which represents a growth of 14%. The company also predicted adjusted EPS of $6.34, marking an 11% increase at the midpoint of its projections. This suggests that the forecast for NGS annual recurring revenue will increase 32% to $5.55 billion.
Wall Street is bullish on Palo Alto
Wall Street is known for its divided opinions, but it's noteworthy when it agrees -- and most analysts who offer an opinion believe Palo Alto has room to grow. Out of the 54 analysts covering the stock, 76% have a buy or strong buy recommendation, and none advise selling. The average price target of around $204 implies a potential increase of 8% compared to the stock's current closing price.
Just last week, Jefferies analyst Joseph Gallo became Palo Alto's biggest supporter, maintaining a buy rating and assigning a new all-time high price target of $240. This represents a potential increase of 27% compared to the stock's current closing price. Gallo cited strong fundamentals, implying that cybersecurity stocks are likely to remain resilient in the coming year.
One potential concern for investors could be Palo Alto's premium valuation. Currently priced at 49 times earnings and 16 times sales, the stock's traditional metrics do not keep pace with high-growth stocks. However, its price/earnings-to-growth ratio (PEG), which takes accelerating growth into account, comes in at 0.14, making it a possible bargain for an undervalued stock.
Moreover, the stock's performance far outshines the broader market's over the past five years, rising 385%, while the S&P 500 only experienced a 86% increase.
Considering this context, the evidence suggests that Palo Alto Networks is a worthwhile investment.
Investors interested in capitalizing on the Nasdaq's continued surge might consider companies like Palo Alto Networks, which has seen significant gains of 768% over the past decade and recently underwent a 2-for-1 stock split due to its strong financial performance.
Palo Alto Networks' strategic move to offer free services to customers, encouraging them to consolidate their cybersecurity solutions into its platform, has resulted in a 14% revenue increase for its first quarter of fiscal 2026 and raised its full-year projections, suggesting a potential 14% revenue growth and 11% adjusted EPS increase. The company's enthusiasm on Wall Street is evident, with 76% of analysts recommending a buy or strong buy and an average price target of around $204, implying a potential 8% increase.