Wall Street is punishing Palo Alto Networks over its planned $25 billion acquisition of CyberArk . Jim Cramer believes investors who step into the sell-off will likely be rewarded down the road. Shares of Palo Alto were down nearly 6% after the cybersecurity company officially announced the acquisition. A day earlier, The Wall Street Journal reported the two firms were talking , which sent the stock down 5.2%. The two-session slide in shares nearly wiped out their year-to-date gains. While the price tag might’ve been richer than investors were expecting, Palo Alto’s strategic reasons for buying the identity security provider are compelling. The stock is “getting crushed because people think they paid too much, and that’s wrong,” Jim said Wednesday during the Morning Meeting. One reason why Jim said he likes CyberArk, in particular, is that it “has had no hacks,” unlike its competitors Okta and Microsoft , both of which experienced high profile cyber-attacks in recent years. If not for our trading restrictions, which prevent us from trading a stock Jim mentions on TV for the next 72 hours, we would buy more shares of Palo Alto on Wednesday. Accordingly, we upgraded our rating on the stock to a buy-equivalent 1. PANW YTD mountain Palo Alto Networks’ year-to-date stock performance. This isn’t the first time the market didn’t have confidence in Palo Alto’s strategic decisions. In February 2024, when CEO Nikesh Arora first introduced the company’s phantomization strategy – aiming to be a one-stop shop for all cybersecurity needs – the stock got crushed. At the time, we stepped in to buy more shares at under $150 apiece, and it turned out it was a great opportunity. Once again, we’re betting on Arora, believing that the CyberArk acquisition could strengthen Palo Alto’s market position as cybersecurity leader. Arora laid out the compelling reasons to own CyberArk in an interview Wednesday morning on CNBC, noting that the company, as an identity security provider, adds a crucial missing piece to Palo Alto’s platformization suite. “The one platform we were not in possession of was the identity platform. I think it’s going to be a big deal,” Arora told Jim on “Squawk on the Street.” “Doing this acquisition allows us to have comprehensive cybersecurity which has never been delivered in the industry before. It’s hard to replicate,” he added. The identity security market is a critical area of cybersecurity for organizations of all sizes. Identity protection services are all about ensuring only authorized employees are accessing certain applications and information. Perhaps the best-known one is multi-factor authentication. With the rise of artificial intelligence, identity security has been exposed to new vulnerabilities, where breaches often exploit weak credentials. “With 88% of all ransomware attacks driven by credential theft, identity is an unsolved problem,” Arora said. CyberArk will complement Palo Alto’s existing offers. Arora noted is that Palo Alto and CyberArk have many overlapping customers but no overlapping products. This gives Palo Alto a chance to cross sell solutions to its more than 70,000 customer base. “From an integration perspective from the product side, it becomes a lot easier” to serve customers, according to Arora. More generally, this deal is part of a trend of consolidation happening in the cybersecurity industry where large firms acquire specialized players to build all-in-one platforms. It’s been a way for companies to manage their complex security systems along with rising costs. “I think cybersecurity is going to continue to consolidate. I think scale matters,” Arora said. The deal is expected to be immediately beneficial to Palo Alto’s revenue growth and gross margin upon closing — currently expected in the second half of its fiscal 2026, which begins in August. Palo Alto said it will be accretive to free cash flow per share in fiscal 2028. On a call with analysts later Wednesday morning, Arora said those financial projections do “not include any revenue synergy potentials and [total address market] expansion potential that we believe the deal is going to offer.” Palo Alto is one of two cybersecurity companies in the Club’s portfolio, in a recognition of its critical importance in a world of rising digital threats. The other is CrowdStrike , which offers identity protection services as part of its Falcon platform. Putting all this together, we believe buying CyberArk is a great strategic move for Palo Alto to increase its presence in identity and access management. In addition, while the market may believe it’s a bit pricey, the perceived deregulatory environment under the Trump administration seems to present an optimal time for a large deal, especially as several multi-billion-dollar transactions have been announced over the past week across several industries from banking to railroads to energy. (Jim Cramer’s Charitable Trust is long PANW. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . 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