ZS Stock: Zscaler is a Trailblazer, But How Long Can It Stay Ahead?

Based in San Jose, California, Zscaler [ZS] built its reputation as a pioneer in secure cloud connectivity. 

Today, it operates a global security cloud with more than 150 data centers, processing over 500 billion transactions per day.

As such, it provides a service that almost all companies need, almost all of the time. What’s more, cyberattacks are growing in frequency and severity — attacks on US utilities surged by 70% in 2024, according to cyber threat research firm Check Point. In this light, you might expect a company like Zcaler to be logging impressive growth.

And that’s exactly what’s happening. 

Zscaler reported Q4 and FY 2025 earnings on September 2. The company reported revenues of $719.23m for the quarter, beating the Zacks Consensus Estimate by 1.84% and up from $592.87m a year earlier, marking the fourth quarter in a row in which it surpassed revenue forecasts.

Quarterly earnings, meanwhile, came in at $0.89 per share, above the $0.80 consensus and slightly higher than $0.88 a year ago. Excluding non-recurring items, this marks a beat of 11.25%. Last quarter, Zscaler posted $0.84 per share versus expectations of $0.75, a 12% beat.

In short, as Chairman and CEO Jay Chaudhry said on the earnings call, “We had an outstanding Q4, in which we achieved a new milestone of more than $3bn of annual recurring revenue (ARR) while achieving our highest-ever operating margin for a quarter. We believe Zscaler’s Zero Trust and artificial intelligence (AI) security solutions are imperative in today’s world and are driving robust demand”. 

Recent Moves

The AI piece is indeed key. 

Cybercriminals have gleefully embraced the possibilities that AI provides. Necessarily, cyber security firms have followed suit.

Zcaler has made a couple of major AI moves in recent times. 

One was its acquisition of Red Canary. Taking place earlier in the quarter, the deal was reportedly worth some $675m, split between cash and equity.

This was more than a simple buy-out. As Emil Sayegh wrote in Forbes, “For the first time at this scale, a cloud-native firewall vendor is acquiring a services-first cyber security company. It reflects a broader shift in a turbulent market, where traditional boundaries between software, platforms and services are collapsing in favor of integrated, outcome-driven solutions.”

Zcaler has also rolled out new AI tools like Zscaler AI Guard to block attacks, protect sensitive data and support compliance.

Propelled in part by such future-oriented moves, ZS stock is up a healthy 54.53% so far this year.

Outlook and Analyst Expectations

For Q1 2026, Zscaler guided revenue in the range of $772m–774m, with non-GAAP operating income of $166m–168m. Earnings are expected at $0.85–0.86 per share, based on roughly 167 million diluted shares and a 23% tax rate. 

For the full fiscal year, the company projects annual recurring revenue of $3.676–3.698bn and total revenue of $3.265–3.284bn. Non-GAAP operating income is forecast between $728–736m, with EPS of $3.64–3.68 on 169m diluted shares and the same tax rate.

All in all, this a solid prognostication, pointing to steady top-line growth and expanding profitability, with Q1 and full-year guidance both slightly ahead of market expectations. The projections reinforce confidence in demand for its cloud security platform, though the modest pace suggests growth is stabilizing rather than accelerating.

Analysts would seem to largely agree with this outlook. 

Of the 46 recommendations collated on Yahoo Finance, seven are a ‘strong buy’, 28 a ‘buy’ and 11 a ‘hold’, with no ‘sells’. The average price target is $325.61, representing an upside of 16.79% compared to the most recent close price of $278.79. 

At today’s levels, the stock trades at 15–16x forward sales — well below high-growth peers like CrowdStrike [CRWD] and Cloudflare [NET]. If revenue hits $3.3bn and the P/S multiple expands to 25–28x, Forbesanalysts recently argued, shares could climb toward $550, roughly double the current price.

In light of this, Zscaler does not need lofty multiples to deliver upside. Strong growth and modest re-rating could be enough. For investors bullish on cloud security and zero-trust, $275 looks like the ground floor of a long runway, while $550 would confirm both profitable scale and sector leadership.

Let’s see how Zscaler measures up to those two competitors in the space.

ZS vs CRWD vs NET

CrowdStrike is a leader in endpoint and cloud workload protection. Its business model is highly scalable, with strong ARR growth supported by rapid customer adoption and expansion across modules. 

CRWD stock commands a valuation premium to peers, reflecting investor confidence in its growth durability and competitive moat. 

Cloudflare, meanwhile, operates a global edge network providing security, performance and developer services, positioning itself as both a content delivery and cyber security platform. 

Its Zero Trust offering competes with Zscaler, while its developer-focused tools expand its total addressable market beyond security into application services. Investors view Cloudflare as a category-expanding platform, but execution risk remains high as it balances aggressive innovation with the need to scale profitability.

Source: Yahoo Finance

Zscaler’s relatively low P/S ratio implies that it is significantly cheaper relative to its revenue compared with its peers, suggesting either more upside if investors believe its growth will catch up, or more risk if expectations are not met.

ZS Stock: The Investment Case

The Bull Case for Zscaler

As Sayegh wrote in Forbes, the acquisition of Red Canary positions Zscaler at the forefront of a new era of cyber security: “With AI, cloud and geopolitical risk accelerating enterprise security needs, customers are demanding outcomes, not just tools. That means companies like Zscaler will increasingly have to deliver both software and services, seamlessly integrated.”

Alongside this, Zscaler is positioned to benefit from the accelerating shift to cloud and zero-trust security, where it remains a recognized leader. Its cloud-native platform and unified Data Fabric provide scalability and performance advantages that traditional firewall-based models struggle to match. 

With consistent revenue beats and expanding enterprise adoption, Zscaler has demonstrated strong execution. As cyber security spend continues to grow despite IT budget pressures, Zscaler’s differentiated platform, customer stickiness and leadership in zero-trust architecture could drive durable growth and justify its premium valuation.

The Bear Case for Zscaler

Zscaler faces perpetually intensifying competition in the cloud security market, where rivals like Palo Alto Networks [PANW], CrowdStrike and Fortinet [FTNT] are aggressively expanding their platforms. 

While Zscaler has delivered consistent revenue growth, its premium valuation leaves little margin for error if growth slows. Enterprises tightening IT budgets may prioritize bundled security solutions over Zscaler’s specialized offerings, eroding its pricing power. 

The company’s heavy reliance on upselling larger enterprise contracts adds risk if deal cycles elongate in a weaker macro environment. Moreover, Zscaler’s push into AI-driven security is far from differentiated — competitors are launching similar tools, threatening its technological edge. High stock-based compensation also weighs on profitability, limiting leverage despite scale. With elevated expectations baked into the share price, even modest execution missteps, customer churn or slower-than-expected adoption of its new AI products could trigger sharp downside for Zscaler investors.

Conclusion

Zscaler combines strong revenue growth, a leading position in zero-trust security and a clear path to AI-driven innovation. For investors confident in cloud security adoption, ZS stock could represent an opportunity to capture growth with asymmetric risk-reward. However, Zscaler faces risks from intensifying competition, baked-in high expectations and the potential for slower adoption of its AI-driven security offerings.