Zscaler (ZS) shares surged 6.99% on May 1, closing at $139.81, as a broad tech rally lifted cloud and cybersecurity stocks. The Nasdaq Composite crossed the 25,000 mark for the first time, fueled by gains across the sector. Trading volume for Zscaler reached approximately 2.9 million shares, well above its daily average.
The move came amid a broader rebound in software stocks, following upbeat earnings and guidance from Atlassian, which raised its full-year revenue growth forecast to roughly 24% on stronger cloud demand and AI tool adoption. This helped lift sentiment for software-as-a-service companies, including Zscaler, which had been under pressure in recent weeks.
Despite the bounce, analysts remain cautious. The company faces intense competition in the secure access service edge (SASE) market, a cloud-based model that combines network access and security. Rivals such as Cloudflare and Netskope are gaining traction, while traditional firewall vendors are improving their SASE offerings, potentially squeezing Zscaler’s market share.
Wall Street’s outlook is mixed. Citizens analyst Rustam Kanga maintained a Buy rating but slashed his price target to $210 from $290. Morgan Stanley downgraded Zscaler to Hold in April, lowering its target to $155. The consensus rating remains Buy, but price targets have been cut sharply from earlier levels.
Zscaler’s fundamentals show strength in some areas. Fiscal second-quarter revenue rose 26% year-over-year to $815.8 million, while annual recurring revenue (ARR) grew 25% to $3.36 billion. The company raised its full-year fiscal 2026 guidance, forecasting revenue between $3.31 billion and $3.32 billion and ARR of $3.73 billion to $3.75 billion. CEO Jay Chaudhry emphasized the company’s role as a “cybersecurity platform for the AI age,” arguing that AI adoption increases demand for securing users, data, and applications.
However, challenges persist. Zscaler reported a GAAP net loss of $34.3 million for the second quarter, deeper than the $7.7 million loss a year earlier. Organic ARR growth, excluding the Red Canary acquisition, was 21%, below the headline figure. The company also faces headwinds from slower customer renewals and potential regulatory risks tied to AI and machine learning.
BTIG downgraded Zscaler in April, citing field checks indicating a more cautious tone for the next six to 12 months. The firm noted that firewall vendors are increasingly pitching SASE features to their own customers, making it harder for Zscaler to win new business. The broader AI uncertainty continues to weigh on the sector, with investors worried that rapid AI developments could disrupt traditional subscription models.
Zscaler’s stock remains far below its 52-week high of $336.99, with a market cap of about $22.5 billion. Friday’s rally provides some relief, but the company must sustain revenue growth above 20%, maintain pricing power in the SASE market, and demonstrate that AI drives demand for its zero-trust platform rather than pushing customers toward alternatives.
