Sep 15 2026 09:08 PM EST

Zscaler Rallies as Earnings Beat and AI Security Momentum Drive Upgraded Outlook

Zscaler, Inc. (NASDAQ: ZS) shares have surged 18.4% over the past five days, outperforming both the S&P 500 and sector peers, after the company reported robust fourth-quarter results, issued upbeat guidance and showcased accelerating demand for its AI-driven security solutions. The strong rebound, which lifted Zscaler stock to $191.73 on September 14 from $164.54 a week earlier, has prompted investors to reconsider the company’s growth outlook, competitive positioning and valuation amid ongoing sector tailwinds and evolving execution risks.

Earnings Beat, Guidance and AI Security Drive Market Reappraisal

The latest rally in Zscaler shares follows the company’s fiscal fourth-quarter earnings release on September 3, which exceeded analyst expectations on both revenue and profit. Zscaler reported Q4 revenue of $898.2 million, up 25% year-on-year and ahead of the $877 million consensus, and adjusted EPS of $1.19, a 9% beat. Free cash flow reached $171.9 million, or 24% of revenue, as the company posted a record non-GAAP operating margin of 24.3%. For the full year, revenue rose 25.4% to $3.35 billion and annual recurring revenue (ARR) reached $3.77 billion, both at the upper end of previous guidance.

The company also issued a positive outlook, guiding for fiscal 2027 revenue of $3.91–$3.94 billion and ARR of $4.40–$4.43 billion, representing growth of 16.6–17.5%. Adjusted EPS guidance of $4.86–$4.90 and a targeted operating margin of 23% reinforced management’s confidence in continued profitability and investment discipline, despite a more moderate growth rate.

AI Security and Zero Trust Adoption Underpin Growth

A key factor in the market’s response has been Zscaler’s progress in AI-driven security and its leadership in zero trust architecture. The company highlighted strong demand for its AI security offerings, with security for AI bookings rising more than 50% sequentially in the fourth quarter and the AI security pipeline up 75%. Over 700 enterprise customers now use Zscaler’s Zero Trust Everywhere framework, and more than 50% of Fortune 500 companies are customers.

The launch of the Agentic SOC platform and expansion of the Z-Flex purchasing model have furthered Zscaler’s position in large-scale enterprise security. The company also secured new government contracts, including a $122 million agreement via Carahsoft, and expanded its compliance certifications—key factors in federal and regulated industry adoption.

Sector Tailwinds and Analyst Upgrades Add Momentum

Zscaler’s rally coincides with renewed investor interest in cybersecurity, following a sector-wide correction earlier in 2026. Strong results from major peers such as Fortinet, CrowdStrike and Palo Alto Networks have contributed to a rebound in sentiment toward cloud-native security leaders. Analyst upgrades have followed Zscaler’s earnings, with price targets rising to an average of $207 and several firms, including JPMorgan, KeyBanc and Stephens, lifting their targets to $210–$225.

The company’s valuation—at a forward price-to-sales ratio of 6.41 and a forward PE of 36–41x—remains below direct cloud security peers, supporting the market’s view that Zscaler offers attractive risk-reward relative to its growth profile and sector position.

Execution Risks and Growth Moderation Remain in Focus

Despite the positive momentum, Zscaler’s guidance implies a slowdown in growth, with fiscal 2027 revenue and ARR expected to increase by 16–17%, compared to 25% in fiscal 2026. Management cited recent sales leadership turnover as a factor for “prudent” guidance, and acknowledged that execution around new AI security products and sales force transitions will be closely watched by investors.

Profitability on a GAAP basis remains thin, with a net loss of $3.4 million in the latest quarter, and return on invested capital continues to be negative. Insider selling, while attributed to tax and trading plan reasons, has also drawn scrutiny, though institutional ownership remains strong at 46.5%.

Zscaler’s recent rally reflects a renewed market assessment of its growth and leadership in the rapidly evolving cybersecurity landscape. The company’s ability to sustain momentum will depend on continued demand for AI and zero trust security, execution on new product initiatives, and its response to competitive and operational headwinds.