ZS: AI Security Demand Will Drive Long Term Upside Despite Reset Expectations

Analysts have reset their view on Zscaler with a lower implied price target of about $245, reflecting trimmed revenue growth and profit margin assumptions, along with a higher future P/E multiple, while still pointing to demand for Zero Trust and AI security as key parts of the story.

Analyst Commentary

Recent research shows a split tape on Zscaler, with many firms trimming price targets after the latest guidance reset while still highlighting the company as a key Zero Trust and AI security platform. Across the reports, there is a pattern of cautious near term expectations paired with longer term interest in the business model and product reach.

Several firms describe Q3 results as solid on current execution, pointing to beats on revenue, annualized recurring revenue, and profitability, along with large deal activity and traction in AI security offerings. The more cautious tone is tied mainly to softer guidance for Q4 and the preliminary fiscal 2027 framework, as well as commentary around slower new logo additions and sales leadership changes.

On the other side, multiple reports still frame Zscaler as a category leader in secure network access and Zero Trust. Some analysts argue that recent volatility and reset expectations could leave the stock trading on more compressed valuation multiples than in the past. That mix of execution data points and revised targets is driving a wide range of views on how much risk is already reflected in the current share price.

Bullish Takeaways

Bullish analysts highlight Zscaler as a category leader in a still early and fast growing market for Zero Trust and secure network access. They argue that current valuation levels present an opportunity to gain exposure to that theme despite reduced growth assumptions.
Several bullish reports keep Buy or Outperform ratings even as price targets are reset. In their view, execution on large deals, platform expansion, and AI security bookings supports the longer term growth case despite a more conservative outlook.
Some firms explicitly point to strong demand signals, including over US$100m in AI security bookings, 30%+ data security growth, and traction with Zero Trust customers, as reasons to stay constructive on revenue durability and product breadth.
A few bullish analysts call out Zscaler's competitive positioning and product roadmap as intact. They view sales and guidance issues as already reflected in lower valuation multiples and suggest that improved clarity on growth could be a catalyst for sentiment.

What's in the News

Zscaler agreed to acquire Symmetry Systems to add identity mapping and data access governance capabilities for AI security. The company plans to integrate Symmetry's access graph technology into the Zero Trust Exchange platform, primary news.
The company plans to report Q3 fiscal 2026 results on May 26, 2026. Analysts cited in primary coverage expect around 23% year over year revenue growth and higher EPS, primary news.
Zscaler shares fell more than 31% after Q3 fiscal 2026 results, as investors focused on cautious fiscal 2027 revenue and ARR guidance, higher data center spending, and the exit of two senior sales leaders, primary news.
Guggenheim upgraded Zscaler to Buy with a US$214 price target following Q3 results, citing the deal pipeline, recurring revenue and AI relevance, primary news.
Management issued Q4 fiscal 2026 guidance calling for US$875m to US$878m in revenue and raised full year fiscal 2026 revenue guidance to a range of US$3.3295b to US$3.3325b, company guidance.

Valuation Changes

Fair Value: Reset from $308.83 to $245.26, a decline of around 21%, reflecting updated assumptions across the model.
Discount Rate: Increased slightly from 8.66% to 8.84%, implying a modestly higher required return on the stock.
Revenue Growth: Trimmed from 22.46% to 18.62%, pointing to more conservative expectations for future dollar revenue expansion.
Net Profit Margin: Reduced from 7.51% to 4.52%, indicating lower modeled profitability on future dollar earnings.
Future P/E: Raised from 169.47x to 239.25x, suggesting a higher valuation multiple applied to projected earnings despite lowered growth and margin inputs.

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Key Takeaways

Accelerated platform adoption, disruptive new solutions, and AI-powered security are driving Zscaler's outperformance and enabling strong margin expansion versus rivals.
The Red Canary acquisition and expanded Flex program position Zscaler to unlock new markets, increase recurring revenue, and capture additional long-term earning power.
Rapid expansion, rising costs, stiff competition, macroeconomic pressures, and regulatory risks threaten Zscaler's profitability, growth consistency, and ability to defend market share.

Catalysts

About Zscaler

Operates as a cloud security company worldwide.What are the underlying business or industry changes driving this perspective?

Analyst consensus expects Zscaler to achieve around $3 billion in ARR by year-end, but the company is actively targeting $5 billion in ARR in the near future through accelerated platform adoption, blockbuster growth in new categories (over $1 billion combined ARR already), and strong upsell momentum; this could drive forward revenue growth well beyond current market expectations.
While analyst consensus sees net retention benefits from new product expansion, Zscaler's rapid growth in its Flex purchasing program and increased deal duration (from three to five years) could create a step-function increase in recurring revenue and long-term net margin expansion, as customers consolidate more spend on Zscaler's platform and reduce procurement friction.
Zscaler's AI-powered security operations and data protection offerings are uniquely advantaged by its unmatched high-fidelity, high-volume security data, enabling it to outpace peers in AI-driven threat detection; as AI adoption and cyber threats accelerate, this data and AI flywheel effect may fuel sustained operating leverage and margin expansion.
The company's plug-and-play Zero Trust Branch and Cloud solutions are proving more disruptive than anticipated, consistently landing new logos and rapidly expanding within large accounts as organizations accelerate their cloud migration and rip out more costly legacy infrastructure, which should drive both top-line revenue growth and gross margin improvement.
The acquisition of Red Canary provides a clear path for Zscaler to break into the fast-growing security operations center market with real, production-grade Agentic AI and MDR offerings, for which Zscaler is exceptionally well positioned due to integration synergies, potentially unlocking entirely new multibillion-dollar revenue streams and further solidifying its long-term earnings power.

Zscaler Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?

This narrative explores a more optimistic perspective on Zscaler compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
The bullish analysts are assuming Zscaler's revenue will grow by 18.6% annually over the next 3 years.
The bullish analysts assume that profit margins will increase from -2.4% today to 4.5% in 3 years time.
The bullish analysts expect earnings to reach $239.2 million (and earnings per share of $1.31) by about June 2029, up from -$77.4 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $-160.5 million.
In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 239.5x on those 2029 earnings, up from -273.3x today. This future PE is greater than the current PE for the US Software industry at 28.4x.
The bullish analysts expect the number of shares outstanding to grow by 3.86% per year for the next 3 years.
To value all of this in today's terms, we will use a discount rate of 8.84%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

Zscaler's platform expansion into new product categories demands ongoing high R&D and sales and marketing expenditures, and management has explicitly stated the focus is on faster go-to-market over optimizing margins in the near term, which could delay achieving meaningful operating leverage and put pressure on long-term profitability and net margins if top-line growth slows.
The company is increasingly selling larger upfront bundles and long-term contracts under programs like Z-Flex, which management notes may reduce key performance indicators such as net retention rate and could create future headwinds for recurring revenue growth and annual recurring revenue metrics.
Intense competition from hyperscale cloud providers offering bundled security and cloud-native solutions, as well as new SASE and adaptive security players, is increasing, making price competition fiercer and threatening both Zscaler's pricing power and ability to defend market share, which could negatively impact revenue and net margins.
Macroeconomic uncertainty and ongoing customer scrutiny of large deals, with management describing the IT spending environment as challenging and tight, signal that enterprises may further rationalize or defer security and networking purchases, potentially dampening Zscaler's revenue expansion and total addressable market growth in the long term.
The rise of data localization, digital sovereignty rules, and geopolitical tensions could fragment the global cloud security market, forcing Zscaler to invest heavily in region-specific customizations and potentially shutting it out of lucrative international and government markets, thus increasing compliance costs and restricting revenue and earnings growth.

Valuation

How have all the factors above been brought together to estimate a fair value?

The assumed bullish price target for Zscaler is $245.26, which represents up to two standard deviations above the consensus price target of $193.79. This valuation is based on what can be assumed as the expectations of Zscaler's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $250.0, and the most bearish reporting a price target of just $145.0.
In order for you to agree with the more bullish analyst cohort, you'd need to believe that by 2029, revenues will be $5.3 billion, earnings will come to $239.2 million, and it would be trading on a PE ratio of 239.5x, assuming you use a discount rate of 8.8%.
Given the current share price of $130.78, the analyst price target of $245.26 is 46.7% higher.
We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.

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Disclaimer

AnalystHighTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystHighTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystHighTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.

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