ZS: AI Security And Zero Trust Leadership Will Drive Long Term Upside

Analysts have made a small upward adjustment to the Zscaler fair value estimate, to $246.04 from $245.26, reflecting mixed but generally constructive research that highlights the company as a leading Zero Trust security provider in a still-developing market, despite recent cuts to several Street price targets.

Analyst Commentary

Street research on Zscaler reflects a split view, with several firms trimming price targets after the latest guidance while still emphasizing the company’s position in Zero Trust security and multi-product adoption across secure access, data security, and AI-focused offerings.

Many bullish analysts point to consistent Q3 beats on revenue, annualized recurring revenue, and profitability, even as management introduced a more cautious outlook for Q4 and an initial FY27 revenue and ARR growth framework of 16% to 17% that came in below prior expectations and has weighed on sentiment.

At the same time, recurring commentary around large-deal momentum, traction in Zero Trust Everywhere and Z-Flex, and early AI security demand suggests that execution on the current platform remains central to how the market is valuing Zscaler, with some firms explicitly tying their views to enterprise value to expected FY27 free cash flow multiples.

Bullish Takeaways

Bullish analysts highlight that Zscaler’s Q3 results were described as solid or strong across revenue, ARR, and profitability, with several firms reiterating Buy or Outperform ratings even as they reset price targets to reflect updated growth frameworks and sector multiples.
Some bullish research points to supportive demand signals, including over US$100m in AI security bookings, growth above 30% in data security, and continued expansion in Zero Trust customers, which are seen as important for sustaining the company’s growth profile.
Despite a more reserved FY27 outlook, a number of firms maintain positive views on the stock’s valuation, citing contracting software multiples and enterprise value to expected FY27 free cash flow metrics that they regard as attractive relative to Zscaler’s category leadership.
Upgrades from Neutral to Buy and raised targets earlier in the period, along with repeated references to healthy demand for secure network access and multi-product adoption, show that a portion of the Street still frames Zscaler as a key Zero Trust and SASE platform with room to execute on its long-term opportunity.

What’s in the News for Zscaler

Zscaler introduced a Zero Trust AI security platform with new tools such as AI Broker, Endpoint AI Security, AI Access Graph, and the ZAgent Framework, while expanding Project AI-Guardian partnerships with AWS, Google Cloud, OpenAI, Databricks, Coforge, Anthropic, and other AI focused partners. Source: Zenith event coverage.
Zscaler shares fell over 31% after fiscal 2027 revenue and ARR growth guidance of 16% to 17% came in below prior expectations, with management citing senior sales leadership departures, higher capital spending on IT infrastructure, and more cautious new customer acquisition, alongside multiple securities law investigations. Source: Q3 2026 earnings coverage.
Zscaler is set to be removed from the Nasdaq-100 Index in the June 22, 2026 rebalance, following a period that included sales executive turnover, securities law investigations, a 31.52% single day stock drop on May 27, 2026, and increased insider selling with no insider buying reported. Source: index rebalance and legal investigation reports.
Partnership activity around Zero Trust and AI security remains active, including integrations with Gigamon for deeper observability across Zero Trust and hybrid cloud, and with Oasis Security to extend Zero Trust controls and lifecycle governance to non human identities and AI agents. Sources: company and partner announcements.
Zscaler continues to push its Zero Trust SASE and Z-Flex offerings, highlighting new ZAgent Framework capabilities, Zero Trust browser options, Kubernetes microsegmentation, and momentum in flexible multi year Z-Flex contracts that management links to shorter sales cycles and higher upsell and retention potential. Sources: product announcements and Z-Flex program coverage.

Valuation Changes for Zscaler

Fair Value: The Zscaler fair value estimate has risen slightly to $246.04 from $245.26, a change of about 0.3%.
Discount Rate: The discount rate has edged down slightly to 8.81% from 8.84%, which implies a marginally lower required return in the updated model.
Revenue Growth: The long term revenue growth assumption has moved slightly higher to 18.83% from 18.62%.
Net Profit Margin: The projected profit margin has been adjusted modestly higher to 4.60% from 4.52%.
Future P/E: The future P/E multiple has been reduced to 222.70x from 239.25x, which indicates a lower valuation multiple applied in the updated assumptions.

0 views

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 18.8% annually over the next 3 years.
The bullish analysts assume that profit margins will increase from -2.4% today to 4.6% in 3 years time.
The bullish analysts expect earnings to reach $244.8 million (and earnings per share of $1.33) 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 $-164.3 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 223.2x on those 2029 earnings, up from -263.6x today. This future PE is greater than the current PE for the US Software industry at 25.5x.
The bullish analysts expect the number of shares outstanding to grow by 2.15% per year for the next 3 years.
To value all of this in today's terms, we will use a discount rate of 8.81%, 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 $246.04, which represents up to two standard deviations above the consensus price target of $193.05. 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 $244.8 million, and it would be trading on a PE ratio of 223.2x, assuming you use a discount rate of 8.8%.
Given the current share price of $126.17, the analyst price target of $246.04 is 48.7% 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.

Have other thoughts on Zscaler?

Create your own narrative on this stock, and estimate its Fair Value using our Valuator tool.

Create Narrative

How well do narratives help inform your perspective?

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.

Accelerated Cloud Adoption And Zero Trust Will Secure Digital Futures