Last Update 20 Feb 26

Fair value Decreased 4.20%

ZS: Future Returns Will Rely On Zero Trust AI Security Leadership

Narrative Update: Zscaler

We trim our Zscaler fair value estimate by about $13 to $304, reflecting lower assumed profit margins and a slightly less aggressive future P/E multiple, while analysts broadly reduce price targets on the stock even as they continue to highlight its Zero Trust leadership, AI security exposure, and potential for earnings beats.

Analyst Commentary

Recent Street research on Zscaler has shifted toward lower price targets, but most firms still frame the company as a key Zero Trust and AI security player with ongoing execution questions rather than a broken growth story. Here is how bullish and bearish analysts are lining up.

Bullish Takeaways

Bullish analysts broadly keep positive ratings even as they cut targets, pointing to Zscaler's role as a leader in a rising tide Zero Trust market and its exposure to AI security as core parts of the long term growth case.
Several checks and earnings previews describe Zscaler as set up for potential beat and raise outcomes. Some research points to solid quarterly software checks and emerging products such as Zero Trust Everywhere, AI Security, and Data Security as key contributors to ARR traction.
Some research highlights SASE as well positioned to secure employee AI usage and to benefit as the 2021 and 2022 firewall cohort comes up for refresh. If this materializes, it could support Zscaler's growth and help justify premium valuation multiples over time.
JPMorgan and other bullish analysts point to Q1 revenue performance, the pass through of upside to the full year guide, and strong emerging product ARR as supportive of the thesis that Zscaler can still execute on growth even as sentiment around software and AI disruption remains weak.

Bearish Takeaways

Bearish analysts focus on broad multiple compression across enterprise and security software, which has led to a series of price target reductions for Zscaler. This suggests less willingness to underwrite prior P/E and revenue multiple levels even with continued growth initiatives.
Several firms cite weaker checks quarter over quarter, incremental caution on security budgets, and concerns about a potential share shift in the channel as Zscaler expands its North America distributor base, which could weigh on near term execution.
Some research flags competition fears and incremental competitive concern as overhangs for the stock, with the broader narrative around AI disruption causing investors to question which security vendors are true beneficiaries and which might be at risk.
A few analysts point to slightly underwhelming bottom line results, limited ARR disclosure, and the inorganic contribution to ARR from acquisitions as reasons to be more measured on valuation, even while acknowledging that organic ARR levels and long term risk reward could still be attractive.

What’s in the News

Zscaler introduced a new AI Security Suite aimed at giving enterprises visibility, control, and governance over generative and agentic AI usage, with capabilities such as AI asset management and dependency mapping across AI apps, models, agents, and infrastructure (Product Related Announcement).
Peraton announced a partnership with Zscaler to combine Peraton’s hybrid multicloud platform with Zscaler’s Zero Trust Exchange, targeting secure, cost focused infrastructure for mission critical government and enterprise environments, including remote access without traditional VPNs (Client Announcement).
Orca Security expanded its partnership with Zscaler, integrating Zscaler Private Access with Orca’s AI powered cloud risk intelligence to cut alert noise, speed investigations, and strengthen Zero Trust access controls across cloud workloads and private apps (Client Announcement).
TPx selected Zscaler as the Security Service Edge platform for its next phase of network and security convergence, with plans for a managed SASE solution by early 2026 that combines TPx’s SD WAN expertise and Zscaler’s secure web, Zero Trust access, and cloud app protection (Client Announcement).
Zscaler issued guidance for fiscal 2026, with expected annual recurring revenue of US$3.698b to US$3.718b and revenue of about US$3.282b to US$3.301b, and second quarter fiscal 2026 revenue of US$797m to US$799m (Corporate Guidance).

Valuation Changes

Fair Value Estimate trimmed from $317.58 to $304.23, a reduction of about 4.2%.
Discount Rate adjusted slightly from 8.60% to 8.57%, reflecting a very small change to the required return input.
Revenue Growth held essentially flat, with the assumption moving only marginally from 20.28% to 20.28%.
Net Profit Margin eased from 4.03% to 3.94%, indicating slightly lower long term profitability assumptions.
Future P/E reduced modestly from 356.39x to 348.33x, implying a more conservative view on how much investors might be willing to pay for future earnings.

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Key Takeaways

Growing adoption of advanced cloud security solutions and platform innovation is boosting upsell opportunities, long-term customer value, and expanding Zscaler's market share.
Rapid response to AI-driven threats and shifting industry trends supports sustained revenue growth, higher margins, and increasing operating efficiency through automation and scale.
Growing competition, talent shortages, and aggressive expansion are pressuring Zscaler's profitability, margins, and long-term market share in an evolving cybersecurity landscape.

Catalysts

About Zscaler

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

Accelerating customer adoption of Zero Trust Everywhere and Data Security Everywhere solutions, particularly among Global 2000 and Fortune 500 firms, is fueling large upsell deals and higher ARR per customer, which should drive sustained double-digit revenue growth and improve net retention rates.
Explosive growth in AI/ML traffic and emerging threats is creating new security challenges that Zscaler is rapidly addressing with differentiated AI security and agentic operations products, positioning the company to capture a rising share of incremental cyber budgets and expand recurring ARR over the long term.
The transition away from legacy security appliances (firewalls, SD-WAN) in favor of unified cloud-delivered security architectures is gaining momentum across key verticals like retail and manufacturing, supporting a multi-year replacement cycle that will boost platform adoption, revenue, and margins.
Strategic platform innovation and programs like Z-Flex are driving broader product adoption within existing accounts and enabling larger, multi-year deals, increasing total contract value and supporting higher future operating margins through scale.
Ongoing investments in go-to-market and operational scale, combined with improving automation and integration from recent acquisitions (e.g., Red Canary), are expected to unlock further operating leverage, resulting in sustained improvement of operating and free cash flow margins.

Zscaler Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?

Analysts are assuming Zscaler's revenue will grow by 20.5% annually over the next 3 years.
Analysts assume that profit margins will increase from -1.6% today to 3.0% in 3 years time.
Analysts expect earnings to reach $139.8 million (and earnings per share of $0.81) by about September 2028, up from $-41.5 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $357.1 million in earnings, and the most bearish expecting $-44.5 million.
In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 498.3x on those 2028 earnings, up from -1059.6x today. This future PE is greater than the current PE for the US Software industry at 36.2x.
Analysts expect the number of shares outstanding to grow by 2.63% per year for the next 3 years.
To value all of this in today's terms, we will use a discount rate of 8.51%, as per the Simply Wall St company report.

Zscaler Future Earnings Per Share Growth

Risks

What could happen that would invalidate this narrative?

Increasing integration of security capabilities by public cloud providers (like AWS, Azure, Google Cloud) could erode Zscaler's competitive advantage and reduce its total addressable market, which would pressure both revenue growth and future earnings.
Intensifying competition from established cybersecurity vendors and cloud-native platform companies may drive pricing pressure, force higher sales & marketing spend, and compress Zscaler's gross and operating margins over the long term.
The rapid pace of new product launches focused on growth over profitability-such as in AI security and Zero Trust Branch-may sustain lower gross margins for longer periods, delaying improvements in net margins and affecting earnings quality.
The ongoing global cybersecurity talent shortage and high reliance on stock-based compensation to attract and retain specialized employees could significantly raise operating costs and dilute future earnings per share and share price appreciation.
Market consolidation through M&A or expansion of bundled security offerings by larger players could limit Zscaler's stand-alone market share, weaken pricing power, and ultimately put long-term revenue and net retention rates at risk.

Valuation

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

The analysts have a consensus price target of $324.659 for Zscaler based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $385.0, and the most bearish reporting a price target of just $251.0.
In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $4.7 billion, earnings will come to $139.8 million, and it would be trading on a PE ratio of 498.3x, assuming you use a discount rate of 8.5%.
Given the current share price of $282.29, the analyst price target of $324.66 is 13.1% 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

AnalystConsensusTarget 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 AnalystConsensusTarget 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 AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.

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