Morningstar

Zscaler Earnings: Strong End to Fiscal 2026 as AI-Induced Cyber Demand Drives the Top Line

We think growth will stay strong into 2028 as AI security becomes a larger part of the mix.

Building with logo for ZScaler in the Silicon Valley.
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Securities in This Article
Zscaler Inc
(ZS)

Key Morningstar Metrics for Zscaler

  • Fair Value Estimate
    : $250.00
  • Morningstar Rating
    : ★★★★
  • Morningstar Economic Moat Rating
    : Narrow
  • Morningstar Uncertainty Rating
    : Very High

What We Thought of Zscaler’s Earnings

Zscaler ZS reported fourth-quarter earnings that included sales of $898 million, up 25%, and adjusted operating margins of 24%, up 200 basis points. The firm’s annual recurring revenue, or ARR, grew 25% to $3.8 billion.

Why it matters: Like its peers, Zscaler is benefiting from a healthy cyber demand environment. Artificial intelligence models’ increasingly impressive cyber offense capabilities are expanding cyber defense budgets as enterprises improve their security infrastructures.

  • We like the firm’s focus on security solutions that benefit from this secular tailwind, with AI security solutions’ bookings growing more than 50% this quarter. Also, 70% of these AI security wins included data security modules, highlighting Zscaler’s growing platform.

The bottom line: We maintain our $250 per share fair value estimate for narrow-moat Zscaler. With shares trading mostly flat after hours, we continue to view shares as undervalued.

  • We think investors remain overly pessimistic about Zscaler’s top-line growth prospects amid increased competition from larger vendors. In our view, the security market is large enough to accommodate multiple winners, including Zscaler.

Coming up: We see the firm’s sales outlook of 17% for 2027 as conservative, considering the AI tailwind behind its business, improving sales productivity, and cross-selling success. We think growth will stay strong into 2028 as AI security becomes a larger part of the mix.

Bears say: Zscaler’s platform is still limited in breadth compared with CrowdStrike and Palo Alto. This is a disadvantage, as customers are trying to consolidate security spending among fewer vendors.

  • In our view, the firm is actively trying to move beyond network security with the Z-Flex model, which allows customers to sign up for minimum commitments and try different modules.

Editor’s Note: This analysis was originally published as a stock note by Morningstar Equity Research.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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