Zscaler Stock Surges on Strong Earnings and AI Security Optimism

Zscaler's latest quarterly performance has ignited significant market enthusiasm, with the cloud security provider's shares climbing following results that comfortably exceeded analyst projections. While the company demonstrates impressive growth momentum, questions remain about its path to sustainable profitability.

The company reported robust financial figures for the quarter, with revenue reaching $719.23 million – representing substantial year-over-year growth of 21.3%. On the profitability front, adjusted earnings per share came in at $0.89, significantly surpassing market expectations. Looking further ahead, management provided optimistic guidance for fiscal year 2026, forecasting EPS in the range of $3.64 to $3.68.

Market response was immediate and positive, with Zscaler shares breaking through the average analyst price target of $323.50 and currently trading above $326. This upward movement reflects strong investor confidence in the company's trajectory.

Wall Street Responds with Revised Targets

Financial institutions have reacted to Zscaler's performance with a wave of upgraded assessments and price target adjustments:

• Morgan Stanley: Elevated rating to "Overweight" while raising target from $280 to $320
• Wells Fargo: Established the most bullish target at $385
• RBC Capital and Truist: Both set targets of $350
• Stifel Nicolaus: Maintained a $330 target

The consensus rating among 39 covering analysts remains "Moderate Buy." However, institutional investors display mixed positioning, with the Fourth Swedish National Pension Fund increasing its stake by 10.7% while Keybank reduced its exposure by 16.2%.

Should investors sell immediately? Or is it worth buying Zscaler?

Profitability Challenges Persist Amid Growth

Despite the impressive top-line expansion, Zscaler continues to face headwinds in converting revenue into net income. The company maintains a negative net margin of 1.55% alongside negative return on equity figures. Debt levels remain manageable with a debt-to-equity ratio of 0.95, providing some financial flexibility.

The critical question for investors is whether Zscaler can address these profitability concerns while maintaining its aggressive expansion strategy. The company's balance sheet strength, evidenced by current and quick ratios both standing at 2.01, provides adequate liquidity for continued investment in growth initiatives.

Strategic Initiatives Fuel Expansion

Beyond organic growth, Zscaler continues to innovate and expand its market reach. On October 30, the company announced new ZDX innovations designed to reduce problem detection by 98% while delivering solutions within minutes. Concurrently, Zscaler is accelerating its push into the Asia-Pacific region, with particular focus on developing markets in India, Japan, and Australia.

As the company capitalizes on the growing demand for AI-driven security solutions, the fundamental challenge remains: Can Zscaler transform its remarkable growth narrative into consistent, sustainable profitability that matches its revenue expansion?