Zscaler (ZS 1.54%) is one of the most misunderstood stocks in the cybersecurity space. Though it has maintained a consensus buy rating from the Wall Street analysts who cover it, the stock is down by more than 36% so far in 2026. The median analyst price target for the stock is $220, implying an upside of more than 52% from where it was trading Wednesday morning. The most bullish 12-month target price is $335, implying an upside of almost 133%.
While these growth estimates may appear aggressive, they do not require extraordinary assumptions. A shift in narrative could be enough. Right now, what is driving the stock is the fear that artificial intelligence (AI) tools will disrupt Zscalar's business. But I suspect that those fears will fade and be replaced by recognition of AI-driven demand for its services, and as that occurs, the combination of continued earnings growth and valuation expansion could push the stock toward even the most bullish analyst target.
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AI-driven demand is accelerating
Fears that AI could automate key security functions and reduce the need for platforms like Zscaler have weighed heavily on the stock. However, recent company data shows a different picture.
NASDAQ: ZS
Key Data Points
AI is expanding the attack surface -- that is, the sum of all the digital points where someone with malicious intent can attempt to enter an organization's computer systems. As enterprises deploy AI agents and integrate large language models into their workflows, they are also creating new vulnerabilities, exposing their operations to new threats such as prompt injection attacks, data leakage, and "shadow AI," or the use of unapproved, unsanctioned, and unknown AI tools.
For Zscaler, those new types of risks equate to opportunities, and it's targeting them with its AI Protect suite, which secures AI applications, inspects prompts and responses in real time, and prevents the exposure of sensitive data.
Zscaler is changing how cybersecurity services are used and monetized. The company's solutions enforce policies for AI-driven interactions among users, applications, and AI agents. Through its Zero Trust Exchange, every interaction is inspected and controlled in real time. This shift is critical, since cybersecurity is evolving beyond securing users to securing interactions. As the adoption of agentic AI increases, enterprises will require real-time security for machine-to-machine and agent-to-agent interactions.
The company's financials already reflect its business momentum. In its fiscal 2026 second quarter, which ended Jan. 31, revenue was up 26% year over year to $816 million. The company's annual recurring revenue was up 25% year over year to $3.4 billion. Over 25% of new business came from consumption-based offerings, and annual recurring revenue tied to these offerings grew by over 100%.
Growth potential
Zscaler currently trades at around 7.3 times sales, well below its historical five-year average price-to-sales multiple of 17.9. While the stock was previously priced as a leader in zero-trust security, today it is valued as if AI will dramatically diminish its relevance.
However, the company is well positioned to benefit from widening AI adoption. It operates the largest in-line security cloud platform, which inspects over 500 billion transactions daily in real time and provides security services across 160 data centers with 99.999% reliability. That platform is already embedded across devices, workloads, and cloud environments and is now extending into AI-driven interactions. This scale gives the company a durable competitive advantage in its space.
Since Zscaler serves roughly 4,400 out of more than 20,000 large enterprises globally, there is also significant room for the company to expand its client base. Existing customers are also increasing their spending by 2 to 3 times as they adopt more modules on the platform.
Hence, considering the combination of steady growth and AI-driven demand, Zscaler may see its valuation multiples expand back toward their levels of previous years. Together, these factors can reinvigorate its share price.
