As Zscaler Doubles Down on AI Security, ZS Stock Still Needs More to Justify Its Steep Valuation

Zscaler (ZS) is making another push into AI security, and investors are paying attention. The company said it plans to acquire Symmetry Systems, a data security startup that helps map how identities, apps, and data connect across an enterprise. That matters because AI is creating a new security problem. Companies do not just need to protect people and devices anymore — they also need to watch how AI agents move through data.

That is part of why cloud security stocks have stayed active this year. Investors still like the long-term story, but they are also demanding proof that these companies can turn AI buzz into real sales. Zscaler fits right into that debate. It is growing well, it is spending to widen the platform, and it wants to be seen as the security layer for the AI age.

Zscaler Stock Still Moves on Growth Expectations

Zscaler shares have been volatile over the past year. The stock ran hard at one point, then gave back a lot of those gains as investors rotated away from expensive software names. Year-to-date (YTD) in 2026, the stock has dropped by 19%, even after a recent bounce tied to its AI security push.

That movement makes sense. Zscaler trades like a stock that needs near-perfect execution. When growth looks strong, buyers show up fast. When momentum slows, sellers hit the stock just as quickly. The 50-day moving average has been below the 200-day moving average for much of the year, which usually tells you the longer trend is still weak, even if the stock has tried to stabilize. 

Despite the weak performance, ZS stock does not look cheap. On a price-to-sales (P/S) basis, it trades around 10.2 times sales, which is above the software security sector median. That is a premium, and investors are paying for growth, not bargain pricing.

Zscaler Keeps Building Around AI Security

Zscaler has stayed aggressive in 2026 as it pushes deeper into AI and cloud security. Last week, the company launched Project AI-Guardian with partners including Cognizant (CTSH), EY, and Infosys (INFY) to help enterprises deploy AI tools securely. Around the same time, Zscaler unveiled plans to acquire Symmetry Systems, adding stronger data security and AI governance capabilities to its platform.

Earlier this year, the company expanded its data sovereignty offerings. Its Zero Trust Exchange platform now supports in-region SSL inspection, private service edges, and flexible encryption key controls to help customers meet local compliance rules. These moves strengthen Zscaler’s position with large global enterprises adopting AI workloads.

Latest Quarter Shows The Core Business Still Has Life

Zscaler’s latest quarter was strong enough to keep the bull case alive. In the second quarter of fiscal 2026, revenue rose 26% year-over-year (YOY) to $815.8 million. Annual recurring revenue climbed 25% to $3.36 billion, which is a good sign that the business keeps adding durable subscriptions.

The company posted a GAAP net loss of $34.3 million, wider than a year ago, but non-GAAP net income rose to $168.7 million. Adjusted EPS came in at $1.01, up from $0.78 a year earlier. That is the number most investors will focus on because it shows the business is still scaling.

Cash generation also looked solid. Free cash flow was $169.1 million, while cash, cash equivalents, and short-term investments totaled $3.51 billion. That gives Zscaler a lot of flexibility. The company can keep investing, keep buying technology, and keep pushing into new security areas without stressing the balance sheet.

CEO Jay Chaudhry said Zscaler is built for the AI age, and that line fits the company’s whole strategy. It is trying to become the security layer for a world where AI is everywhere. For the current quarter due May 26, management guided for revenue of $834 million to $836 million. For the full fiscal year, it now expects revenue of $3.309 billion to $3.322 billion and EPS of $3.99 to $4.02.

What Does Wall Street Think of ZS Stock?

Analysts mostly remain constructive on ZS stock, but they are not all pounding the table. Morgan Stanley recently kept an “Equal Weight” rating with a $155 target, which suggests caution after the recent pullback. 

Similarly, UBS stayed positive with a $260 target, while Cantor Fitzgerald kept an “Overweight” rating with a $300 target. Guggenheim is more neutral, but it still expects Zscaler to top revenue expectations and possibly raise guidance.

Overall, Wall Street's consensus is a “Strong Buy” rating. The average price target of $223.71 points to potential upside of about 23% from current levels.