Key Takeaways:
- AI Security Surge: Zscaler’s AI Security pillar exceeded its $400 million annual recurring revenue target three quarters early, growing over 80% year-over-year.
- Price Projection: Based on current execution, ZS stock could reach $264 by July 2028.
- Potential Gains: This target implies a total return of 51% from the current price of $174.
- Annual Return: Investors could see roughly 18% growth over the next 2.5 years.
Now Live: Discover how much upside your favorite stocks could have using TIKR’s new Valuation Model (It’s free)>>>
Zscaler (ZS) delivered exceptional first-quarter results for fiscal 2026, with annual recurring revenue growth accelerating to 26% year-over-year and RPO growth hitting 35%.
CEO Jay Chaudhry highlighted robust momentum across three growth pillars: AI Security, Zero Trust Everywhere, and Data Security Everywhere.
- The company now operates at a Rule of 78, combining 52% free cash flow margin with 26% revenue growth.
- This makes Zscaler one of only five enterprise SaaS companies with over $3 billion in ARR, growing at over 25%.
- The company’s AI Security pillar stands out, with over 80% growth and already surpassing the full-year $400 million ARR target. Management now expects AI Security ARR to exceed $500 million by fiscal year-end.
- Enterprises increasingly face AI-driven cyberattacks as threat actors leverage AI to accelerate breach speed and scale. Zscaler’s Zero Trust Exchange secures over 45% of Fortune 500 companies and nearly 40% of Global 2000 companies.
- The company extended its platform to provide visibility into thousands of GenAI apps, enabling secure use of consumer AI applications.
Despite strong fundamentals and market-leading technology, Zscaler trades at $174, leaving room for upside for investors who recognize the company’s position in critical cybersecurity infrastructure.
See analysts’ full growth forecasts and estimates for ZS stock (It’s free) >>>
What the Model Says for Zscaler Stock
We analyzed Zscaler’s transformation into a comprehensive cybersecurity platform spanning Zero Trust architecture and AI security.
The company benefits from multiple demand drivers. In AI security, Zscaler delivered three key innovations: AI asset discovery and posture management through AI-SPM, AI Red teaming for continuous vulnerability testing, and AI Guardrails for in-line policy enforcement.
Zero Trust Everywhere momentum exceeded expectations, with over 450 enterprises adopting the full platform—achieving the fiscal 2026 target three quarters early.
Zero Trust Cloud eliminates VPNs and firewalls while securing workload communication across cloud environments.
The SAP RISE migration to cloud-based ERP presents a significant opportunity similar to the Microsoft Exchange to Office 365 tailwind years ago.
Customers can access SAP RISE applications directly over the internet via Zscaler, eliminating the need for expensive express routes or direct-connect networks.
Using a forecast of 20.7% annual revenue growth and 23.5% operating margins, our model projects the stock will rise to $264 within 2.5 years. This assumes a 42.7x price-to-earnings multiple.
That represents compression from Zscaler’s historical P/E averages of 72.8x (one year) and 31.1x (five years). The lower multiple acknowledges near-term uncertainty around competitive dynamics and the need to maintain investment in emerging product categories.
The real value lies in capturing long-term growth in Zero Trust architecture adoption and AI security spending across global enterprises, while expanding the Z-Flex program to drive larger customer commitments.
Our Valuation Assumptions
Estimate a company’s fair value instantly (Free with TIKR) >>>
Our Valuation Assumptions
TIKR’s Valuation Model lets you plug in your own assumptions for a company’s revenue growth, operating margins, and P/E multiple, and calculates the stock’s expected returns.
Here’s what we used for ZS stock:
1. Revenue Growth: 20.7%
Zscaler’s growth centers on structural demand for Zero Trust security and AI protection. The company delivered 26% revenue growth in Q1, with ARR from all three growth pillars accelerating.
The Z-Flex program generated over $175 million in TCV, up over 70% quarter over quarter. This program allows customers to commit to spending while maintaining flexibility to swap or activate modules without new procurement cycles.
Recent wins demonstrate strong momentum. A Fortune 500 aerospace customer made an eight-figure commitment under Z-Flex, increasing annual spend by over 40% while adding nine new modules.
2. Operating margins: 23.5%
Zscaler delivered 21.8% operating margin in Q1, toward the higher end of its long-term range and expanding 40 basis points year-over-year.
This performance reflects disciplined expense management alongside aggressive investment in growth.
Management prioritizes growth while remaining mindful of margin expansion.
The company expects operating margins to improve in the back half of fiscal 2026 as new products scale and achieve better unit economics.
3. Exit P/E Multiple: 42.7x
The market values Zscaler at 44.7x earnings. We assume the P/E will compress slightly to 42.7x over our forecast period as the company matures and competition intensifies in certain segments.
Zscaler commands a premium multiple due to its leadership position in Zero Trust security and strong execution across emerging categories.
As AI Security and Zero Trust Everywhere demonstrate sustained growth, the company should maintain premium valuations relative to broader cybersecurity peers.
Build your own Valuation Model to value any stock (It’s free!) >>>
What Happens If Things Go Better or Worse?
Cybersecurity companies face technological transitions and an evolving threat landscape. Here’s how Zscaler stock might perform under different scenarios through July 2030:
- Low Case: If revenue growth slows to 17.6% and net income margins compress to 19.1%, investors still see a 58.3% total return (10.8% annually).
- Mid Case: With 19.6% growth and 20.6% margins, we expect a total return of 112.6% (18.4% annually).
- High Case: If AI security acceleration drives 21.6% revenue growth while Zscaler maintains 21.8% margins, returns could hit 177.7% total (25.7% annually).
See what analysts think about ZS stock right now (Free with TIKR) >>>
The range reflects execution on Zero Trust Everywhere adoption, AI Security product maturity, and the Z-Flex program’s ability to drive larger customer commitments and reduce sales cycles.
How Much Upside Does Zscaler Stock Have From Here?
With TIKR’s new Valuation Model tool, you can estimate a stock’s potential share price in under a minute.
All it takes is three simple inputs:
- Revenue Growth
- Operating Margins
- Exit P/E Multiple
If you’re not sure what to enter, TIKR automatically fills in each input using analysts’ consensus estimates, giving you a quick, reliable starting point.
From there, TIKR calculates the potential share price and total returns under Bull, Base, and Bear scenarios so you can quickly see whether a stock looks undervalued or overvalued.
See a stock’s true value in under 60 seconds (Free with TIKR) >>>
Looking for New Opportunities?
- See what stocks billionaire investors are buying so you can follow the smart money.
- Analyze stocks in as little as 5 minutes with TIKR’s all-in-one, easy-to-use platform.
- The more rocks you overturn… the more opportunities you’ll uncover. Search 100K+ global stocks, global top investor holdings, and more with TIKR.
Disclaimer:
Please note that the articles on TIKR are not intended to serve as investment or financial advice from TIKR or our content team, nor are they recommendations to buy or sell any stocks. We create our content based on TIKR Terminal’s investment data and analysts’ estimates. Our analysis might not include recent company news or important updates. TIKR has no position in any stocks mentioned. Thank you for reading, and happy investing!
