A Look At Zscaler (ZS) Valuation As AI Driven Security Optimism Lifts Investor Sentiment #AI

Executive departure and recent AI driven sentiment shift

Investor attention on Zscaler (ZS) has recently picked up after a rebound in cybersecurity stocks linked to AI related budget expectations, along with news that long serving executive and board member Raj Judge plans to leave the company.

See our latest analysis for Zscaler.

Despite recent AI related optimism and the Google Cloud security award, Zscaler’s share price has faced pressure, with a 90 day share price return showing a 36.57% decline and a 1 year total shareholder return showing a 36.72% loss. However, the 3 year total shareholder return of 42.34% suggests longer term holders have seen gains, pointing to fading near term momentum against a stronger multi year backdrop.

If the AI theme in cybersecurity interests you, this is a good moment to size up other potential opportunities through a curated set of 74 profitable AI stocks that aren’t just burning cash

With Zscaler shares down sharply over the past year despite AI related enthusiasm and a security award from Google Cloud, the key question is whether this correction leaves room for upside or if the market already reflects future growth.

Most Popular Narrative: 23% Undervalued

According to the most followed narrative, Zscaler’s fair value of $172.68 sits well above the last close at $132.97, setting up a clear valuation gap that hinges on how cloud security demand and zero trust adoption play out over time.

Zscaler is revolutionizing cloud security with the industry’s first Security as a Service platform. Their solutions are used by more than 5,000 leading organizations, including 50 of the Fortune 500. As organizations increasingly rely on cloud-based services and face growing cybersecurity threats, Zscaler’s comprehensive platform positions it well to address these evolving needs.

Read the complete narrative.

Curious what underpins that valuation gap? The narrative leans heavily on sustained cloud security demand, expanding zero trust adoption and improving margins over time. The detailed assumptions on revenue growth, profitability and market penetration are what really move the fair value calculation.

Result: Fair Value of $172.68 (UNDERVALUED)

Have a read of the narrative in full and understand what’s behind the forecasts.

However, this bullish story still faces real pressure points, including intense competition from larger security vendors and the risk that weaker IT budgets curb demand for Zscaler’s platform.

Find out about the key risks to this Zscaler narrative.

Another angle on valuation

There is a clear tension between the narrative fair value of $172.68 and our DCF model, which points to a higher future cash flow value estimate of $231.97 compared with the current $132.97 share price. If both methods lean toward undervalued, is the market overreacting to recent setbacks or correctly pricing in risk?

Look into how the SWS DCF model arrives at its fair value.

Next Steps

Seeing both risks and rewards in the story so far? Use the full set of metrics to firm up your stance and check the 2 key rewards and 1 important warning sign

Looking for more investment ideas?

If Zscaler has you thinking more broadly about your portfolio, this is the moment to broaden your watchlist and compare different types of opportunities side by side.

This article by Simply Wall St is general in nature. We provide commentary based on historical data
and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your
financial situation. We aim to bring you long-term focused analysis driven by fundamental data.
Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
Simply Wall St has no position in any stocks mentioned.

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