Zscaler Stock Rises 46% Amid Strong Cybersecurity Demand

Zscaler, Inc. (ZS) has seen a 46% increase in share price over the past three months, significantly outperforming the Zacks Security industry’s 10.7% gain. Comparatively, CyberArk Software (CYBR) rose 8.3%, Palo Alto Networks (PANW) 4.8%, and CrowdStrike (CRWD) 23.2% in the same timeframe.

This substantial rise presents a dilemma for investors: should they hold onto their shares or take profits?

Image Source: Zacks Investment Research

ZS Gains Through Enhanced Cybersecurity Solutions

In 2025, Zscaler launched its Asset Exposure Management solution, improving asset risk management for organizations. The company partnered with SAP to integrate its Zero Trust Network Access into SAP’s RISE framework, reducing reliance on traditional VPNs whilst adhering to regulatory requirements.

Additionally, Zscaler expanded its capabilities through the acquisition of Red Canary, a provider of Managed Detection and Response solutions. These strategic moves position the company to counter increasing cyber threats such as ransomware and malware.

Artificial intelligence (AI) is being integrated into Zscaler’s offerings. The partnership with NVIDIA incorporates AI technologies into its Zero Trust Security model, while CrowdStrike provides expertise in threat intelligence and risk quantification.

Financially, Zscaler reported a 12-month trailing dollar-based retention rate of 114% in the third quarter of fiscal 2025, driven by more substantial bundle sales and upsells. Remaining Performance Obligations, representing future revenues, grew by 30% year-over-year, with 642 customers generating over $1 million in ARR.

Zscaler Expands Government Presence

The company is enhancing its GovCloud solutions to gain compliance approvals. By meeting government security standards, Zscaler is increasing its footprint in federal agencies.

The deployment of AI-powered Cloud Browser Isolation and IPv6 enhances security for government clients. Zscaler currently serves 14 of the 15 U.S. cabinet-level agencies, offering potential for continued public sector growth.

Its inclusion in Amazon Web Services’ Internet Control Message Protocol further facilitates access to Zscaler’s cybersecurity solutions among federal agencies.

Challenges: Rising Costs and Competition

Zscaler confronts stiff competition from CyberArk, Palo Alto Networks, and CrowdStrike. Its offerings face challenges from competitors like Palo Alto Networks Prisma Access and CrowdStrike Falcon Zero Trust.

To remain competitive, Zscaler has invested heavily in sales and marketing initiatives. However, these investments may impact near-term profitability.

The company projects non-GAAP earnings per share in the range of $3.18-$3.19 for fiscal 2025, while the Zacks Consensus Estimate is $3.06, a decline of 4% year-over-year.

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Stock Valuation Concerns

Zscaler’s premium valuation is evident, with a Zacks Value Score of F. Its Forward 12-month Price/Sales ratio stands at 13.92X, far exceeding the sector average of 5.54X.

Image Source: Zacks Investment Research

Conclusion: Hold ZS Stock for Now

Despite facing challenges like rising costs and shrinkage in margins, Zscaler’s robust investments in AI and cybersecurity capabilities, along with its retention rates and government contracts, support maintaining the stock at this time. It currently holds a Zacks Rank of #3 (Hold).