Is Zscaler (ZS)’s Depressed Stock Opportunity Or Warning? Answer May Lie in Emerging AI Security Business

Cybersecurity company Zscaler, Inc. (NASDAQ: ZS ) delivered solid results in the latest quarter. However, it is also evident that the market remains skeptical about the company's AI security opportunities.

Zscaler reported revenue and earnings that beat Wall Street expectations and issued upbeat guidance for both the current quarter and fiscal full-year. Yet Zscaler shares are down more than 20% year-to-date, bucking several cybersecurity stocks that have soared to new highs this year.

Zscaler's investment case rests on its AI security business becoming a meaningful growth contributor while the core business continues to power on.

Zscaler, Inc. (NASDAQ:ZS)'s fiscal Q4 revenue jumped 25% YoY to $898 million, above the $877 million that analysts estimated. Annual recurring revenue rose 25% to $3.77 billion. The company's GAAP net loss narrowed to $3.4 million from $17.6 million a year ago. Adjusted EPS of $1.19 rose from $0.89 a year ago and topped the consensus estimate of $1.09.

Looking ahead, the company anticipates fiscal Q1 revenue in the range of $935 million to $939 million. Adjusted EPS was forecast in the range of $1.15 to $1.16. Both forecasts are above Wall Street expectations. Fiscal 2027 full-year revenue guidance of $3.91 billion to $3.94 billion also exceeds the $3.9 billion consensus.

These numbers indicate that Zscaler's core Zero Trust business is producing solid growth, although losses persist. The question is whether the company can add a second growth engine focused on AI security without fumbling execution and hurting the core business.

As enterprises deploy AI agents, Zscaler, Inc. (NASDAQ:ZS) CEO Jay Chaudhry believes the Zero Trust architecture gives the company an important advantage. Zscaler's AI-security bookings over the past year hit $100 million and grew more than 50% sequentially in the latest quarter. Management expects its Zero Trust Exchange for Agents and Endpoint AI Security offerings to begin scaling in the second half of fiscal 2027, while Agentic SecOps is expected to start contributing in the second half of the year and build further momentum in fiscal 2028.

Accelerating AI-security bookings provide an early signal of demand. The investment thesis therefore depends on those bookings converting into recurring revenue and the AI security business becoming large enough to influence Zscaler's growth trajectory. The thesis breaks if those bookings fail to convert into recurring revenue, or if execution problems cause core growth to deteriorate.