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Investing.com --Bernstein downgraded Zscaler, saying the stock’s valuation has lost its premium and the company now trades in line with expectations for growth and margins, leaving limited upside after a sharp selloff tied to concerns about its 2026 annual recurring revenue outlook.
Zscaler shares are down more than 3% in early Monday trading. Stock now rated Marketperform at brokerage from its previous Outperform stance. Shares had shed in double digits ahead of thanksgiving.
The bank said Zscaler is a strong business with solid technology, but its growth and margin trajectory now matches Street consensus, removing what had been a differentiated view.
“We think investors are hiding in this category to avoid AI disruption risk and gain exposure to AI-driven tailwinds for cybersecurity spending,” analysts at Bernstein said.
It said the stock also screens fairly valued against its next twelve month Rule of 40 metric, while other well liked cybersecurity names continue to command a premium.
Bernstein said Zscaler’s narrative has weakened since its latest results, with investors focused on competitive pressure and uncertainty over growth durability. It said it has little visibility on when concerns about persistence of growth may ease.
Zscaler’s long term growth duration also falls short of peers with broader platforms. Berenstein expects Zscaler’s expansion opportunities to remain tied largely to cloud centric network security, limiting sustained high growth over the next decade.
Whereas companies with wider product portfolios that sell across multiple security categories have longer runways, making their premium valuations easier to justify.
Bernstein made no changes to its target price or model and said Palo Alto offers better upside among high quality names, while Okta could see a multiple re rating as growth headwinds fade.