Zscaler jumps 10% after Guggenheim upgrade signals 40% upside

Shares of Zscaler surged on Monday after Guggenheim upgraded the cybersecurity company to Buy from Neutral, arguing that the recent selloff has created an attractive entry point for investors despite ongoing concerns about growth.

Zscaler shares climbed 10% to $154.11, extending a rebound that put the stock on track for its third consecutive daily gain.

The rally followed a steep decline on May 27, when shares plunged 32% after the company reported quarterly earnings and issued guidance that disappointed investors.

Guggenheim analysts John DiFucci and Lawrence Vensko initiated a $214 price target on the stock, implying roughly 40% upside from recent levels.

The upgrade came as Wall Street continues to debate whether Zscaler can capitalize on growing demand for artificial intelligence-related cybersecurity solutions.

Guggenheim sees opportunity after earnings selloff

The investment firm acknowledged that investor sentiment deteriorated following the company's fiscal third-quarter results and outlook.

However, the analysts argued that the market reaction may have been excessive.

“We believe the current level presents an opportunity to purchase a leader in an important, nascent security space at about the intrinsic value of the stock if it were run hyper-efficiently and never grew (or declined) again,” the analysts wrote.

Investor concerns centered on management's outlook for fiscal 2027.

Zscaler projected revenue and annual recurring revenue growth of between 16% and 17%, below analyst expectations of approximately 19%.

Despite the softer guidance, Guggenheim pointed to signs of continued business momentum.

According to the firm's research, Zscaler's sales pipeline remains strong, supported by a growing number of large enterprise opportunities.

The analysts also noted that channel-sourced revenue has declined from 96% in prior years to 85% in the most recent quarter, a trend that could indicate a larger share of business is being generated through direct enterprise relationships.

AI security remains central to growth story

Guggenheim's positive outlook is largely tied to the belief that Zscaler's products will become increasingly important as artificial intelligence adoption expands.

The firm highlighted the company's position in secure access service edge (SASE) and security service edge (SSE), areas expected to benefit as organizations move away from traditional hardware-based security infrastructure.

“We realize this is still a ‘trust me story’ but believe the valuation here presents an opportunity for those investors interested in a category leader of a still nascent and hyper-growth market,” DiFucci and Vensko added.

Zscaler has repeatedly emphasized AI security as a key growth driver.

The company recently announced plans to acquire data security vendor Symmetry Systems for an undisclosed amount as part of broader efforts to strengthen its AI security portfolio.

Over the past several years, the company has also acquired Red Canary, SPLX, SquareX, and Avalor.

Chief Executive Jay Chaudhry reinforced the company's positioning during last month's earnings call.

“Zscaler is ideally positioned as the cybersecurity platform for the AI era,” Chaudhry told analysts.

Wall Street remains divided

While Guggenheim sees significant upside potential, not all analysts share that optimism.

Morgan Stanley analysts led by Meta Marshall said their April downgrade of Zscaler to Equal Weight was validated by the company's latest earnings report.

Marshall wrote that Zscaler is facing increasing competition in the secure access service edge market and warned that the stock could remain “in the penalty box” until investors see clearer evidence that the company's AI security products are gaining traction.

The analyst team added that there is “no clear driver for now for the stock.”

Other firms have also taken a more cautious stance.

Wells Fargo and Evercore ISI recently lowered their price targets, citing concerns about the company's slower growth outlook.

Despite Monday's rebound, Zscaler shares remain down 31% in 2026, reflecting broader investor uncertainty over how artificial intelligence could reshape the software and cybersecurity industries.