Zscaler Is Still Growing—So Why Has the Stock Been Cut in Half?

Zscaler (ZS) is handling an enormous volume of traffic—management has talked about hundreds of billions to over a trillion transactions annually across its Zero Trust cloud. And yet, the stock has declined, even before reports of a data leak at Anthropic, falling from a late-2025 high near $330+ to roughly the $130–$140 range in early 2026.

That kind of drop feels extreme.

But once you dig in, it starts to make sense. This isn’t really about the business breaking. It’s about how the market is valuing growth now.

The Big Reset

Zscaler’s fall—roughly 50%+ from its peak—isn’t tied to a collapse in demand. It’s more of a valuation reset.

A year ago, investors were comfortable paying 20x+ forward revenue for high-growth cloud names. In 2026, that’s no longer the case. Multiples across the sector have compressed, and Zscaler has come down to roughly high single-digit revenue multiples.

Same company. Different market mood.

Growth Is Still There… But Slower

In its recent results (early 2026), Zscaler reported revenue of around $815–$820 million for the quarter, growing roughly mid-20% year over year.

That’s strong.

But here’s where investors got picky. Some of that growth was boosted by acquisitions, including Red Canary. Strip that out, and organic growth trends closer to the low-20% range.

For most companies, that’s great.
For a stock once priced for 30%+ growth, it feels like a slowdown.

And in this market, even a small shift in growth expectations can hit the stock hard.

The Profitability Gap

Zscaler actually looks impressive on a cash basis. It’s generating strong free cash flow, and by the popular “Rule of 40” (or higher), it easily qualifies as a high-quality SaaS business.

But GAAP tells a different story.

The company is still reporting net losses, driven largely by stock-based compensation. That gap between adjusted profitability and real earnings has become a bigger issue in 2026, as investors demand cleaner income statements.

So while the business is scaling, the optics aren’t perfect.

The Business Is Still Strong

Underneath the stock movement, the fundamentals are holding up well.

Remaining Performance Obligations (RPO)—a key backlog metric—have climbed to around $6 billion+, growing ~30%. That suggests enterprises are still committing to long-term deals.

Zscaler is also expanding its base of large customers. The number of clients spending over $1 million annually continues to rise steadily, which is usually a sign of strong product-market fit at the high end.

The AI Angle

This is where things get interesting.

Zscaler is positioning itself not just as a security company, but as a security layer for AI-driven enterprises. As businesses deploy autonomous agents and AI workflows, the amount of machine-to-machine traffic explodes—and all of it needs to be secured.

That’s a huge opportunity.

The company’s AI security offerings are already contributing meaningfully to revenue, with ARR in the hundreds of millions range. The shift from “protecting users” to “protecting AI agents” could become a major growth driver over time.

What Comes Next

Management has actually stayed confident, guiding for ~24% full-year revenue growth and improving operating margins.

So the question isn’t whether Zscaler is growing.

It’s whether that growth is good enough for the valuation investors are willing to pay today.

The Bottom Line

Zscaler isn’t being punished for poor execution.

It’s being repriced for a different market environment.

Growth is still solid. Demand is intact. The AI opportunity is real.

But the days of premium multiples for “just growth” are over—at least for now.

The next phase for the stock depends on one thing:
Can Zscaler prove it can sustain growth while closing the profitability gap?

If it can, sentiment can turn quickly. If not, the stock may stay under pressure—even if the business keeps performing.

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