We use cookies to understand how you use our site and to improve your experience.
This includes personalizing content and advertising.
By pressing "Accept All" or closing out of this banner, you consent to the use of all cookies and similar technologies and the sharing of information they collect with third parties.
You can reject marketing cookies by pressing "Deny Optional," but we still use essential, performance, and functional cookies.
In addition, whether you "Accept All," Deny Optional," click the X or otherwise continue to use the site, you accept our Privacy Policy and Terms of Service, revised from time to time.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
Zscaler's Growth Likely to Slow to 17%: Can AI Products Close the Gap?
Read MoreHide Full Article
Key Takeaways
Zscaler expects FY27 revenue growth of 17%, down from 25% in FY26, despite rising AI demand.
Security for AI bookings surged over 50% QoQ in Q4, highlighting growing demand for AI security products.
About 70% of AI security deals included Data Security, while metered offerings ARR grew over 100% in FY26.
Zscaler, Inc. (ZS - Free Report) faces a key challenge as its revenue growth is expected to slow in fiscal 2027. However, rising demand for artificial intelligence (AI) security products could help the cybersecurity company strengthen customer relationships and create new growth opportunities. The key question is whether these offerings can generate enough business to offset slower growth elsewhere.
In fiscal 2026, Zscaler’s revenues increased 25% year over year to $3.35 billion, while annual recurring revenues (ARR) rose 25% to $3.77 billion. However, management expects fiscal 2027 revenues of $3.91-$3.94 billion, implying growth of roughly 17%. This outlook signals that Zscaler must convert new opportunities into revenues to sustain its earlier growth pace.
AI security offers one potential solution. Security for AI bookings grew more than 50% sequentially in the fourth quarter of fiscal 2026. Zscaler is also developing products such as Zero Trust Exchange for Agents and Endpoint AI Security to address risks from AI applications and autonomous agents. These offerings could help enterprises protect sensitive data, manage access and reduce exposure to emerging threats.
The opportunity extends beyond new products. About 70% of Security for AI deals in the fourth quarter included Data Security, creating opportunities to sell additional services to existing customers. Meanwhile, non-seat-based metered offerings accounted for around 30% of new and upsell annual contract value in fiscal 2026, with related ARR growing more than 100% year over year.
Still, strong bookings must translate into sustained revenue growth. Zscaler needs to scale its new AI products, win new customers and expand spending among existing clients. Its AI portfolio could help narrow the growth gap, but execution will determine the impact. The Zacks Consensus Estimate for fiscal 2027 revenues is currently pegged at $3.93 billion, indicating a year-over-year increase of 17.2%.
Can AI Security Sustain Growth for ZS’ Rivals?
Palo Alto Networks, Inc. (PANW - Free Report) and Fortinet Inc. (FTNT - Free Report) are among the biggest competitors of Zscaler in the AI security space.
Palo Alto Networks is seeing growing demand for its AI security products as enterprises move more AI workloads into production. Prisma AIRS, the company's AI security platform, surpassed $100 million in ARR in the fourth quarter of fiscal 2026. It reached this milestone within four quarters of general availability, making it the fastest-scaling product in Palo Alto Networks' history. The product also had more than 800 customers, with most of the company's largest transactions in the fourth quarter, including multiple Prisma AIRS modules.
In fourth-quarter fiscal 2026, revenues grew 34% year over year to $3.41 billion, while Next-Generation Security annual recurring revenues surged 63% to $9.1 billion. Revenues from the Network & AI Security segment reached $2.33 billion in the fourth quarter.
Fortinet is another competitor building AI security capabilities across its platform. On Aug. 17, 2026, the company acquired Virtue AI, adding agentic AI red-teaming, continuous AI validation, agent governance and real-time guardrails that complement its FortiAIGate solution for protecting large language models. Fortinet's strategy of integrating networking and security on a single operating system, FortiOS, powered by its proprietary FortiASIC chips, resonates strongly with enterprises modernizing infrastructure for AI.
In the second quarter of 2026, revenues climbed 26% year over year to $2.05 billion, as product revenues soared 52% to $773 million on robust FortiGate unit growth and higher average selling prices. Billings jumped 33% to $2.37 billion. In the second quarter, Fortinet also secured an eight-figure deal from a neocloud provider to protect AI data centers, underscoring its price-to-performance advantage. Customer investments to secure AI workloads and mitigate AI-related risks drove both new business and upgrade activity across the installed base.
ZS shares have returned 3.9% year to date, while the Zacks Security industry has surged 117.6%.
Zscaler YTD Price Return Performance
Image Source: Zacks Investment Research
From a valuation standpoint, ZS trades at a forward price-to-sales ratio of 9.40, significantly below the industry’s average of 21.34.
Zscaler Forward 12-Month P/S Ratio
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for Zscaler’s fiscal 2027 and 2028 earnings implies a year-over-year increase of 16.6% and 13.3%, respectively. Estimates for fiscal 2027 have been revised upward over the past 30 days, while for fiscal 2028 estimates have been raised in the past seven days.
View the Zacks #1 Rank List
Image: Shutterstock
Zscaler's Growth Likely to Slow to 17%: Can AI Products Close the Gap?
Key Takeaways
Zscaler, Inc. (ZS - Free Report) faces a key challenge as its revenue growth is expected to slow in fiscal 2027. However, rising demand for artificial intelligence (AI) security products could help the cybersecurity company strengthen customer relationships and create new growth opportunities. The key question is whether these offerings can generate enough business to offset slower growth elsewhere.
In fiscal 2026, Zscaler’s revenues increased 25% year over year to $3.35 billion, while annual recurring revenues (ARR) rose 25% to $3.77 billion. However, management expects fiscal 2027 revenues of $3.91-$3.94 billion, implying growth of roughly 17%. This outlook signals that Zscaler must convert new opportunities into revenues to sustain its earlier growth pace.
AI security offers one potential solution. Security for AI bookings grew more than 50% sequentially in the fourth quarter of fiscal 2026. Zscaler is also developing products such as Zero Trust Exchange for Agents and Endpoint AI Security to address risks from AI applications and autonomous agents. These offerings could help enterprises protect sensitive data, manage access and reduce exposure to emerging threats.
The opportunity extends beyond new products. About 70% of Security for AI deals in the fourth quarter included Data Security, creating opportunities to sell additional services to existing customers. Meanwhile, non-seat-based metered offerings accounted for around 30% of new and upsell annual contract value in fiscal 2026, with related ARR growing more than 100% year over year.
Still, strong bookings must translate into sustained revenue growth. Zscaler needs to scale its new AI products, win new customers and expand spending among existing clients. Its AI portfolio could help narrow the growth gap, but execution will determine the impact. The Zacks Consensus Estimate for fiscal 2027 revenues is currently pegged at $3.93 billion, indicating a year-over-year increase of 17.2%.
Can AI Security Sustain Growth for ZS’ Rivals?
Palo Alto Networks, Inc. (PANW - Free Report) and Fortinet Inc. (FTNT - Free Report) are among the biggest competitors of Zscaler in the AI security space.
Palo Alto Networks is seeing growing demand for its AI security products as enterprises move more AI workloads into production. Prisma AIRS, the company's AI security platform, surpassed $100 million in ARR in the fourth quarter of fiscal 2026. It reached this milestone within four quarters of general availability, making it the fastest-scaling product in Palo Alto Networks' history. The product also had more than 800 customers, with most of the company's largest transactions in the fourth quarter, including multiple Prisma AIRS modules.
In fourth-quarter fiscal 2026, revenues grew 34% year over year to $3.41 billion, while Next-Generation Security annual recurring revenues surged 63% to $9.1 billion. Revenues from the Network & AI Security segment reached $2.33 billion in the fourth quarter.
Fortinet is another competitor building AI security capabilities across its platform. On Aug. 17, 2026, the company acquired Virtue AI, adding agentic AI red-teaming, continuous AI validation, agent governance and real-time guardrails that complement its FortiAIGate solution for protecting large language models. Fortinet's strategy of integrating networking and security on a single operating system, FortiOS, powered by its proprietary FortiASIC chips, resonates strongly with enterprises modernizing infrastructure for AI.
In the second quarter of 2026, revenues climbed 26% year over year to $2.05 billion, as product revenues soared 52% to $773 million on robust FortiGate unit growth and higher average selling prices. Billings jumped 33% to $2.37 billion. In the second quarter, Fortinet also secured an eight-figure deal from a neocloud provider to protect AI data centers, underscoring its price-to-performance advantage. Customer investments to secure AI workloads and mitigate AI-related risks drove both new business and upgrade activity across the installed base.
Zscaler’s Price Performance, Valuation & Estimates
ZS shares have returned 3.9% year to date, while the Zacks Security industry has surged 117.6%.
Zscaler YTD Price Return Performance
Image Source: Zacks Investment Research
From a valuation standpoint, ZS trades at a forward price-to-sales ratio of 9.40, significantly below the industry’s average of 21.34.
Zscaler Forward 12-Month P/S Ratio
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for Zscaler’s fiscal 2027 and 2028 earnings implies a year-over-year increase of 16.6% and 13.3%, respectively. Estimates for fiscal 2027 have been revised upward over the past 30 days, while for fiscal 2028 estimates have been raised in the past seven days.
Image Source: Zacks Investment Research
Zscaler currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.