Cantor Fitzgerald cuts Zscaler stock price target on capex concerns By Investing.com

Cantor Fitzgerald cut its Zscaler price target to $225 from $300 after the company reported Q3 fiscal 2026 results that beat consensus on revenue, ARR, and EPS and raised full-year revenue guidance. However, management lowered free cash flow guidance, citing higher fourth-quarter capex and accelerated data-center equipment purchases to lock in pricing ahead of expected increases, with fiscal 2026 capex now projected at the high-single digits as a percentage of revenue versus mid-single digits previously. Analysts broadly turned more cautious, with multiple firms reducing targets amid weaker fiscal 2027 outlook and software valuation pressure.

Analysis

The market is likely treating this as a classic “beat-and-cut” setup, but the more important issue is that management is pulling forward infrastructure spend to preserve supply optionality, not because demand is deteriorating. That usually supports revenue durability over the next 2-4 quarters while compressing near-term free cash flow and keeping sentiment anchored to cash conversion rather than bookings quality. In other words, the stock may continue to trade off capex optics before investors re-rate it on the sturdier recurring revenue base.

The second-order effect is competitive: if Zscaler is willing to absorb component inflation and expand appliance/data-center investment, smaller platform vendors and adjacent security players with tighter balance sheets will struggle to match deployment cadence or gross margin stability. That can create a temporary share-shift opportunity in enterprise Zero Trust budgets toward the incumbents that can fund pre-buys and inventory buffering. The flip side is that higher hardware intensity makes the business look more cyclical than the market wants a premium cloud-security multiple to be, which can widen valuation dispersion across the sector.

The consensus likely underestimates how quickly the narrative can reverse if fiscal 2027 guidance proves merely conservative rather than decelerating. If macro enterprise spend holds and the capex step-up is transitory, the stock can re-rate on operating leverage once pricing pressure normalizes and the market sees sustained top-line momentum plus RPO conversion. The main tail risk is that this becomes the first of several quarters where guidance is systematically managed down, which would extend multiple compression for months even if headline growth stays healthy.

Key Decisions for Investors

• Hold a tactical underweight in ZS for the next 4-8 weeks while the market digests the free-cash-flow downgrade; add only if the stock de-risks to a level where EV/revenue no longer prices in durable 20%+ growth.
• Pair trade: long PANW / short ZS for 1-3 months if you want exposure to cybersecurity without paying up for the name with the bigger capex drag; the relative trade benefits if investors reward cash generation over growth.
• For event-driven upside, buy 3-6 month ZS call spreads rather than outright shares only after management commentary stabilizes on fiscal 2027 margins; the setup is asymmetric if guidance proves conservative, but downside is capped by continued capex pressure.
• Watch for a sector re-rating trigger if peers begin to echo hardware pre-buy behavior; if that happens, rotate into the best balance-sheet names first, because they will be able to defend growth without the same margin sacrifice.
• If ZS sells off another 10-15% on capex headlines while revenue guidance holds, consider a staged long entry for a 6-12 month horizon; the risk/reward improves materially if the market over-penalizes temporary FCF compression.