Cloud Stock Hits 3-Year High After Earnings

Zscaler (ZS) shares surged 7.6% to three-year highs after strong fiscal third-quarter results and an increased full-year forecast, despite a downgrade from Piper Sandler; the company also named Kevin Rubin as CFO. The stock is up 50% year-to-date, fueled by positive momentum and upgrades from 18 analysts, while options activity has spiked, particularly in weekly calls. A notable increase in short interest, now representing 9% of the float, suggests a potential short squeeze could further support the stock's upward trajectory.

Analysis

Zscaler (ZS) demonstrated robust financial health with strong fiscal third-quarter results and an upwardly revised full-year forecast, propelling its stock 7.6% to $270.32, a three-year high and surpassing the $260 resistance level, contributing to a 50% year-to-date gain in 2025. This positive momentum, further supported by the appointment of Kevin Rubin as new CFO, largely negated a downgrade from Piper Sandler to "neutral," as no fewer than 18 other analysts concurrently raised their price targets. Options market activity was exceptionally high, quadrupling typical volumes with 16,000 calls and 9,868 puts exchanged, showing a significant skew towards call options, particularly the weekly 5/30 275-strike and 300-strike calls, indicating bullish speculation. A critical factor for continued upward movement is the substantial 21% increase in short interest over the two most recent reporting periods, with 8.73 million shares short representing 9% of the available float and a 3.5-day cover ratio, signaling a strong potential for a short squeeze.

Key Decisions for Investors

• Investors should weigh Zscaler's strong fundamental performance and positive guidance against its significant recent stock appreciation and the isolated analyst downgrade when evaluating positions.
• The substantial short interest at 9% of float, coupled with high call option volume, indicates a strong potential for a short squeeze which could drive further price appreciation and volatility; these metrics warrant close monitoring.
• Consider the implications of the new CFO appointment on Zscaler's future financial strategy and execution, alongside the prevailing positive analyst sentiment evidenced by multiple price target upgrades.