Guggenheim reiterates Neutral rating on Zscaler stock ahead of earnings By Investing.com

Guggenheim expects Zscaler to beat fiscal Q3 revenue expectations and guide fiscal Q4 revenue above consensus, with full-year revenue guidance likely raised by at least the size of the beat. The company is also benefiting from solid fundamentals, including 23.9% revenue growth and a 76.6% gross margin, while Red Canary is expected to contribute $130 million of fiscal 2026 ARR. Analyst views remain mixed, but several firms have recently raised targets or upgraded the stock, and Zscaler launched Project AI-Guardian to expand AI security offerings.

Analysis

The setup is less about a clean earnings beat and more about whether Zscaler can convert steady demand into credible platform expansion. In this tape, that distinction matters because the market is rewarding “durable consumption” software only when it can see multi-quarter visibility; a guide-up tied to the beat would likely compress near-term skepticism, but any hesitation around Red Canary integration or cross-sell would quickly cap multiple expansion. The immediate beneficiaries of a strong print are the large enterprise channel partners and SI ecosystem, since a stronger security budget backdrop usually lifts adjacent services attach rates before it shows up in the core vendor’s backlog.

The second-order read-through is that AI security is becoming the new budget line item, not just a feature request. If the company can frame Project AI-Guardian as monetizable demand rather than marketing, it supports a higher-quality revenue mix and reduces the narrative that secure access is a mature category. The risk is that investors may be overpaying for a re-acceleration story while the actual incremental growth driver is still Federal and partner-led, which is less elastic and can fade if macro procurement slows over the next 1-2 quarters.

Morgan Stanley’s downgrade is the important contrarian tell: the market may be extrapolating platform breadth faster than customers are adopting it. If Red Canary remains a “nice-to-have” bolt-on instead of a material booking contributor, then the multiple should stay range-bound even with a decent quarter. The cleanest bullish case is not upside on the print alone, but evidence that the next 2-3 quarters can sustain >consensus revenue without relying on one-off inorganic contributions.

Key Decisions for Investors

• Buy ZS into the print only on a post-earnings selloff of 5-8% if guide-up is intact; target a 10-15% rebound over 4-8 weeks as revised numbers filter through and short-term holders unwind.
• If long ZS, fund it with a short MS/peer basket into the event: MS remains the cleaner expression of the platform-expansion skepticism, while ZS offers the asymmetric upside if guidance lifts.
• For tactical traders, use a call spread on ZS for the next 1-2 monthly expiries rather than outright shares; this captures a volatility pop while limiting risk if Red Canary or AI monetization disappoints.
• Pair long ZS vs short a lower-growth cybersecurity name with less AI/security-platform optionality over the next 1-3 months; the trade is a relative rerating, not a sector beta bet.
• Trim or avoid chasing above the current level if the stock gaps higher on results but management does not quantify incremental ARR from AI/security initiatives; without that proof point, upside is likely limited to a low-20s multiple ceiling.