Is Zoom (ZM) a Buy After Strong Q3 Earnings and AI-Driven Growth?

Zoom Communications (ZM) has long been a poster child for post-pandemic tech growth, but its recent performance has sparked renewed debate about its investment potential. The company's Q3 2025 earnings report, coupled with aggressive AI product updates, has reignited discussions about whether Zoom can sustain its momentum in a slowing market. This analysis evaluates Zoom's valuation, growth trajectory, and AI strategy through the lens of its competitive landscape and macroeconomic headwinds.

Earnings and AI Momentum: A Mixed Bag

Zoom's Q3 2025 results showed resilience, with total revenue rising 4.4% year-over-year to $1.23 billion, driven by a 6.1% increase in enterprise revenue to $741.4 million. While these figures fall short of the explosive growth seen during the pandemic, they outperform broader industry trends, particularly in the communications software sector. The company also unveiled AI Companion 3.0, a tool that has seen strong adoption, with 64% of top-tier customers already using it. This product, part of Zoom's broader "AI-first" vision, aims to transform workplace interactions by automating workflows and integrating natural language processing into its platform.

However, the AI narrative is not without caveats. While Zoom's AI Companion is gaining traction, its monetization strategy remains unproven. The company offers core AI features for free but relies on premium tiers for customization and specialized agents like the Zoom Virtual Agent. This approach mirrors the freemium models of many SaaS companies, but it raises questions about how effectively Zoom can convert free users into paying customers, especially as competitors like Microsoft Teams and Google Meet integrate AI into their ecosystems.

Valuation: Undervalued or Overlooked?

Zoom's valuation metrics suggest it is trading at a discount relative to peers. As of November 2025, the stock carries a forward P/E ratio of 13.5× and a P/S ratio of 5.02×, significantly lower than Microsoft's 11.92× P/S ratio. These figures imply that much of the market's skepticism about Zoom's post-pandemic growth is already priced in. A discounted cash flow (DCF) model further supports this view, estimating an intrinsic value of $120.14 per share-32% above its current price-as of November 2025.

Yet, Zoom's market share remains modest. It holds just 0.30% of the broader technology sector and 0.82% of the internet services and social media industry, trailing giants like Apple, Alphabet, and Microsoft. While its brand recognition and hybrid cloud capabilities offer differentiation, the company faces stiff competition from RingCentral and 8x8 Inc., which are also vying for dominance in the UCaaS (Unified Communications as a Service) market (https://csimarket.com/stocks/competitionSEG2.php?code=ZM).

AI Strategy: Vision vs. Execution

Zoom's AI strategy, as articulated by CEO Eric Yuan, is ambitious. The company aims to evolve AI Companion from a meeting assistant into a "comprehensive workplace agent" capable of orchestrating cross-departmental workflows (https://www.cavell.com/what-we-learned-at-zoom-perspectives-25/). This vision aligns with broader industry trends, as enterprises increasingly seek AI tools that reduce friction in hybrid work environments. However, execution risks persist.

Analysts highlight that Zoom's success hinges on its ability to scale AI adoption across industries while ensuring seamless integration with legacy systems (https://www.cavell.com/what-we-learned-at-zoom-perspectives-25/). For instance, healthcare providers, a key growth segment, require solutions that comply with stringent data sovereignty regulations. Zoom's hybrid cloud infrastructure addresses these concerns, but its ability to penetrate this market will depend on partnerships and regulatory agility (https://www.cavell.com/what-we-learned-at-zoom-perspectives-25/).

Moreover, the company's R&D spending-17% of 2024 revenue, or $852 million-underscores its commitment to innovation (https://www.cavell.com/what-we-learned-at-zoom-perspectives-25/). Yet, in a sector dominated by hyperscalers like Microsoft and Google, Zoom must balance differentiation with interoperability. Its recent stock buyback authorization signals confidence in its value proposition, but it also reflects a defensive posture amid slowing user growth.

Market Dynamics: A Slowing Sector?

The communications software industry is not immune to macroeconomic headwinds. While the U.S. healthcare credentialing software market is projected to grow at a 6.95% CAGR through 2033 (https://www.globenewswire.com/news-release/2025/11/21/3192691/28124/en/U-S-Credentialing-Software-and-Services-in-Healthcare-Market-Trends-Analysis-Report-2025-2033-Growth-Opportunities-Enhancing-Regulatory-Compliance-and-Boosting-E.html), broader adoption is constrained by high implementation costs and integration challenges (https://www.globenewswire.com/news-release/2025/11/21/3192691/28124/en/U-S-Credentialing-Software-and-Services-in-Healthcare-Market-Trends-Analysis-Report-2025-2033-Growth-Opportunities-Enhancing-Regulatory-Compliance-and-Boosting-E.html). These factors could limit Zoom's ability to expand into niche markets like healthcare, where competitors like C3.ai are leveraging Microsoft's Azure AI Foundry to streamline enterprise AI deployments (https://aibusiness.com/it/c3-ai-expands-microsoft-partnership).

Zoom's mid-market strategy-targeting companies with 250–1,000 employees-offers a potential growth avenue (https://www.cavell.com/what-we-learned-at-zoom-perspectives-25/). However, this segment is highly competitive, with Microsoft Teams and RingCentral already capturing significant mindshare. RingCentral, in particular, has demonstrated stronger financial discipline, with non-GAAP operating margins of 22.8% in Q3 2025 and a projected 4.9% GAAP operating margin for 2025 (https://www.investing.com/news/company-news/ringcentral-q3-2025-slides-ai-products-drive-growth-as-margins-expand-93CH-4328933).

Conclusion: A Calculated Buy?

Zoom's Q3 earnings and AI advancements suggest a company in transition. Its undervalued stock and aggressive R&D spending position it as a potential beneficiary of the AI-driven productivity boom. However, the path to sustained growth is fraught with challenges: scaling AI monetization, competing with integrated platforms, and navigating a slowing market.

For investors, the key question is whether Zoom can execute its AI-first vision without sacrificing profitability. The DCF model's $120.14 intrinsic value estimate implies a compelling upside if the company meets its 2028 revenue and earnings projections. Yet, this optimism must be tempered by the reality of a crowded market and the risks of overreliance on a single strategic pivot.

In the end, Zoom's stock may appeal to those willing to bet on its ability to reinvent itself as an AI-centric platform. But in a sector where execution often outpaces hype, patience and a long-term horizon will be critical.