Zscaler's $780M Volume Ranks 128th as Bernstein Downgrade and Competitive Pressures Spark Valuation Doubts

Market Snapshot

On December 2, 2025, Zscaler (ZS) recorded a trading volume of $0.78 billion, ranking 128th among U.S.-listed stocks by daily volume. The stock closed 0.66% lower, extending its decline from a 1% premarket drop following a downgrade by Bernstein. This performance aligns with broader market sentiment shifts, as analysts recalibrate expectations for the cybersecurity firm’s growth trajectory and valuation.

Key Drivers

Bernstein’s downgrade of Zscaler from “Outperform” to “Market Perform” on valuation concerns emerged as the primary catalyst for the stock’s decline. Analyst Peter Weed highlighted that Zscaler’s growth and margin expectations now align with market consensus, diminishing the premium previously priced into its shares. The firm’s Rule of 40 metric—a key SaaS benchmark combining growth and profitability—suggests a “fair” multiple relative to peers. Bernstein’s price target of $264, unchanged from prior estimates, reflects cautious optimism but underscores reduced upside potential amid competitive pressures.

The downgrade also underscores broader skepticism about Zscaler’s long-term growth sustainability. While the company has averaged 30.8% revenue growth over three years, analysts warn that expansion may slow to mid-to-low single digits over the next decade. Competitive dynamics in the cybersecurity sector, particularly from broader platforms like CrowdStrike (CRWD) and Palo Alto Networks (PANW), are seen as existential risks. These firms, with diversified product portfolios spanning multiple security categories, offer longer growth runways and justify premium valuations. Zscaler’s current focus on cloud-centric network security is perceived as a constraint, limiting its ability to capture cross-selling opportunities in adjacent markets.

Financial metrics further reinforce the narrative of a stock trading at a valuation crossroads. Zscaler’s forward P/E ratio of 66.17 and P/S ratio of 13.85 indicate high growth expectations, yet profitability remains elusive. The firm reported negative operating and net margins (-4.69% and -1.45%, respectively), though strong gross margins (76.65%) highlight efficient production. Liquidity metrics, including a current ratio of 1.82, suggest financial stability, but insider selling activity over the past three months has raised investor concerns. Bernstein’s analysis ties these fundamentals to a broader market shift: investors are increasingly favoring cybersecurity firms with clearer paths to profitability or diversified revenue streams.

A counterpoint to the bearish sentiment is Zscaler’s recent recognition as AWS Marketplace Partner of the Year (NAMER). The firm surpassed $1 billion in AWS Marketplace sales, underscoring its role in enabling secure cloud adoption for enterprises. This partnership, which includes co-selling and co-innovation initiatives, positions Zscaler as a key player in AI-driven security solutions. However, the award’s market impact appears muted, as analysts argue that Zscaler’s core narrative—reliant on cloud-native security—faces an uphill battle against rivals with broader ecosystems.

The downgrade also reflects evolving investor behavior in the cybersecurity sector. Bernstein noted that the category has attracted capital as a hedge against AI disruption risks, yet Zscaler’s narrative has weakened following recent results. While the firm’s Altman Z-Score of 5.84 suggests low bankruptcy risk, its beta of 1.2 highlights volatility. Institutional ownership at 51.89% indicates moderate confidence, but the absence of a compelling growth story has left the stock vulnerable to re-rating pressures. Analysts like those at BTIG and Needham maintain “Buy” ratings, but their price targets ($365–$310) contrast sharply with Bernstein’s $264 threshold, illustrating a fractured outlook.

In sum, Zscaler’s recent performance reflects a confluence of valuation reassessment, competitive headwinds, and strategic limitations. While its financial health and technological innovation remain intact, the market is increasingly demanding evidence of durable growth beyond its core cloud-centric offerings. Until Zscaler demonstrates expansion into adjacent security categories or improves profitability, its premium valuation may struggle to persist. Investors will closely watch upcoming earnings reports and strategic announcements for clarity on the firm’s path forward.