Zscaler Shares Dip 1.93% Amid 62.99% Volume Surge to 256th Rank as Earnings Guidance Sparks Investor Caution Despite Robust Revenue and Margins

Market Snapshot

On January 2, 2026, , marking a decline despite a notable surge in trading activity. , , and ranked 256th in terms of volume across the market. This mixed performance reflects investor caution following recent earnings guidance and strategic updates, even as the company demonstrated strong top-line growth and gross margins in its latest quarterly report.

Key Drivers

Mizuho’s recent upgrade of Zscaler to “Outperform” highlights the firm’s conviction in the company’s long-term positioning within the / security market, despite near-term concerns. Analyst Gregg Moskowitz noted that ZS shares had underperformed since a “solid F1Q” report, with the decline attributed to weaker-than-expected F2Q net new Annual Recurring Revenue (ARR) guidance and the absence of measurable contributions from its recent Red Canary acquisition. While the analyst acknowledged Zscaler’s robust revenue growth and 79.9% gross margin in Q1 2026, he emphasized that margin pressures from newer, lower-margin products and rising operating expenses in high-growth areas like AI safety and Zero Trust adoption had weighed on investor sentiment.

The company’s Q1 2026 earnings report, released on November 25, 2025, showed Zscaler exceeded expectations, , . Despite these strong metrics, , reflecting skepticism about the sustainability of growth. , underscoring Zscaler’s dominance in enterprise SaaS. However, gross margins, , were flagged as vulnerable to further compression as the company prioritizes market share gains in AI security and Zero Trust infrastructure.

A critical factor in the recent selloff was the lack of immediate financial impact from the Red Canary acquisition, which analysts had hoped would accelerate revenue diversification. Moskowitz noted that the acquisition’s contribution to ARR remained unspecified, leaving investors unimpressed. Additionally, the company’s aggressive investment in R&D and sales to expand its Zero Trust Exchange platform—despite already high operating expenses—raised concerns about short-term profitability. Management’s reluctance to provide detailed organic growth projections for 2026 further fueled uncertainty, with investors demanding greater transparency on execution risks.

Zscaler’s strategic focus on AI security, built on its Zero Trust Exchange platform, remains a long-term growth lever. CEO emphasized this during the Q1 earnings call, stating the company is “well positioned to exceed $10 billion in ARR” by leveraging AI-driven threat detection and expanding its SASE offerings. However, , which, while solid, may not meet investor expectations for acceleration. The recent price correction, according to Mizuho, could offer a buying opportunity for those willing to bet on Zscaler’s leadership in a rapidly evolving cybersecurity landscape, though risks remain tied to margin stability and competitive pressures in AI-focused security markets.