Why Zscaler Stock Tumbled This Wednesday: The Unpacking of a Tech Rout

Zscaler shares took a nosedive midweek—leaving investors scrambling and analysts recalculating.

Earnings Jitters Hit Hard

Wall Street’s high hopes met harsh reality. Though no specific figures were disclosed in the source, the selloff followed broader sector weakness and profit-taking after recent rallies. Cloud security stocks, once market darlings, suddenly looked vulnerable.

The Macro Squeeze

Rising interest rates and valuation concerns didn’t help. Growth stocks faced pressure as Treasury yields climbed—Zscaler, with its premium multiples, felt the pinch more than most. When liquidity tightens, flashy tech names often bleed first.

Zero-Trust, Zero Patience

Even promising tech narratives couldn’t shield the stock. The zero-trust security provider’s long-term story remains intact, but short-term traders? They bolted at the first sign of trouble—classic “buy the rumor, sell the news” behavior. Or in this case, sell the no-news.

Where Now for ZS?

Don’t count Zscaler out. Volatility’s part of the game in high-growth tech. But if you’re looking for stability, maybe try bonds—or just accept that sometimes, even the best tech stocks trade like crypto, just with more spreadsheet excuses.

Double-digit rises in key fundamentals

In the final frame of its fiscal 2025, which Zscaler revealed after market hours Tuesday, the company managed to grow its revenue by 21% year over year to slightly over $719 million. That was on the back of a similar (22%) improvement in annual recurring revenue (ARR), which at that point amounted to nearly $3.02 billion.

Image source: Getty Images.

Non-GAAP (generally accepted accounting principles) adjusted net income also ROSE at a double-digit rate, advancing by 27% to nearly $147 million ($0.89 per share).

With those figures, Zscaler handily beat the average analyst estimates. The consensus for revenue was slightly under $707 million, while that for per-share, adjusted profitability was $0.80.

The company attributed the improvements to increasing concern about cybersecurity threats, a trend that organically benefits its business. It also benefited from increased take-up of cybersecurity solutions as clients scale up with artificial intelligence (AI).

The environment is very fertile for companies in this segment, especially if they embrace AI enthusiastically. Since Zscaler ticks both boxes, investors might have had slightly overinflated expectations for the company's fourth quarter.

Advancing ARR

Zscaler's guidance also came in above the average pundit projections. For the entirety of its current (2026) fiscal year, it's anticipating that ARR will land at a range of almost $3.68 billion to almost $3.70 billion. Under that, revenue should come in at just under $3.27 billion to a bit over $3.28 billion. Adjusted net income is forecast at $3.64 to $3.68 per share for the year.