Zscaler Jumps on Sector Tailwinds and AI Security Pivot

Zscaler leads cybersecurity rally with 10% stock surge, fueled by Fortinet earnings, AI integrations with OpenAI and Anthropic, and a DoD clearance unlocking government contracts.

Cybersecurity stocks are back in favor, and Zscaler is leading the charge. The cloud security specialist surged more than 10% to $152.79 on the New York Stock Exchange, pushing its market capitalization to roughly $22.5 billion. The rally was fueled by strong earnings from sector peer Fortinet, which posted revenue growth exceeding 20%, alongside positive signals from cloud infrastructure player Datadog.

The momentum comes as Zscaler deepens its technological arsenal. The company has joined two major industry initiatives with Anthropic and OpenAI, integrating their Claude Mythos Preview and GPT-5.4-Cyber tools into its security automation and software development. The move is a direct response to the rising tide of AI-powered cyberattacks, with Zscaler aiming to detect vulnerabilities faster than adversaries can exploit them.

On the operational front, the company secured a significant endorsement from the US Department of Defense, which granted a critical security clearance for Zscaler Internet Access. This opens the door to lucrative government contracts and strengthens the company's competitive positioning in the public sector.

The growth story extends beyond government deals. Zscaler’s ZDX segment saw bookings surge 80% year-over-year, with annual recurring revenue hitting $100 million. Management’s outlook remains optimistic, targeting up to $3.745 billion in annual recurring revenue for the current fiscal year, representing 24% growth.

Analyst opinions remain mixed. KeyBanc holds a $160 price target, while Morgan Stanley downgraded the stock to "Equal-Weight" with a $155 target. Citizens JMP recently adjusted its target to $210, maintaining an "Outperform" rating.

Despite the recent bounce, Zscaler shares remain down roughly 30% year-to-date. The stock sits well below its 52-week high of $292, and all eyes are now on the third-quarter earnings report due May 26. Analysts expect earnings per share of $1.00, a roughly 19% increase from the prior year. The upcoming numbers will test whether the company's growth trajectory can hold in a challenging market environment.