Why Zscaler’s New AI Security Hire Matters for Investors

Zscaler (ZS) has created a new senior role for agentic AI security and hired Dr. Swamy Kocherlakota to fill it, putting AI driven security architecture at the center of its product roadmap.

The move is tied to a shift the company sees as AI moves from simple chat tools to autonomous agents acting as both users and applications, raising new security questions for large enterprises.

Kocherlakota’s appointment lands at a time when Zscaler’s share price has pulled back, with a 30 day share price return of a 10.08% decline and a 90 day share price return of a 34.54% decline, even as its 1 year total shareholder return of 8.15% and 3 year total shareholder return of 74.01% point to a stronger longer term record.

If you are watching how AI security themes ripple across markets, it could be a good moment to scan other high growth tech and AI names through high growth tech and AI stocks.

With Zscaler shares down over the past quarter but still showing solid multi year total returns, and trading at a discount to both analyst targets and some intrinsic estimates, the key question is whether that gap signals opportunity or whether the market is already pricing in future growth.

Price-to-Sales of 11.7x: Is it justified?

On a simple yardstick, Zscaler’s P/S of 11.7x sits well above many peers, even as the shares trade at US$208.66 and below some fair value estimates.

P/S compares the company’s market value to its annual revenue. This is a common way to look at fast growing, often still unprofitable, software names. At 11.7x, investors are paying a higher price for each dollar of Zscaler’s US$2,833.27m in revenue than for the average US software stock, suggesting the market is attaching a premium to its cloud security position and expected growth profile.

The gap is quite clear. The US software industry average P/S sits at 4.5x, and Zscaler also screens as expensive versus a peer average of 10.8x. Against Simply Wall St’s estimated fair P/S ratio of 10.5x, the current multiple is still on the rich side, pointing to a level the valuation could move toward if sentiment or growth expectations reset.

Result: Price-to-Sales of 11.7x (OVERVALUED)

However, you also need to weigh risks such as ongoing net losses of US$41.04m and the chance that elevated expectations embedded in an 11.7x P/S ratio may compress.

Another View: DCF Points in the Other Direction

While the 11.7x P/S ratio looks expensive, our DCF model tells a different story, with Zscaler trading about 27.9% below its estimated fair value of US$289.50. One lens suggests a premium and the other suggests a discount. Which risk matters more to you: multiple compression or a potential rerating?

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Zscaler for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 880 undervalued stocks based on their cash flows. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Build Your Own Zscaler Narrative

If you look at the numbers and reach different conclusions, or simply prefer to rely on your own work, you can build a complete view in minutes with Do it your way.

A great starting point for your Zscaler research is our analysis highlighting 3 key rewards and 1 important warning sign that could impact your investment decision.

Looking for more investment ideas?

If Zscaler caught your attention, do not stop there. The same tools can quickly surface other potential opportunities that deserve a spot on your watchlist.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.