The above button links to Coinbase. Yahoo Finance is not a broker-dealer or investment adviser and does not offer securities or cryptocurrencies for sale or facilitate trading. Coinbase pays us for certain activity generated through this link. Prices displayed are informational.
Wall Street has spent much of 2026 rewarding cybersecurity stocks for the risks created by AI. Bernstein now thinks the easy part of that trade is over, with one major exception.
Bernstein analyst Peter Weed raised his target on Zscaler, Inc. (NASDAQ:ZS) to $298 and maintained an Outperform rating on September 17. The target implied roughly 46% upside when the call was published. At the same time, Bernstein downgraded Palo Alto Networks, Inc. (NASDAQ:PANW) and several other cyber names to Market Perform.
The distinction is valuation rather than a belief that AI security demand disappears.
Zscaler has to prove its underperformance created an opportunity
Zscaler entered the analyst call down about 11.5% in 2026 while many peers had rallied. Bernstein argued that its shift from opportunity-based selling toward deeper customer relationships is beginning to work. Zscaler reported a 115% dollar-based net retention rate in fiscal Q1, and management later said that level had remained fairly stable for several quarters.
For Zscaler, Inc. (NASDAQ:ZS), that creates a straightforward rerating case. If existing customers adopt more products while AI increases the number of users, agents and workloads requiring security, growth can remain strong without the stock carrying the same expectations as hotter peers.
There is a reason the discount exists. Zscaler still faces slower incremental ARR growth and aggressive competition from companies bundling multiple security functions. If large enterprises prefer consolidation, a focused zero-trust specialist must keep proving it deserves separate budget.
Palo Alto Networks, Inc. (NASDAQ:PANW) has almost the opposite problem. Its broad platform gives enterprises a single vendor across network, cloud and security operations, and acquisitions have expanded that reach. Bernstein's downgrade reflects the price investors are already paying for that strength. Integration costs, a larger share count and slowing growth comparisons raise the hurdle.
Fund positioning does not show investors abandoning either name
Insider Monkey tracked 52 hedge funds holding Zscaler in Q2, up from 46 in Q1. Palo Alto ownership edged up to 89 funds from 87. Fisher Asset Management increased its PANW position 2,143% to about 5.8 million shares.
Zscaler's August 31 short-interest snapshot was about 6.35 million shares, roughly 4.7% of public float and 2.9 days to cover.
Bernstein's call is interesting because it is not simply bullish cybersecurity commentary. It draws a line inside an already popular trade. Palo Alto may remain the stronger platform business, but Zscaler now has something PANW increasingly lacks: a valuation setup where Wall Street can still imagine a large rerating.
While we acknowledge the potential of ZS and PANW as investments, we believe certain other AI stocks offer greater upside potential and carry less downside risk. If you're looking for an extremely undervalued AI stock that also stands to benefit significantly from Trump-era tariffs and the onshoring trend, see our free report on the best short-term AI stock.
The Trillion-Dollar AI Capex Gap: Why Too Much Hardware Could Be Nvidia's Trap and Microsoft's Opportunity and Redditors Are Skeptical of SpaceX's Orbital Data Centers. Are They Right?
Disclosure: None. Follow Insider Monkey on Google News.
Zscaler Tanked Over One Year: A Prominent Firm Says 50% Gains to Arrive in 12 Months or Less 24/7 Wall St. • 14h ago ZS PANW
Zscaler Tanked Over One Year: A Prominent Firm Says 50% Gains to Arrive in 12 Months or Less
Wells Fargo Says These 2 Beaten-Down Cybersecurity Stocks Could Rebound to $200 TipRanks • 6mo ago
Wells Fargo Says These 2 Beaten-Down Cybersecurity Stocks Could Rebound to $200
KeyBanc Lowers its Price Target on Zscaler (ZS) Insider Monkey • 3mo ago ZS
KeyBanc Lowers its Price Target on Zscaler (ZS)
Palo Alto Networks' 100% Rally Hits a Valuation Roadblock GuruFocus.com • 9d ago PANW
Palo Alto Networks' 100% Rally Hits a Valuation Roadblock
Palo Alto vs. Zscaler: Which Cybersecurity Stock Looks Stronger After Earnings? MarketBeat • 23d ago ZS PANW
Palo Alto vs. Zscaler: Which Cybersecurity Stock Looks Stronger After Earnings?
2 Bad News Buys: Why Palo Alto and Zscaler Are Screaming Deals MarketBeat • 6mo ago PANW ZS
2 Bad News Buys: Why Palo Alto and Zscaler Are Screaming Deals
Short Sellers May Regret Shorting ZScaler (ZS) As One Analyst Points To 79% Upside Insider Monkey • 3mo ago ZS
Short Sellers May Regret Shorting ZScaler (ZS) As One Analyst Points To 79% Upside
Prediction: This Cybersecurity Stock Will Double After the AI Disruption Fears Fade Motley Fool • 6mo ago ZS
Prediction: This Cybersecurity Stock Will Double After the AI Disruption Fears Fade
Barclays Sees Long-Term Upside in Zscaler (ZS) With Strong Revenue Retention Insider Monkey • 6mo ago ZS NET
Barclays Sees Long-Term Upside in Zscaler (ZS) With Strong Revenue Retention
Zscaler Still Seeing Solid Demand for Cloud, AI Products, Wedbush Says PREMIUM MT Newswires • 3mo ago ZS
Zscaler Still Seeing Solid Demand for Cloud, AI Products, Wedbush Says
