Zscaler Lags Cybersecurity Peers Amid AI Security Demand

Cybersecurity equities have led technology gains in 2026 as investors pivot toward AI-driven security needs. Major players like CrowdStrike, Fortinet, Okta, and Palo Alto Networks have more than doubled their year-to-date values, reflecting a broad rotation into digital infrastructure protection.

Zscaler remains a significant laggard in this group, with shares down approximately 13% for the year. The stock has recovered from a 65% drawdown from its 52-week high, but it has not yet participated in the sector-wide surge that has lifted its peers.

AI Adoption Drives Security Demand

Jay Woods, chief market strategist at Freedom Capital, attributes the sector’s strength to the expanding AI buildout. As enterprises deploy more AI systems and data centers, the imperative to secure networks and data intensifies. Regulatory pressure for greater oversight further reinforces the need for robust cybersecurity products, creating a durable demand tailwind for vendors in this space.

Woods notes that this fundamental improvement is beginning to filter down to laggards. Investors are now seeking exposure to cybersecurity stocks that have not fully priced in these structural benefits, creating opportunities for names like Zscaler that offer similar exposure to AI security trends at lower relative valuations.

Technical Breakout Signals Turnaround

Technical indicators suggest Zscaler may be entering a new uptrend. The stock has broken above key resistance near $195, accompanied by positive momentum in the Relative Strength Index and a bullish crossover in the Moving Average Convergence Divergence. This daily chart setup indicates that the prolonged decline may be reversing, supported by improving relative strength within the cybersecurity peer group.

On the weekly timeframe, Zscaler displays a double-bottom formation and has broken its primary downtrend. The convergence of the 50-day and 200-day moving averages near $165 provides a critical support level. Holding this area is essential for the continuation of the upward move, as it confirms the shift from a bearish to a bullish trend structure.

Upside Potential And Valuation View

If the breakout holds, Woods projects Zscaler could rise to the $250-$265 range, representing a 25% to 30% gain from recent levels. A more modest move to $225 would allow the stock to reach breakeven for 2026, still offering substantial upside for investors. This potential appreciation is underpinned by valuation metrics that suggest the stock is cheaper than its peers.

Retail sentiment reflects this optimism, with Stocktwits users labeling Zscaler as bullish. Traders cite Bernstein’s view that Zscaler is the most undervalued cybersecurity vendor, pointing to its sticky customer retention and washed-out price. This combination of fundamental quality and technical setup positions Zscaler as a candidate for catching up to its outperforming peers.