Zscaler Shows Technical Signs of Reversal Amid Sector Rally

Zscaler shares are down approximately 13% in 2026, lagging significantly behind cybersecurity peers that have more than doubled during the same period. The stock has fallen as much as 65% from its 52-week high, creating a valuation gap that Freedom Capital’s chief market strategist Jay Woods identifies as a potential entry point. While CrowdStrike, Fortinet, Okta, and Palo Alto Networks have driven sector gains, Zscaler has not yet participated fully in the rally, leaving it positioned as an underperformer within a strong group.

The broader cybersecurity sector has emerged as a top performer in 2026, fueled by investor rotation within technology and growing concerns over data security driven by AI adoption. As companies deploy more AI systems and data centers, the need to protect networks and digital infrastructure has increased. This structural demand supports the long-term case for cybersecurity products, even if regulatory tightening eventually slows parts of the broader technology buildout. The sector's strength has begun to spread beyond market leaders, creating opportunities among stocks that have yet to catch up.

Technical Indicators Signal Potential Bottoming

Woods points to specific technical setups on Zscaler’s daily chart that suggest a bottoming formation is in place. Positive momentum in the Relative Strength Index and a bullish crossover in the Moving Average Convergence Divergence indicator accompany a break above major resistance near $195. These signals indicate that the stock’s prolonged decline may be ending, with relative strength improving within the cybersecurity peer group. The convergence of these metrics supports the view that Zscaler is entering a new phase of price action.

On the five-year weekly chart, the stock displays a double-bottom formation and a break of the primary downtrend. Woods identifies the $165 area as a critical support level, where the rising 50-day and 200-day moving averages converge. This area serves as a baseline for the stock’s current valuation. If the breakout holds, the technical structure supports a move higher, with the previous resistance level now acting as support for further gains.

Upside Targets and Valuation Context

Woods sees potential upside toward $250-$265, representing roughly 25% to 30% from recent levels. A move back to $225 would bring the stock to breakeven for 2026, which would still represent substantial upside from current prices. This target range is based on the assumption that the technical breakout holds and that the sector’s momentum continues to lift laggards. The valuation gap compared to peers remains the primary driver of this thesis.

Retail sentiment on Stocktwits reflects this divergence, with Zscaler and Palo Alto Networks marked as bullish, while CrowdStrike and Okta are seen as neutral. One trader cited a Bernstein analyst who described Zscaler as the "cheapest" cybersecurity vendor relative to its peers, pointing to an overly washed-out valuation despite sticky customer retention. This perspective aligns with Woods’ view that the stock’s current price does not fully reflect its long-term demand drivers.

AI Adoption Drives Sector Demand

The AI buildout is strengthening the long-term case for cybersecurity, according to Woods. As enterprises expand their AI infrastructure, the need to secure data, networks, and digital assets becomes more critical. Regulators are also pushing for greater oversight, which adds another layer of demand for compliance and protection solutions. This dynamic supports demand for cybersecurity products even in scenarios where tighter regulation slows other parts of the technology sector. Zscaler’s position in this market allows it to benefit from these structural tailwinds.