Will GenAI and SaaS Adoption Fuel Zscaler's Data Security Expansion?

Zscaler ZS is seeing strong momentum in the Data Security Everywhere strategy, one of the company’s three main growth drivers. Historically, data security was most critical in data-heavy regulated industries like finance and healthcare. However, with the rapid growth of GenAI and security-as-a-service (SaaS) usage, it is now becoming essential across all industries.

In the third quarter of fiscal 2025, Zscaler’s management highlighted the breadth of its data security capabilities. Zscaler’s data security expansion now covers structured and unstructured data, both in motion and at rest, across channels like web, email, SaaS, endpoints, and GenAI apps. This comprehensive offering is helping the company win large enterprise deals.

For instance, an existing Fortune 50 automotive customer signed a seven-figure Annual Contract Value (ACV) deal during the third quarter. The customer added Zscaler’s endpoint Data Loss Prevention (DLP) module and privileged remote access, while expanding Zero Trust users with additional Zscaler Private Access seats. This brought the customer to six out of Zscaler’s eight data security modules, including inline DLP, cyber isolation, data isolation, SaaS security, classification and encryption, and endpoint DLP. As a result, the customer’s annual spend with Zscaler grew more than 50% to well above $10 million.

Zscaler also landed a seven-figure ACV deal with a new logo Fortune 100 food and beverage company during the third quarter. The company adopted both Zero Trust for users and ZS’ several data security modules.

These recent wins show that Zscaler’s data security strategy is gaining traction beyond the regulated sectors. As more enterprises adopt GenAI tools and SaaS applications, Zscaler’s platform remains well-equipped to help them keep sensitive data secure.

How Competitors Fare Against ZS

Palo Alto Networks PANW and CrowdStrike CRWD are also evolving their platforms to meet enterprise security demands.

In the third quarter of fiscal 2025, Palo Alto Networks highlighted growing traction for Prisma Access Browser. As AI drives more applications and data into the cloud, Palo Alto Networks sees the browser becoming the new interface or runtime environment for work.

CrowdStrike is positioning Charlotte AI as a key part of its competitive advantage in delivering automated and scalable cybersecurity. In the first quarter of fiscal 2026, CRWD expanded Charlotte AI’s detection triage. This enables Charlotte AI to deliver autonomous expert-level triage, reasoning and response at machine speed. This is shaping Charlotte AI to be a strong differentiator for CrowdStrike in automated security.

ZS’s Price Performance, Valuation and Estimates

Shares of Zscaler have surged 69.1% year to date compared with the Security industry’s growth of 20.2%.

ZS YTD Price Return Performance

From a valuation standpoint, Zscaler trades at a forward price-to-sales ratio of 15.1X, slightly higher than the industry’s average of 14.52X.

ZS Forward 12-Month P/S Ratio

The Zacks Consensus Estimate for ZS’ fiscal 2025 earnings implies a year-over-year decline of 0.31%, while for fiscal 2026 earnings implies year-over-year growth of 12.13%. The earnings estimates for fiscal 2025 and fiscal 2026 have been revised upward in the past 30 days and seven days, respectively. 

Zscaler currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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