Why Bernstein Nonetheless Sees 46% Upside in Zscaler (ZS) however Downgraded Palo Alto (PANW)
Wall Road has spent a lot of 2026 rewarding cybersecurity shares for the dangers created by AI. Bernstein now thinks the straightforward a part of that commerce is over, with one main exception.
Bernstein analyst Peter Weed raised his goal on Zscaler, Inc. (NASDAQ:ZS) to $298 and maintained an Outperform ranking on September 17. The goal implied roughly 46% upside when the decision was revealed. On the identical time, Bernstein downgraded Palo Alto Networks, Inc. (NASDAQ:PANW) and a number of other different cyber names to Market Carry out.
The excellence is valuation slightly than a perception that AI safety demand disappears.
Zscaler has to show its underperformance created a possibility
Zscaler entered the analyst name down about 11.5% in 2026 whereas many friends had rallied. Bernstein argued that its shift from opportunity-based promoting towards deeper buyer relationships is starting to work. Zscaler reported a 115% dollar-based internet retention fee in fiscal Q1, and administration later stated that degree had remained pretty secure for a number of quarters.
For Zscaler, Inc. (NASDAQ:ZS), that creates an easy rerating case. If present clients undertake extra merchandise whereas AI will increase the variety of customers, brokers and workloads requiring safety, development can stay sturdy with out the inventory carrying the identical expectations as hotter friends.
There’s a motive the low cost exists. Zscaler nonetheless faces slower incremental ARR development and aggressive competitors from firms bundling a number of safety features. If massive enterprises favor consolidation, a targeted zero-trust specialist should maintain proving it deserves separate funds.
Palo Alto Networks, Inc. (NASDAQ:PANW) has virtually the alternative drawback. Its broad platform provides enterprises a single vendor throughout community, cloud and safety operations, and acquisitions have expanded that attain. Bernstein’s downgrade displays the value buyers are already paying for that power. Integration prices, a bigger share depend and slowing development comparisons elevate the hurdle.
Fund positioning doesn’t present buyers abandoning both identify
Insider Monkey tracked 52 hedge funds holding Zscaler in Q2, up from 46 in Q1. Palo Alto possession edged as much as 89 funds from 87. Fisher Asset Administration elevated its PANW place 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 a pair of.9 days to cowl.
Bernstein’s name is fascinating as a result of it isn’t merely bullish cybersecurity commentary. It attracts a line inside an already common commerce. Palo Alto could stay the stronger platform enterprise, however Zscaler now has one thing PANW more and more lacks: a valuation setup the place Wall Road can nonetheless think about a big rerating.
