What Happened?

Shares of cloud security platform Zscaler (NASDAQ:ZS) jumped 5.4% in the afternoon session after stocks extended their rebound, led by strong gains in the technology sector, as renewed optimism surrounding U.S.–China trade negotiations lifted market sentiment. 

Contributing to the bullish sentiment was a standout earnings report from enterprise software leader ServiceNow, which topped Wall Street's expectations on both revenue and earnings. More importantly, the company's remaining performance obligations (RPO), a key forward-looking metric for future revenue, also exceeded forecasts, giving investors confidence that enterprise customers are not pulling back spending amidst uncertain macro. 

The optimism was further reinforced by solid earnings updates from Texas Instruments and Lam Research. Their performance was especially encouraging for semiconductor stocks, which have been under pressure due to their exposure to global trade tensions. These results suggested that, despite macroeconomic uncertainties, demand in key tech verticals remained resilient.

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What The Market Is Telling Us

Zscaler’s shares are somewhat volatile and have had 11 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.

The biggest move we wrote about over the last year was 8 months ago when the stock dropped 17.8% on the news that the company reported weak second-quarter 2024 earnings. Its billings guidance for next year was slightly below expectations, and furthermore, suggests an acceleration in growth throughout the year. 

Management specifically detailed "year-over-year billings growth of approximately 13% in the first half, accelerating to 23% growth in the second half". This made the market quite uncomfortable. 

On the other hand, Zscaler beat analysts' billings, revenue, and operating income expectations. Zooming out, we think this was a solid quarter featuring some areas of strength, but the outlook weighed on shares.

Zscaler is up 16% since the beginning of the year, and at $210.80 per share, it is trading close to its 52-week high of $216.87 from February 2025. Investors who bought $1,000 worth of Zscaler’s shares 5 years ago would now be looking at an investment worth $3,122.

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