There is a new commodity in the financial markets today, and that is any company in the technology sector that has managed to avoid today’s heating geopolitical and economic conflicts, especially those caused by President Trump's recent trade tariffs.
While these decisions to rebalance global trade deficits and excesses have affected some industries more than others, there is one prevailing logic that hasn’t been proven wrong yet. Investing in companies in a sector that is tariff-free and offering a product or service that is also tariff-free is one of the most logical ways to seek upside in today's uncertain environment and market.
Understanding this opportunity, investors can begin to make sense of why Wall Street analysts have recently boosted their views for shares of Zscaler Inc. (NASDAQ: ZS). Despite all of the uncertainty and volatility, these analysts were willing to risk their reputations (and careers) by raising the potential ceiling Zscaler stock could reach in the coming months.
Wall Street Has a Reason to Like Zscaler
Going back to historical behavior, it is true that most analysts on Wall Street typically refrain from boosting and backing a stock during any tumultuous activity. The S&P 500's recent choppy ride definitely fits that description, which makes a boost for Zscaler mean a lot more than it usually would.
Even though the stock already trades at a nearly new 52-week high price, Andrew Nowinski from Wells Fargo decided to upgrade his rating for Zscaler stock from Equal Weight to Overweight as of mid-June 2025. Not only did the ratings change, but his valuation also changed.
Where Zscaler earned a view of $260 per share as fair value, this Wells Fargo analyst has justified the company’s way to reach an even higher valuation of up to $385 per share. This call would not only mean Zscaler needs to make a new 52-week high but also that it needs to rally by as much as 26.3% from its current trading price.
These analysts aren’t the only ones who thought this was the most reasonable path for Zscaler, either, as seen in the 3.9% decline in short interest over the past month alone, another clear sign of bearish capitulation in the face of this new upside potential for the company’s future.
Before the bulls go out and celebrate, however, a deeper, more fundamental check of the company’s underlying indicators is needed to justify such an optimistic view today.
This is where the latest quarterly figures come into play.
All Engines Running for Zscaler Stock
Digging into the investor’s presentation covering the first quarter of 2025, investors can see several significant developments underway. For one, the company achieved a milestone in terms of users, reaching just over 50 million in total, with 500 billion daily transactions made.
Of course, this user base was expected to bring in more revenue, which is exactly what it did. With a strong 23% annual growth in top-line revenue, Zscaler reached as much as $678 million in revenue, justifying proof of adoption in its services and a seeming immunity to the current state of trade tariff negotiations.
One of the benefits of being a software company is the low-cost structure. This attractive revenue growth has resulted in a high capital retention rate, as evidenced by the company’s 80.3% and $119 million in free cash flow gross margins.
That is where things get interesting for future investors, as achieving stable and growing free cash flow is what leads to eventual benefits, such as share buyback programs and acquisitions, which fuel further growth. This capital retention rate resulted in an 18% annual growth rate for earnings per share (EPS).
A fantastic quarter indeed, but one that could be expected to repeat itself. As of mid-May 2025, institutional buyers from AQR Capital Management decided to boost their holdings in Zscaler by as much as 23.6%, bringing their entire position to a high of $234.7 million today.
If the gas was running out for Zscaler to keep delivering quarters like the last one, then these institutions would have probably waited for lower stock prices, but that wasn’t the case. Now investors have a clear fundamental and technical picture to somewhat assume Zscaler can, in fact, deliver on Wall Street analyst upside cases.
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