What Happened?
Shares of cloud security platform Zscaler (NASDAQ: ZS) fell 7.1% in the afternoon session after industry bellwether, Fortinet, reported underwhelming second-quarter earnings. The primary concern for investors stemmed from the revelation that the company is already 40-50% of the way through a major firewall refresh cycle, a faster pace than analysts had anticipated. This news suggests that a significant driver of recent growth may be short-lived, and underlying product revenue growth appears weaker than previously thought. The commentary from the industry leader, coupled with multiple analyst downgrades, fueled fears of a broader slowdown in the cybersecurity sector. This led to a ripple effect, dragging down shares of other cybersecurity companies as investors re-evaluate the industry's near-term growth prospects.
The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks. Is now the time to buy Zscaler? Access our full analysis report here, it’s free.
What Is The Market Telling Us
Zscaler’s shares are somewhat volatile and have had 12 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 previous big move we wrote about was 6 days ago when the stock dropped 3.6% on the news that the White House announced a new round of steep global tariffs, sparking concerns of a trade war and its impact on the U.S. and global economies. This move creates significant uncertainty for businesses and investors. The new tariffs, with rates of up to 41% on imports from 68 countries and the European Union, prompted a broad market sell-off, with the tech-heavy Nasdaq index showing notable weakness. Adding to the bearish sentiment was a weaker-than-expected July jobs report, which revealed that employers created only 73,000 jobs, far below economists' expectations. This combination of trade fears and signs of a slowing labor market has created a "risk-off" environment, leading investors to pull back from growth-oriented sectors like software and technology.
Zscaler is up 48.7% since the beginning of the year, but at $270.04 per share, it is still trading 14.7% below its 52-week high of $316.50 from July 2025. Investors who bought $1,000 worth of Zscaler’s shares 5 years ago would now be looking at an investment worth $2,146.
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