Why Bernstein Nonetheless Sees 46% Upside in Zscaler (ZS) however Downgraded Palo Alto (PANW)
Wall Street 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 score on September 17. The goal implied roughly 46% upside when the decision was revealed. At the identical time, Bernstein downgraded Palo Alto Networks, Inc. (NASDAQ:PANW) and several other different cyber names to Market Perform.
The distinction is valuation somewhat 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 price in fiscal Q1, and administration later mentioned that stage had remained pretty secure for a number of quarters.
For Zscaler, Inc. (NASDAQ:ZS), that creates a simple rerating case. If present prospects 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 is 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 giant enterprises desire consolidation, a targeted zero-trust specialist should preserve proving it deserves separate price range.
Palo Alto Networks, Inc. (NASDAQ:PANW) has nearly the alternative drawback. Its broad platform offers enterprises a single vendor throughout community, cloud and safety operations, and acquisitions have expanded that attain. Bernstein’s downgrade displays the worth buyers are already paying for that energy. Integration prices, a bigger share rely 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 Management 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 attention-grabbing 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 industry, however Zscaler now has one thing PANW more and more lacks: a valuation setup the place Wall Street can nonetheless think about a big rerating.
