Bernstein has upgraded Zscaler to Outperform, calling it the cheapest cybersecurity vendor relative to its growth potential. Analyst Peter Weed highlighted that Zscaler's valuation has become compelling despite earlier concerns about slowing growth and increasing competition. The firm sees straightforward 35% upside potential, reversing its December downgrade.

The note emphasized that Zscaler's net new customer contribution has declined to approximately 30% and is expected to remain low, which could pressure net revenue retention as expansion opportunities in existing customers hit natural limits. Bernstein had previously worried about the durability of Zscaler's 20%+ growth rate and competitive pressures, with growth potentially falling below 20% by 2028 and toward 15% within five years.

Despite these concerns, Bernstein argues Zscaler's current valuation is too low compared to peers. Weed noted that when comparing Zscaler's price-to-NTM FCF relative to NTM growth rate against all other cybersecurity vendors, the company appears massively washed out. The firm emphasized that Zscaler is not dying, citing high 90% retention rates, net revenue retention of 115% or more, and positive channel checks. Bernstein set a price target of $228, down from $264, and suggested the upcoming February 26 earnings could serve as a re-rating catalyst.