Forget the sector. In cybersecurity right now, the company you own determines everything.
Both Cloudflare and Zscaler are in the same industry. Both are cloud-native security platforms. Both compete for the same enterprise budget. And yet this morning, Cloudflare is surging on one of the more decisive analyst upgrades of the year, while Zscaler is still rebuilding from a single-day 30% collapse that happened just six weeks ago. That gap is the story.
Here is what actually happened.
On May 26, Zscaler posted Q3 fiscal 2026 numbers that beat estimates. Revenue came in at $850.5 million, up 25% year over year. EPS of $1.08 cleared the bar. By most measures, a solid quarter. Then came the guidance.
Fiscal year 2027 ARR growth guided at just 16% to 17%. The market was pricing something closer to 24%. Zscaler had also lost two sales leaders during the quarter. The CFO described the company as taking a “prudent approach” to guidance amid the transitions. Evercore immediately downgraded to in line. The stock closed down over 30% that day.
What matters is not the quarter. It is what the guidance revealed: execution risk, leadership instability, and a deceleration that the market had not priced in. That is a different kind of problem than a valuation one.
Now Cloudflare.
This morning, Scotiabank analyst Patrick Colville upgraded NET from Sector Perform to Sector Outperform, raising his price target to $300 from $225. Shares opened near $259 and pushed toward $269 intraday. The reasoning was specific and worth understanding. Colville’s thesis centers on Cloudflare’s Workers platform becoming the default runtime environment for AI-native applications. He pointed to traffic metrics that, historically, lead revenue by about three quarters. Those metrics are inflecting now, driven by what he called agentic AI demand. He also said his earlier concerns about enterprise contract wins had been resolved after field research with CIOs and CISOs. The upgrade is data-driven, not speculative.
The broader analyst picture backs this up. Cloudflare delivered 34% year-over-year revenue growth in Q1 2026. Its backlog expanded 48%. Net revenue retention came in at 120%, which is meaningfully above Zscaler’s current trajectory. The company has guided for roughly $664 to $665 million in Q2 revenue, and Colville believes Cloudflare could beat and raise the back half of 2026 by approximately five percentage points.
Slight tangent, but it matters: the architecture question is the real long game here. Zscaler is purpose-built for Zero Trust network access. It is deep and proven in that lane. But Cloudflare is something different — part security platform, part developer infrastructure, part AI edge network. That breadth is the reason it trades at a premium, and it is the reason agentic AI applications are landing on Workers rather than on Zscaler’s platform.
Institutional ownership for NET stands at 82.68%, with notable funds adding to positions in recent quarters. Cloudflare also holds the most aggressive price target on the Street, now at $300 from Scotiabank, while the consensus sits around $244. That gap represents where conviction is forming.
Zscaler is not broken. Full-year fiscal 2026 revenue guidance of $3.33 billion still implies roughly 24.7% growth, which is real. The platform is real. The Zero Trust opportunity is real. But the company is currently managing a leadership transition, absorbing a Red Canary acquisition integration, and dealing with higher capex from hardware inflation. The market is waiting to see whether the FY2027 growth rate is actually closer to 20% or the 16% the company guided.
That uncertainty is worth something. It keeps ZS off buying lists until clarity emerges.
The valuation comparison is not particularly close. Cloudflare trades at roughly 38x trailing sales. Zscaler is cheaper. But in this kind of market, the premium goes to the company where the growth acceleration is visible and documented. Right now, that is Cloudflare.
The editorial call: Cloudflare is the stronger opportunity today. The upgrade thesis is grounded in traffic data and enterprise adoption rather than sentiment. The agentic AI angle is real and early. And the contrast with Zscaler, which is managing execution issues at exactly the wrong moment in its competitive cycle, makes NET look even better by comparison. Zscaler may recover. But the waiting period carries real cost.
