Barclays has upgraded Zscaler Inc. (NASDAQ: ZS) from Equalweight to Overweight and simultaneously lowered its 12-month price target to $228.00 from $264.00. The new target implies notable upside relative to the stock's most recent trading level of $170.90, with the shares trading not far above their 52-week low of $162.87. Over the past six months the stock has fallen by more than 38%.
Despite the upgrade, Barclays flagged concerns about Zscaler's long-term top-line trajectory. The firm projects that the company's revenue growth rate could slip below 20% by about 2028 and fall under 15% within a five-year horizon. Those expectations stand in contrast to Zscaler's current revenue growth rate of 23.24%, based on recent financials.
Barclays pointed to a number of factors that support the upgrade even as it trimmed the price objective. The bank highlighted Zscaler's strong net revenue retention rate - in excess of 115% - a metric it attributes to effective up-selling and cross-selling inside the customer base. In Barclays' view, artificial intelligence represents a potential tailwind for the company rather than a risk.
Independent data aggregated by InvestingPro also paint a picture of solid unit economics. That data shows a gross profit margin of 76.77%, which the platform suggests leaves room for continued investment in growth areas such as AI. InvestingPro's commentary further notes that analysts expect net income growth this year even though the company faces ongoing profitability challenges at present.
Barclays' shift in stance follows a prior downgrade in December 2025, which coincided with Zscaler's fiscal first-quarter 2026 results. At that time the firm cited worries about the sustainability of growth and intensifying head-to-head competition from Cloudflare that was pressuring new customer acquisition.
Among the structural signals Barclays flagged is a marked decline in the contribution from new customers to overall growth. The proportion attributable to new logos has fallen from roughly two-thirds to about 30%, a change the bank believes could eventually cap net revenue retention if expansion within installed accounts approaches natural limits.
Zscaler has been active on the product and personnel fronts. The company announced an AI Security Suite designed to give organizations improved visibility and control over AI systems - addressing security gaps that traditional models were not built to handle. In support of that effort, Zscaler appointed Dr. Swamy Kocherlakota as Executive Vice President of Agentic AI Security Engineering, assigning him to lead work on the security implications of autonomous AI agents.
The company also named Sunil Frida as chief marketing officer, tapping his sector experience in SaaS and cybersecurity. Those moves come as Citizens reiterated its Market Outperform rating on Zscaler, citing strong customer retention bolstered by high switching costs and complex onboarding that make churn more difficult.
Taken together, the analyst upgrade, trimmed price target, product rollout and executive hires illustrate the trade-offs investors are weighing: robust customer economics, healthy margins and AI-related opportunities balanced against a slower growth outlook and intensified competitive dynamics. The market reaction to Barclays' change in view will likely reflect how investors prioritize near-term valuation, mid-term growth pace and the company's ability to monetize AI security initiatives.
Contextual notes: The facts above reflect Barclays' published rating change and price-target revision, Zscaler's recent operating metrics and product and leadership announcements. Independent InvestingPro data cited in this report relate to fair-value indications, gross margin and analyst expectations for net income growth.