ZS - Bullish Bat CompleteZscaler, Inc.BATS:ZSVIAQUANTThis analysis is a little different from what I normally post here. This is more detailed and covers a stock I just started studying. Written for a close friend, but sharing my full thoughts for anyone else interested in ZS. Price has already bounced from its long term support trendline on the weekly and has seen an increase of 32% in just over a month! Before I dive into the fundamental reasons for this move and why it is likely to continue, there are a few key technical patterns worth pointing out first. The first is what the RSI has been telling us on the weekly chart. At each major low before the next significant rally, the same pattern has formed. Zscaler approaches oversold conditions (Green Circle + "OS") and creates a low in price. Some time passes and price drops even lower, printing a lower low (Green Arrow + "LL"). But here is where it gets interesting, at that same moment, the RSI prints a higher low (Green Trendline + "HL"). That is what is known as bullish divergence. It is important to remember that RSI measures the speed and strength of price movement, not price itself. So when price drops to a new low but the RSI refuses to follow, it tells you that each successive push lower is taking more effort for less of a result. Sellers are running out of fuel and the market is quietly signaling that the balance of power is beginning to shift from sellers to buyers before price itself confirms it. It also tells you that buyers are accumulating at a much deeper discount before price reverts back to levels that better reflect the underlying strength that the momentum indicator is signaling. What makes this particularly meaningful on the Zscaler chart is that it has not appeared once or twice by coincidence. It has appeared three times, at every major low, before each significant rally that followed. The pattern has a perfect track record so far on the weekly timeframe. The current instance is producing the strongest divergence of all three. Price created three lower lows in price since February while at the same time creating three higher lows in oversold conditions on the RSI. There is also a macro hidden bullish divergence forming. The weekly RSI is continuing to make lower lows while at the same time price has been forming higher lows since 2019. The second pattern worth highlighting is what appears to be a Bullish Bat harmonic pattern on the weekly timeframe. I wanted to point this out specifically because the AC trendline came in at 0.885 with remarkable precision and I could not pass up mentioning it. The XD leg falls slightly outside the ideal range for a textbook Bat, however since price caught the long term legacy support trendline and the low appears complete at $114.63, the structure holds. This Bullish Bat pattern gives us the following targets: "Target 1" at $199.73 "Target 2" at $252.18 "Target 3" at $336.99 (the prior C point high) There is also a second harmonic structure worth noting without cluttering the chart which would be a Bullish Cypher pattern. That pattern would look this this with the current range: The bull case to reach the upside targets is pretty straightforward. Zscaler is one of only five enterprise SaaS companies with over $3 billion in annual recurring revenue still delivering revenue growth exceeding 25%. In its most recent quarter, Q2 FY2026, the company reported Non-GAAP EPS of $1.01, beating estimates by 13.48%, with revenue of $816 million exceeding forecasts. The business is simply performing better than the stock price suggests. A continuation of that earnings beat pattern into the Q3 print on May 26 would be enough to drive a meaningful re-rating back toward Target 1. At $199 the stock would still be trading at a significant discount to where most analysts have it valued, meaning there is no stretch required fundamentally to reach that level. Getting to the $252 level at Target 2 may take a little more time and requires a stronger narrative shift. Zscaler's AI Security portfolio surpassed its fiscal 2026 ARR target of $400 million three quarters ahead of schedule, with management now targeting in excess of $500 million in AI Security ARR by end of FY2026. If that monetization story accelerates and begins showing up meaningfully in billings growth, the narrative around the stock shifts from decelerating growth to secular winner in AI security. That could be what provides the fuel to push toward T2. Adding further weight to the bullish narrative, remaining performance obligation reached $6.1 billion in Q2, up 31% year over year. RPO represents future contracted revenue already on the books. When RPO is growing faster than current revenue it signals the pipeline is healthier than the bears suggest, and the market tends to reprice aggressively when it realizes forward visibility is stronger than feared. The long term target at the prior high of $336.99 requires the most fundamental work to get there. For ZS to reclaim that level the company needs to put competitive concerns firmly to rest and demonstrate it can sustain growth above 20% as it scales toward $4 billion in revenue. Analysts forecast revenue reaching $4.8 billion within three years, representing roughly 70% growth from current levels. If that trajectory plays out alongside a move toward consistent GAAP profitability, a return to the all time high is entirely justifiable on the numbers alone. But, no honest analysis is complete without addressing the other side of the trade. Competition is the most immediate threat. Netskope is reportedly pricing its security offerings 10% to 15%below Zscaler, while Cloudflare is winning larger enterprise deals at roughly half the price. If customers continue defecting on price, the growth story breaks down and none of the targets above are reachable. This is the risk that deserves the most attention apart from AI risks. On the profitability front, Zscaler is not yet GAAP profitable, reporting a net loss of $0.21 per share in its most recent quarter. The business does generate strong Non-GAAP earnings, posting $1.01 per share on an adjusted basis in that same period, but in a risk-off market environment stocks carrying GAAP losses tend to get punished disproportionately. That dynamic could cap or delay the recovery even if the underlying business continues to perform well. Core product growth is also something to watch. Morgan Stanley flagged concerns over sustaining overall growth above 20% as ZIA and ZPA, the company's two core products, settle into mid-teens growth rates. If newer offerings like AI Security and Zero Trust Cloud do not scale quickly enough to offset that deceleration, the overall growth rate disappoints and the stock could remain suppressed longer than the technical picture would suggest. Finally, let's discuss the broader AI disruption narrative. A growing fear has emerged that autonomous AI agents could eventually render traditional seat-based security software models obsolete. This is largely sentiment driven rather than a present fundamental reality, but sentiment moves stocks and this narrative alone could keep a ceiling on the multiple longer than the underlying business performance would otherwise justify. With ZS still approximately 60% below its all time high, the Q3 FY2026 earnings print on May 26 is the most important near term catalyst for this trade. Strong revenue growth and maintained guidance above 20% would confirm both the technical setup and the fundamental recovery story. A miss or cautious outlook on the other hand would be the signal to reassess this thesis and watch that lower black trendline on the weekly.