Palo Alto vs. Zscaler: Which Cybersecurity Stock Looks Stronger After Earnings?

Sam Quirke, MarketBeat

Mon, September 7, 2026 at 3:40 PM GMT+3 5 min read

Key Points

Interested in Palo Alto Networks, Inc.? Here are five stocks we like better.
Palo Alto Networks and Zscaler both beat expectations, but both stocks slipped as investors weighed high expectations and forward guidance.
Palo Alto's next-generation security ARR growth and free-cash-flow margin give it an edge over Zscaler in this comparison.
Zscaler remains a strong cybersecurity operator, but its slower ARR growth and lower free cash flow margin make Palo Alto look better positioned today.

The AI boom has been a gift to the cybersecurity industry, driving a wave of spending as companies scramble to defend against a new generation of threats. Two of the biggest beneficiaries, Palo Alto Networks Inc. (NASDAQ: PANW) and Zscaler Inc. (NASDAQ: ZS), both reported earnings this week, offering a rare chance to weigh the sector's heavyweights side by side.

Curiously, both comfortably beat revenue and earnings expectations, yet both shares slipped afterward. Palo Alto had already rallied sharply from its February low heading into its report. Still, even a solid beat couldn't stop the stock from falling sharply, a classic case of lofty expectations proving too hard to satisfy. Zscaler, earlier in its own recovery after a punishing slide, edged lower too, with the beat obviously not being convincing enough.

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So with both companies riding the same powerful tailwind and both leaving the market slightly underwhelmed this week, it's a good time to explore which one enters the final few months of the year in the stronger position.

2 AI Security Winners Take Different Paths

Although they compete for the same security budgets, the two are known for very different things. Palo Alto has made its name as the great consolidator, with a strategy it calls platformization: persuading customers to buy a whole suite of security products from it as a single vendor rather than stitching together tools from many.

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Zscaler, by contrast, made its name pioneering zero trust, a cloud-based security model that assumes no user or device should be trusted by default. While the approach is now industry-wide, Zscaler remains its standard-bearer and has built a formidable cloud security franchise around it.

Both models are benefiting handsomely from the AI wave, and both used their results this week to speak to surging demand for AI-related security. However, the big difference lies in each one's underlying momentum, and here the numbers begin to separate them.

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The Growth Gap Starts to Show

On the measures that matter most, Palo Alto is coming out ahead this week. Its key gauge of recurring revenue from next-generation products soared 63% over the past year, a blistering pace for a company of its size. Zscaler's equivalent measure grew a still-respectable 25%, solid by most standards but visibly slower than its larger rival.

The platformization strategy also appears to be paying off handsomely. Palo Alto reported that customers who had consolidated onto its platform were spending more than 120% of what they had a year earlier, powerful evidence that the land-and-expand approach is working. Its total backlog of contracted future revenue swelled past a symbolic threshold for the first time, underscoring strong demand.

Zscaler, for its part, pointed to record activity among its largest customers and strong take-up of its newer, more flexible pricing model. Yet its guidance for the year ahead implied a more measured growth trajectory, and it's restructuring its sales operation, adding near-term uncertainty.

Cash Flow Separates the Cybersecurity Leaders

The gap widens further when it comes to turning that growth into cash. Palo Alto generated an adjusted free-cash-flow margin of around 38%, an enviable figure that reflects the operating leverage of its sprawling platform. That torrent of cash gives it ample firepower to invest, acquire, and reward shareholders.

Zscaler is no slouch on profitability and, in fact, reported a record operating margin of its own. But its own full-year free-cash-flow margin, at around 23%, sits well below Palo Alto's, dented in part by the timing of cash collection and heavier spending. For a company still scaling up, that's understandable, but in a head-to-head, it leaves it a step behind.

This is the crux of the comparison. Both are excellent businesses, but Palo Alto is simply generating more growth and more cash, and doing so at a greater scale, precisely the combination that tends to reward long-term investors.

Palo Alto Makes the Stronger Post-Earnings Case

Weighing it all up, Palo Alto looks the stronger of the two on this week's evidence. Faster growth, superior cash generation, and clear proof that its platform strategy is deepening customer relationships give it a more compelling setup heading into the rest of the year.

Given its significant outperformance of Zscaler so far this year, investors have been clued in for a while. For those of us on the sidelines weighing up an entry into one or the other, the post-earnings dip in Palo Alto makes for an attractive entry point.

To be fair, both stocks carry a MarketBeat consensus rating of Moderate Buy, but Palo Alto has attracted particularly bullish attention this week. The team at Argus, for example, just gave it a fresh $425 price target that implies nearly 30% upside from current levels.

None of this makes Zscaler a poor investment. It remains a high-quality operator with a strong niche and a real AI tailwind of its own, and it could yet reward the patient investor. However, for investors seeking a stronger combination of growth and profitability today, this week's earnings made the stronger case for Palo Alto.

The article "Palo Alto vs. Zscaler: Which Cybersecurity Stock Looks Stronger After Earnings?" was originally published by MarketBeat.

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