Cybersecurity firm Zscaler (ZS) announced its latest quarterly results, with revenue and adjusted EPS both exceeding Wall Street expectations, and issued optimistic guidance for Q1 and the full fiscal year 2027. Despite the strong performance, Zscaler's stock price has still fallen over 20% year-to-date.

The company's Q4 revenue increased 25% year-over-year to $898 million, with annual recurring revenue growing 25% to $3.77 billion. Adjusted EPS was $1.19, higher than the expected $1.09. Zscaler projects Q1 revenue of $935 million-$939 million and adjusted EPS of $1.15-$1.16, both above market expectations.

Zscaler CEO Jay Chaudhry stated that the company's AI security business achieved $100 million in bookings over the past year, with a quarter-over-quarter increase of over 50% in the latest quarter. Management expects this business to begin scaling in the second half of fiscal year 2027.

Hedge fund holdings data shows that the number of funds holding Zscaler stock increased from 46 to 52 in Q2, with AQR Capital Management increasing its stake by 35%, Jericho Capital initiating a new position, and Millennium Management increasing its stake by 238%. Meanwhile, as of August 14, short positions decreased by 16.03%.

Market analysis suggests that the increase in hedge fund holdings indicates a more positive stance from institutional investors, but the market still needs evidence that Zscaler can translate demand for its AI security business into recurring revenue growth.