On June 2, Zscaler fell 5.6% in regular trading, trading at $142.125/share, with trading volume of $262 million. The stock gave back gains from the prior session, when it had surged over 10% following Guggenheim's upgrade to buy with a $214 price target.

The decline was primarily driven by broad weakness across the Systems Software sector, with ServiceNow down 5.92%, Microsoft down 3.33%, Palo Alto Networks down 2.37%, and Oracle down 1.76%. Additionally, the overhang from the company's fiscal Q4 revenue guidance of $875-$878 million — slightly below the consensus estimate of $879 million — along with a significant downward revision to full-year free cash flow outlook and the departure of two senior sales executives, continued to weigh on sentiment.

Morgan Stanley noted the stock remains in a penalty box until further evidence of traction emerges in the security operations business and new sales leader roles are filled. The combination of sector headwinds and unresolved fundamental concerns maintains near-term downward pressure.

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