Our cyber stocks are falling on a rival's earnings blowup. Why it's not a cause for concern

Palo Alto Networks and CrowdStrike on Wednesday are falling in reaction to cybersecurity peer ZScaler's earnings debacle the prior evening. The market has recently become more discerning in differentiating AI winners and losers in the software space. The question for us: Do the results at ZScaler mean that the market was wrong in anointing Club names Palo Alto Networks and CrowdStrike winners? Palo Alto entered Wednesday up over 60% since the start of April. CrowdStrike's gains are even more eye-popping, up 72%. ZScaler, a cloud-native provider of network security, reported decent numbers for its fiscal 2026 third-quarter on Tuesday night. The issue, as it so often is with earnings, was the company's outlook. It guided for sales below expectations for the current quarter and into the next fiscal year, where it expects revenue to grow 16% to 17% versus the 19.5% FactSet consensus. Zscaler is still growing the top line, but obviously not as fast as Wall Street would like. Making matters worse, Zscaler lowered its free cash flow guide for the rest of this fiscal year due to increased capital expenditures. Wall Street is hypersensitive to cash flows these days given the arms race to invest in artificial intelligence. Many companies are opening up their check books for AI, but there's uncertainty on which companies will use that spending to actually innovate and produce returns, and which will get disrupted by the new technology. …