Key Highlights

● Zscaler finished Friday among the Nasdaq-100's gainers, with accounts of the exact size of the move varying between sources.

● Zscaler reaffirmed its full-year Revenue outlook of $3.91 billion to $3.94 billion at its investor day earlier in the week.

● Zscaler announced a collaboration with IBM and Red Hat to protect private applications between vulnerability disclosure and patching.

● A Cybersecurity ETF outpaced a software fund as Palo Alto Networks and CrowdStrike climbed sharply on no company news.

Zscaler (NASDAQ:ZS) finished Friday among the Nasdaq-100's gainers, helped by a combination of company-specific news and a powerful rebound across cybersecurity. Accounts of the exact size of the move varied between sources, but the direction was clearly up, and for a time the stock was trading well above its Thursday close.

Earlier in the week, at its investor day, Zscaler reaffirmed its full-year revenue outlook of $3.91 billion to $3.94 billion. The company also announced a collaboration with IBM (NYSE:IBM) and Red Hat aimed at protecting private applications during the window between when a software vulnerability is disclosed and when it is patched. A market report tied Friday's sector-wide bid in part to those two announcements.

Zscaler runs a cloud-based security platform that sits between users and the applications they connect to. Instead of relying on traditional firewalls at the edge of a corporate network, its zero-trust approach checks every connection, wherever an employee happens to be working. That model has made it one of the best-known names in a sector that has become a priority for corporate technology budgets.

Cybersecurity leads the software comeback

Friday's session was a sharp Reversal from Thursday, when a media report that OpenAI's annualized revenue was about $50 billion, roughly $20 billion below a figure that had circulated in late September, knocked AI-linked stocks. Chipmakers and data-center names took the brunt of the selling, and software got caught up in the slide.

On Friday, investors bought back in, and cybersecurity led the way. A widely followed cybersecurity exchange-traded fund was among the session's best performers, outpacing a software fund that also rallied strongly. Palo Alto Networks (NASDAQ:PANW) and CrowdStrike (NASDAQ:CRWD) each climbed sharply, and neither had company-specific news of its own. Akamai (NASDAQ:AKAM), Datadog (NASDAQ:DDOG) and Palantir (NASDAQ:PLTR) also posted strong gains, while semiconductor stocks lagged.

The contrast matters for Zscaler. Its revenue comes from subscriptions rather than from selling hardware into the AI build-out, which made it an easier place for investors to return to once worries about AI spending eased. A reaffirmed outlook also gave buyers something concrete to lean on.

Market backdrop

The broader indexes rose. The Nasdaq-100 gained 157.34 points to 30,883.15 and the Nasdaq Composite added 172.83 points to 27,366.17. The S&P 500 rose 46.18 points to 7,811.54, finishing just below Tuesday's record close, and the Dow climbed 423.31 points to 51,654.95. The Cboe Volatility Index, Wall Street's fear gauge, eased to 14.84.

Strategists remained guarded. George Saravelos of Deutsche Bank (NYSE:DB) has warned that "The biggest systemic risk in the market next year is not France but 'something going wrong' in the AI ecosystem." Meanwhile, the 10-year Treasury Yield held near a 24-year high, and Fed Governor Christopher Waller said Thursday he anticipates additional hikes to bring Inflation back to the Fed's goal. The Fed raised rates in September for the first time since 2023.

Consumer mood also soured. The University of Michigan's preliminary October sentiment index slipped to 46.3, a five-month low, although Business security spending tends to be driven more by corporate budgets than by household confidence.

Follow-Through on the IBM and Red Hat Collaboration Is the Key Test for Zscaler

On the macro side, Monday, October 12 is Columbus Day, with stocks open and the Bond Market closed. September consumer prices are due on Wednesday, October 14, followed by producer prices and retail sales on Thursday. Big banks report from October 13 to 16, and the Fed meets on October 27 and 28. Investors will look for follow-through on the Zscaler, IBM and Red Hat collaboration and for whether the security rebound holds after Thursday's scare.