Key Highlights

● Zscaler opened at $235.51, well below its prior close of $255.80.

● The company had no news of its own; Fortinet's results drove the selling.

● Shares recovered to around $251.36 later in the session.

● ServiceNow suffered its worst day on record, deepening the software rout.

Zscaler (NASDAQ:ZS) had no news of its own on Thursday, but a rival's guidance cut dragged Cybersecurity stocks lower at the opening bell before buyers returned.

Caught in the crossfire

Zscaler opened Thursday in the bargain bin. The stock started trading at $235.51 on October 29, well below its prior close of $255.80, according to market data. One report described the early drop as steep.

The cloud-security company had not reported Earnings or issued any news. The selling was a reaction to Fortinet (NASDAQ:FTNT), a fellow cybersecurity firm whose results the previous evening rattled the entire sector.

By later in the session, Zscaler had clawed back much of the decline, trading around $251.36 according to market data. Its final closing price could not be confirmed.

What went wrong at Fortinet

Fortinet's third-quarter report beat headline estimates, but the details spooked investors. Product Revenue growth slowed sharply, and service revenue of $1.313 billion grew more slowly than analysts had expected. The company also cut its full-year service revenue forecast to a range of $5.15 billion to $5.17 billion, even as it raised its overall sales outlook.

One brokerage downgraded Fortinet to Neutral with a $140 price target, and three other brokerages trimmed their targets. Fortinet plunged to close at $139.10, according to market data.

For investors, the worry was simple: if one major security vendor sees slowing service growth, others might too.

A software rout spreads

Fortinet was not the only spark. ServiceNow (NYSE:NOW) suffered its worst day on record, closing at $109.67 after its fourth-quarter growth guidance disappointed. The software ETF IGV sank sharply as the two reports fed into one another.

Other cybersecurity names were hit as well. One report said Palo Alto Networks (NASDAQ:PANW) and CrowdStrike (NASDAQ:CRWD) both fell sharply early, citing the sector selloff and worries about disruption from artificial intelligence.

Zscaler recovered much of its early decline during the day. The company had not disclosed anything new, and buyers returned as the session wore on, though no specific reason for the rebound was reported. The rebound came even as other security stocks stayed under pressure through the session.

The bigger tech picture

The cybersecurity slump unfolded against a brutal day for mega-cap technology. Alphabet (NASDAQ:GOOGL) suffered its worst session since its 2004 IPO, erasing about $500 billion of market value, after results that one report said "reignited concerns over mounting AI costs." The Nasdaq Composite tumbled 365.13 points to 26,184.72, and the Nasdaq-100 fell to 29,402.51.

Yet the broader market held up. More than 400 S&P 500 members rose, and the Russell 2000 climbed 28.71 points to 2,859.22 as investors moved into health care, utilities and real estate.

"There's plenty of other places to go with your money outside of the AI trade that have pretty decent prospects," one strategist said.

Economic data showed third-quarter GDP growing faster than expected and September PCE Inflation running hot, keeping a December rate hike from the Federal Reserve firmly in play.

What to watch

The key question is whether Fortinet's slowdown is company-specific or a sign of broader softening in security spending. Investors will scour upcoming reports from peers for evidence either way, and any commentary from Zscaler management on Demand trends will draw close attention.

In the near term, Friday's session will show whether the software selloff deepens or stabilizes. The third-quarter Employment Cost index arrives that morning, and the Fed's December 8 to 9 meeting remains a key risk for richly valued software stocks.