Bank of America upgrades Zoom to Buy, citing improved enterprise demand, expanding product lines, and a multibillion-dollar AI investment that could reshape the company's valuation
Zoom Communications is drawing renewed optimism from Wall Street as Bank of America upgrades the stock to Buy, pointing to a shift in the company's growth story beyond its pandemic-era video meetings dominance. The bank's analysts argue that Zoom's expansion into business phone systems, contact center solutions, and artificial intelligence tools is starting to pay off, even as the company faces a more competitive and mature market for its core video conferencing services.
According to a recent note from Bank of America, Zoom's efforts to diversify its product suite are gaining traction with enterprise customers. The firm reinstated coverage with a $130 price target, representing about 24% upside from the price used in its analysis. The bank's analysts see improving enterprise spending and stronger customer retention as key factors supporting a more sustainable growth outlook for Zoom, which has spent several years adjusting to post-pandemic realities.
Expanding Beyond Meetings
Zoom's initial surge during the pandemic made it a household name, but as offices reopened and competitors like Microsoft Teams consolidated their presence, Zoom faced contract reductions and slower growth in its core meetings business. The company's latest quarterly results, however, show signs of stabilization. For the fiscal first quarter of 2027, Zoom reported $1.24 billion in revenue, up 5.5% from the prior year, with enterprise revenue climbing 7.2%. Revenue growth at constant currency reached 4.6%, continuing a gradual acceleration from the company's post-pandemic lows.
Bank of America expects Zoom's newer offerings to drive growth into the mid-single-digit range. Zoom Phone, the company's cloud-based business phone service, has surpassed 10 million paid seats, while its Contact Center product has reached $100 million in annual recurring revenue. The bank also notes that enterprise net dollar expansion-a measure of how much existing customers increase their spending-improved to 99% last quarter and could rise above 100% as more clients adopt products like Phone, Contact Center, Workvivo, and AI-powered features.
Anthropic Investment Adds Hidden Value
One of the most significant but often overlooked assets in Zoom's portfolio is its investment in Anthropic, an artificial intelligence company. According to Bank of America, Zoom's stake in Anthropic could be worth nearly $3 billion, based on Anthropic's latest fundraising round, which valued the AI firm at $65 billion in May. Zoom's most recent SEC filing shows it increased its investment in Anthropic to a carrying value of $1.27 billion as of April 30, but Bank of America believes the true market value is much higher.
This AI investment is now a central part of the bank's valuation model for Zoom. By adding the estimated value of the Anthropic stake to its core business, Bank of America argues that Zoom's shares are trading at a discount compared to peers. Excluding the Anthropic investment, the bank estimates Zoom's core business trades at about 11 times projected 2027 enterprise value to free cash flow, versus 13 times when the investment is included.
Risks Remain for Zoom's Transition
Despite the bullish outlook, Bank of America cautions that Zoom still faces meaningful risks. The company must prove that its newer products can offset ongoing pressure in its mature meetings segment. Key challenges include Microsoft's continued bundling of Teams with other services, potential reductions in enterprise contracts, customer churn among online users, and slower-than-expected adoption of new offerings. The contact center market is also crowded with established competitors, and it remains to be seen whether Zoom's AI features will generate significant paid revenue.
Financially, Zoom remains well-positioned to pursue its growth strategy. The company ended April with approximately $7.7 billion in cash, cash equivalents, and marketable securities, and generated $521.6 million in operating cash flow during the quarter. Bank of America believes these resources, combined with improving operating trends and the potential upside from its Anthropic investment, support the case for owning the stock as the company emerges from its post-pandemic reset.
For the fiscal first quarter of 2027, Zoom's $1.24 billion in revenue marked a 5.5% year-over-year increase, while enterprise revenue rose 7.2%. The company's Contact Center product surpassed $100 million in annual recurring revenue, and Zoom Phone exceeded 10 million paid seats. As of April 30, Zoom reported $7.7 billion in cash and marketable securities, according to its latest SEC filing.
Zoom's investment in Anthropic highlights how strategic stakes in high-growth technology companies can influence a public company's valuation and investor perception. While such investments can provide significant upside if the underlying company succeeds, they also introduce additional volatility and complexity to the balance sheet. For investors, understanding how these non-core assets are valued-and how they fit into the broader business strategy-can be critical when assessing a company's true worth and future prospects.
