Zscaler, Inc.
Investment Thesis
Over a 3-5 year horizon, Zscaler will continue its market leadership and deliver substantial revenue growth and expanding profitability due to its differentiated cloud-native Zero Trust platform and the secular tailwinds of digital transformation and AI security.
Conviction History
Assumptions
Revenue growth will remain robust, averaging 25-30% annually, driven by continued market adoption of Zero Trust architectures, expansion into AI security use cases, and increasing penetration within its existing customer base.
Gross margins will remain strong, stabilizing between 77-79%, as economies of scale in its cloud infrastructure continue to offset increased data center CapEx for AI and ongoing R&D investments.
Zscaler will maintain pricing power, achieving average selling price (ASP) growth of at least 3% annually, supported by its integrated platform, high switching costs, and the essential nature of its security services.
The company will maintain a net cash position, with debt levels remaining negligible relative to its substantial cash reserves and operating cash flow generation, ensuring financial flexibility.
Customer retention will remain above 95%, and the company will add at least 1,000 new enterprise customers annually, driven by platform stickiness and the increasing sophistication of cyber threats.
No significant governance failures, regulatory shutdowns, or delisting events will occur, allowing Zscaler to continue operating under standard NASDAQ listing requirements.
Recent Developments
Zscaler's Z-Flex Adoption Surges: Will It Be a New Growth Engine? - Nasdaq
Z-Flex program achieved $175M in TCV bookings in Q1 FY2026, a 70% sequential increase, facilitating larger multi-year enterprise deals.
Zscaler Bets On AI Security Suite As Enterprise Risks Mount - Yahoo Finance
AI Security ARR reached $400M FY2026 target three quarters early; platform now processes 1 trillion annual AI/ML transactions.
Zscaler partnered with Bharti Airtel to launch an AI and cyber threat research center in India to study AI-driven attacks.
Your Encryption Is Already Outdated. A $6.15 Trillion Fix Is Underway - GlobeNewswire
CISA issued procurement guidance requiring post-quantum cryptography (PQC) for federal agencies, positioning Zscaler as a primary beneficiary of mandatory security migrations.
Down 18% In Last 12 Months, Can Zscaler Stock Deliver Strong Returns in 2026? - TIKR.com
AI Security ARR grew 80% YoY, hitting the $400M FY2026 target three quarters early; company now operates at a Rule of 78.
Zscaler Finds Enterprises Unprepared For AI-Driven Cyber Threats - SMEStreet
Zscaler ThreatLabz 2026 report confirms AI/ML transactions on the platform reached nearly 1 trillion annually, with 309% YoY growth in India, validating the platform's role in securing autonomous AI traffic.
AI fear grips Wall Street as a new stock market reality sets in - Communications Today
Zscaler acquired SquareX to integrate browser-native threat protection into its Zero Trust Exchange, targeting unmanaged devices and AI workflows.
Key deals this week: Zscaler, Eldorado Gold, Henkel and more (ZS:NASDAQ) - Seeking Alpha
Zscaler acquired SquareX to integrate browser-based security into its Zero Trust Exchange. The move targets the browser as a primary attack vector in the AI era, allowing for lightweight security extensions that bypass traditional traffic backhauling. This strengthens the platform's technological moat and addresses evolving enterprise AI security requirements.