Is Zscaler, Inc. (ZS) A Good Stock To Buy Now?

Key Takeaways

• Zscaler Q2 FY2026 revenue $816M, up 26% YoY
• ARR reached $3.4B, growing 25% year‑over‑year
• Operating margin 22.2%, free cash flow margin >20%
• Non‑seat‑based products >25% of new ACV, >100% growth
• 728 customers generate >$1M ARR each

Pulse Analysis

Zero Trust has become the cornerstone of modern cybersecurity, and Zscaler’s cloud‑native architecture is a prime example of that shift. By replacing legacy perimeter firewalls with a globally distributed exchange, the firm enables secure access for users, applications, and branch offices alike. This model aligns with enterprises’ migration to multi‑cloud environments, where traditional hardware solutions struggle to keep pace. As a result, Zscaler enjoys strong brand differentiation and a growing install base, reinforcing its strategic relevance in a market projected to exceed $50 billion by 2028.

Financially, Zscaler is delivering a rare blend of high‑growth and profitability. The latest quarter showed revenue of $816 million, a 26% increase, while annual recurring revenue surged to $3.4 billion, reflecting a 25% YoY rise. Operating margins climbed to 22.2% and free‑cash‑flow margins topped 20%, comfortably meeting the “Rule of 60+” benchmark that investors use to gauge sustainable growth. A notable trend is the shift toward consumption‑based pricing; non‑seat‑based offerings now account for more than a quarter of new annual contract value and are expanding at double‑digit rates, signaling higher recurring revenue visibility.

Artificial intelligence is adding a potent tailwind to Zscaler’s outlook. The platform processes close to one trillion AI‑related transactions annually, and new services like AI Protect provide real‑time inspection and policy enforcement for AI workloads. This AI integration not only deepens existing customer relationships—often yielding 2–3× ARR expansion—but also opens doors to sectors that require stringent data‑security compliance. While the bullish thesis underscores Zscaler’s solid fundamentals, investors should weigh the company against other high‑growth AI plays that may promise steeper upside, especially given the competitive landscape of SASE and broader cybersecurity solutions.