Zscaler, Inc. (ZS): A Bull Case Theory

We came across a bullish thesis on Zscaler, Inc. on Nikhs’s Substack. In this article, we will summarize the bulls’ thesis on ZS. Zscaler, Inc.'s share was trading at $309.88 as of October 10th. ZS’s forward P/E was 84.03 according to Yahoo Finance.

Zscaler is emerging as a foundational security infrastructure provider, echoing Salesforce’s transformation of enterprise software during the 2008 financial crisis. While the market still treats Zscaler as premium security software vulnerable to Microsoft bundling, the company is building a platform with unique, defensible advantages. Its inline architecture inspects over 500 billion daily transactions, enabling real-time security decisions and compounding intelligence across its customer base—capabilities competitors cannot replicate.

The company’s Z-Flex pricing model further reinforces its infrastructure positioning, allowing flexible, consumption-based adoption within multi-year contracts, neutralizing Microsoft’s bundling threat while accelerating platform expansion. Zscaler’s Q4 FY25 results validate these dynamics: revenue grew 21% YoY to $719 million, operating margins reached a record 22.1%, and free cash flow exceeded estimates by 29%, but the underlying story is in the platform economics.

High single-digit net new ARR growth alongside 22–23% total ARR growth demonstrates that two-thirds of expansion comes from existing customer adoption, highlighting the power of cross-selling across its Zero Trust, Data Security, and Agentic Operations modules, where penetration remains far from saturation.

Enterprise AI adoption is a key catalyst, driving a 3,500% increase in AI/ML transactions and positioning Zscaler as the control plane for agent-to-agent and agent-to-application communication. Over the next three years, the company could see ARR grow 20–25% with margins expanding, depending on Z-Flex adoption, AI Security momentum, and cross-sell execution.

Risks include measurement opacity, integration complexity, and reliance on existing customer expansion. Nevertheless, Zscaler represents a rare investment in transformative infrastructure, with durable competitive advantages, accelerating platform adoption, and substantial long-term upside as the market increasingly recognizes its security infrastructure model.

Previously we covered a bullish thesis on Rubrik, Inc. (RBRK) by ElectSamsepi0l in December 2024, which highlighted the company’s leadership in backup and recovery solutions, ARR growth, and path to profitability by 2026. The company's stock price has appreciated approximately by 53.44% since our coverage. The thesis still stands. Nikhs shares a similar perspective but emphasizes Zscaler’s transformation into foundational security infrastructure and AI-driven platform growth.

Zscaler, Inc. is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 60 hedge fund portfolios held ZS at the end of the second quarter which was 46 in the previous quarter. While we acknowledge the potential of ZS as an investment, we believe certain AI stocks offer greater upside potential and carry less downside risk. If you're looking for an extremely undervalued AI stock that also stands to benefit significantly from Trump-era tariffs and the onshoring trend, see our free report on the best short-term AI stock.

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Disclosure: None.