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 $200.63 as of January 29th. ZS’s forward P/E was 52.91 according to Yahoo Finance.

Zscaler, Inc. operates as a cloud security company worldwide. ZS’s sharp post-earnings selloff highlights a recurring market misunderstanding rather than any deterioration in fundamentals. The company once again delivered a strong quarter, with revenue and ARR both growing 26% YoY, free cash flow margins hitting 52%, and RPO accelerating 35%—nine points faster than revenue—showing demand building faster than the P&L can absorb.

Yet shares fell because management raised full-year guidance only by the size of the beat, consistent with a seven-year pattern of deliberately conservative forecasting. Zscaler has beaten the high end of revenue guidance for 28 consecutive quarters, and the market’s reaction reflects short-term focus on guidance semantics rather than the underlying engine of growth.

That engine is Z-Flex, a commercial shift that moves customers from product-by-product procurement to multi-year platform commitments that increase long-term visibility and reduce competitive risk. Z-Flex bookings surged 70% sequentially to $175 million, now representing 20% of total bookings, and driving faster backlog accumulation. Its effectiveness is reinforced by the platform’s momentum: AI Security ARR surpassed $400 million, Zero Trust Everywhere exceeded its FY26 customer target early, and Data Security ARR is growing faster than the company overall. These expanding pillars keep customers deeply embedded, creating Salesforce-like platform dynamics in security.

Strategically, SAP RISE is emerging as a catalyst that tilts enterprises away from firewalls and toward Zscaler’s architecture, directly pressuring legacy vendors. While the core ZIA/ZPA franchise must convert into broader platform adoption, and margins warrant monitoring as AI products scale, the long-term thesis remains intact. At current valuation levels, the pullback reflects traders reacting to the “speedometer,” while the “engine”—RPO strength, platform expansion, and structural tailwinds—continues to strengthen, offering a compelling setup for long-term investors.

Previously we covered a bullish thesis on Rubrik, Inc. (RBRK) by ElectSamsepi0l in December 2024, which highlighted the company’s cloud-native data protection platform, rising ARR, and strengthening competitive positioning. The company's stock price has appreciated approximately by 8.03% since our coverage. This is because its execution and market demand supported the thesis. The thesis still stands as enterprise adoption remains strong. Nikhs shares a similar view on Zscaler but emphasizes its platform-driven 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.