Glitch
Founder of Skylit
Zscaler could get a catch-up trade if money starts rotating into cybersecurity laggards, with CrowdStrike up eight days in a row. x.comÂ
Zscaler stands to benefit as AI's growth raises security needs, a point Elon Musk and Dario Amodei just emphasized, making large pullbacks in the sector a buying opportunity. Q2 revenue was $898M, up 25% year over year, ARR reached $3.77B, AI security bookings rose 50% sequentially, the Z-Flex program reached $770M in quarterly contract value, and non-GAAP operating margin hit a record 24.3%. x.comÂ
Zscaler is not cheap at 40x earnings, about double an initial guess of 20x. @StockSavvyShay pulled up the real figure live on air ahead of Zscaler's Thursday report. x.comÂ
Zscaler is a no-brainer at this price, and selling it on a small Q4 revenue guidance miss makes no sense. Q3 beat on revenue ($850M vs $836M), EPS, operating income and ARR ($3.53B), and Q4 EPS guidance of $1.09 topped the $1.04 estimate, while revenue guidance was $877M versus $879M, per @StockSavvyShay. x.com x.comÂ
Zscaler looks like the better cybersecurity buy for the next three years because its valuation has diverged sharply from CrowdStrike's. Zscaler trades at 5.7x next-twelve-month revenue with 17-18% expected annual growth, versus CrowdStrike at 31.1x revenue and 150x earnings with 21-22% growth, probably the biggest gap ever between them. A 25% CAGR over 3-5 years is hard to model for CrowdStrike at that price. Zscaler has been beaten up for good reasons. x.com x.comÂ
Zscaler is now better used as a source of funds, since many cheap companies look better than it. It was attractive when it was cheap and nothing else was. At $150 it would become a great trade and source of funds. x.com x.comÂ
Zscaler's 31% drop is a mispricing, because AI agents multiply endpoints and attack surface, raising demand for the zero-trust security that Zscaler leads. The selloff came the same day Robinhood opened trading to AI agents, so the market is selling a picks-and-shovels name of the AI era while celebrating that era, exactly the setup for +200% trades. x.comÂ
Zscaler's AI-era cybersecurity thesis is now showing up in bookings. Q3 beat across every line: ARR crossed $3.5B, up 25% or 21% excluding Red Canary, and non-GAAP operating margin hit a record 23%. AI Protect bookings topped $100M, Data Security ARR passed $500M, and Zero Trust Everywhere customers rose from 550+ to 700+. Partnerships with Anthropic and OpenAI and the planned Symmetry Systems deal for AI agent identity add catalysts; a preliminary 16-17% FY27 outlook sets a credible bar. x.comÂ
Zscaler should sell off on its guide for 9.5% organic ARR growth in fiscal 2027. That makes it a slow-moving software company with excellent dollar-based net retention but a withering growth engine, not an AI winner. x.comÂ
Zscaler's enforcement layer looks undervalued, since AI commoditizes tools that produce answers but strengthens tools that enforce decisions. As a cloud proxy every user session must pass through, replacing it means re-architecting traffic, not swapping vendors. It trades at 8.6 times EV/sales on 25% growth, 47% below its 52-week high, with $1.11B of free cash flow and net cash. The case fails if Palo Alto, Netskope or Cisco make enforcement a checkbox in a platform bundle. x.comÂ