Is Zscaler a good stock to buy? — A 2026 Market Analysis

Current market performance overview

As of May 2026, Zscaler (ZS) is navigating a complex period in the stock market. The company recently reported its fiscal third-quarter earnings, which presented a mix of high-growth metrics and cautious forward-looking statements. While the company achieved a significant 25% year-over-year increase in Annual Recurring Revenue (ARR), the stock price has experienced notable volatility. In the month leading up to late May 2026, the share price dropped by approximately 23.8%, falling from a high of $219.67 in late January to roughly $167.36.

This decline is largely attributed to a revision in revenue guidance for the remainder of the fiscal year. Investors often react sharply to lowered outlooks, even when current performance beats expectations. Despite the price drop, Zscaler remains a dominant force in the cybersecurity sector, particularly within the Zero Trust and Secure Access Service Edge (SASE) markets. For investors, the current valuation represents a potential entry point, though it comes with the risk of ongoing sector-wide fluctuations in the software industry.

Financial health and earnings

Zscaler’s financial results for the third quarter of fiscal 2026 showed resilience in core operations. The company reported a non-GAAP net income of $168.7 million, a substantial rise from the $127.1 million reported in the same period of the previous year. Revenue reached $850.5 million, marking a 25% increase year-over-year. These figures suggest that the demand for cloud-native security remains robust, even as the broader macroeconomic environment poses challenges for enterprise spending.

Revenue and profit margins

One of the most impressive aspects of Zscaler’s recent performance is its operating margin, which reached a record high of 23% in the third quarter. This indicates that the company is becoming more efficient as it scales. Non-GAAP earnings per share (EPS) came in at $1.08, surpassing the analyst consensus of $1.01. This "beat" on both the top and bottom lines demonstrates that the company’s go-to-market strategy is effectively capturing larger, more profitable deals.

Cash flow and balance sheet

The company’s cash flow remains a strong point. Cash provided by operations was $204.1 million, representing 25% of total revenue. Free cash flow was reported at $169.1 million. A healthy balance sheet with significant cash reserves allows Zscaler to continue investing in research and development and pursuing strategic acquisitions, such as the recent move to acquire Symmetry Systems to enhance its AI security capabilities.

The impact of AI

Artificial Intelligence is currently the primary driver of both opportunity and risk for Zscaler. The company has positioned itself as a "cybersecurity platform for the AI era," launching tools like AI Guardrails to help organizations secure their use of public and private AI models. However, the rise of AI also introduces new threats. Recent developments in AI tools that can scan code for vulnerabilities have fueled fears of disruption across the entire cybersecurity industry.

AI-powered security solutions

Zscaler is doubling down on AI to stay ahead of attackers. By integrating AI agent security and data governance into its Zero Trust Exchange, the company aims to provide a comprehensive solution for modern enterprises. The acquisition of Symmetry Systems is a key part of this strategy, as it brings access graph technology that helps map and secure communication between AI agents. This focus on "Zero Trust for AI" is a major differentiator that could drive long-term growth.

Competitive threats from AI

While Zscaler uses AI for defense, competitors and malicious actors are using it for offense. The market has shown concern that AI-driven automation could lower the barriers to entry for security services or make traditional security architectures obsolete. This fear has contributed to the recent selloff in cybersecurity stocks. Investors must weigh Zscaler's innovation against the rapid pace of AI-driven disruption that could impact its market share over the next several years.

Analyst ratings and targets

Wall Street analysts remain divided on Zscaler’s immediate future. The average price target for ZS stock currently sits around $261.26, suggesting a significant upside from its current trading price. However, several firms have recently lowered their targets. For instance, some analysts moved their targets from $200 down to $155, citing increased competition from players like Netskope and Cloudflare, as well as general caution regarding enterprise IT budgets in 2026.

Metric	Q3 2026 Result	Year-Over-Year Change
Total Revenue	$850.5 Million	+25%
Non-GAAP EPS	$1.08	+38%
Operating Margin	23%	Record High
Free Cash Flow	$169.1 Million	+18%

Risks for potential investors

Investing in Zscaler at this stage involves several risks. The most prominent is valuation; despite the recent price drop, Zscaler still trades at a high price-to-earnings (P/E) multiple compared to traditional software companies. This means the stock is priced for perfection, and any slight miss in future earnings or guidance can lead to dramatic price swings. Additionally, the cybersecurity market is becoming increasingly crowded, with legacy providers and new startups all vying for a piece of the cloud security pie.

Another risk is the "go-to-market" transformation the company has been undergoing. While management states that this transition is producing larger and stickier transactions, such structural changes can sometimes lead to short-term sales execution issues. Investors should also monitor the impact of global economic conditions on corporate spending, as cybersecurity, while essential, is not immune to budget tightening.

Long-term growth prospects

Despite the short-term volatility, the long-term thesis for Zscaler remains tied to the fundamental shift toward cloud computing and remote work. The traditional "castle and moat" security model is no longer effective in a world where data and users are everywhere. Zscaler’s Zero Trust Exchange is built for this decentralized environment. As more companies migrate to the cloud and adopt AI-driven workflows, the need for a scalable, cloud-native security platform is expected to grow.

For those interested in the broader digital asset and technology ecosystem, staying informed on market trends is essential. While Zscaler focuses on enterprise security, many investors also look toward decentralized financial tools. For instance, you can check the WEEX spot trading link to monitor how major assets like Bitcoin are performing in relation to tech stocks. Understanding the correlation between high-growth tech and the wider financial market can provide a more holistic view of your investment portfolio.

Is Zscaler a buy?

Whether Zscaler is a "good" buy depends on an investor's risk tolerance and time horizon. For aggressive growth investors, the recent 23% dip may be seen as a "sale" on a high-quality company that is a leader in a critical industry. The company's strong ARR growth and record operating margins suggest that the underlying business is healthy. However, conservative investors might be wary of the high volatility and the potential for further downward pressure if the AI disruption narrative gains more traction.

In summary, Zscaler is a dominant player in a growing market, but it faces significant headwinds from competition and rapid technological change. Investors should keep a close eye on the company's ability to maintain its 20%+ growth rate and successfully integrate its AI-focused acquisitions. As of May 2026, the stock remains a high-conviction pick for those who believe in the long-term necessity of Zero Trust architecture, provided they can withstand the price swings common in the SaaS sector.