Cloud security platform Zscaler (NASDAQ:ZS) beat Wall Street’s revenue expectations in Q2 CY2026, with sales up 24.9% year on year to $898.2 million. Guidance for next quarter’s revenue was better than expected at $937 million at the midpoint, 1% above analysts’ estimates. Its non-GAAP profit of $1.19 per share was 9.2% above analysts’ consensus estimates.

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StockStory’s Take

Zscaler’s second quarter results exceeded Wall Street’s expectations for both revenue and non-GAAP earnings per share, yet the market responded negatively. Management attributed the strong performance to accelerating enterprise adoption of its Zero Trust platform, expanded product portfolio, and particularly heightened demand for AI security solutions. CEO Jay Chaudhry cited “increasing market adoption of our Zero Trust platform” and a surge in Security for AI bookings as key drivers for the quarter, with broad-based strength across all product lines and geographies. Ongoing transformation in the sales organization and elevated large deal activity also featured prominently in management’s discussion of the quarter’s outcomes.

Looking ahead, Zscaler’s guidance reflects optimism around continued enterprise adoption of its expanding AI security portfolio and broad Zero Trust offerings. Management pointed to robust customer interest in new solutions like Agentic SecOps and Zero Trust Branch, as well as ongoing investments in sales capacity and channel partnerships. CFO Kevin Rubin highlighted that “AI is very quickly becoming a strong and durable tailwind for the business,” noting a significant increase in pipeline for Security for AI products. While leadership sees opportunities to accelerate new customer wins and platform adoption, they also acknowledged that sales leadership transitions and integration of recent acquisitions may temper near-term growth rates.

Key Insights from Management’s Remarks

Management emphasized that demand for AI-powered security, Zero Trust adoption, and flexible purchasing models were key factors behind both the strong quarter and the company’s forward momentum.

• AI Security Tailwinds: Heightened urgency around securing AI models and agentic infrastructure drove strong inbound interest and over 50% sequential growth in Security for AI bookings, with management highlighting the unique risks associated with autonomous AI agents and recent high-profile breach incidents.
• Zero Trust Platform Expansion: Customer adoption broadened beyond traditional user-based offerings to include branch, cloud, and non-user environments, as seen with Zero Trust Branch and Zero Trust Cloud, enabling Zscaler to address emerging IoT/OT security needs and multi-cloud deployments.
• Z-Flex Upsell Momentum: The Z-Flex purchasing model, offering customers flexibility to add or swap modules, contributed to record large deal activity and averaged nearly 30% ARR uplift for customers. Over $1.7 billion in Z-Flex bookings underscored customers’ preference for long-term, adaptable commitments.
• Non-Seat-Based Revenue Growth: Usage-based solutions such as data security and AI security products now represent a growing share of new and upsell annual contract value, with ARR tied to these offerings more than doubling year-over-year, signaling a shift in how Zscaler monetizes its product suite.
• Sales Organization Transformation: The company completed a sales structure overhaul, shifting to an account-focused approach and achieving record sales productivity. While two sales leaders departed last quarter, new appointments and internal promotions have stabilized the organization, positioning Zscaler for improved enterprise penetration and new logo acquisition.

Drivers of Future Performance

Management expects continued expansion in AI security, broader Zero Trust adoption, and targeted sales investments to shape Zscaler’s growth trajectory, while cautioning that operational transitions and industry headwinds may impact near-term results.

• AI Security and Product Innovation: Zscaler believes the proliferation of frontier AI models and customer demand for integrated security platforms will accelerate adoption of its Security for AI and Agentic SecOps products. Management expects these offerings to drive both new logo wins and upsell opportunities, though notes that many AI security solutions are still in early access phases and broad revenue contribution may ramp later in the year.
• Sales Execution and Go-to-Market Expansion: The company is investing in dedicated sales teams for enterprise and mid-market segments, as well as expanding partnerships such as with Carahsoft, to boost new customer acquisition. While these initiatives aim to capture a larger share of the addressable market, leadership acknowledged that onboarding new sales leaders and teams could temporarily weigh on growth rates as geographies ramp up.
• Cost Structure and Resource Allocation: Elevated capital expenditures, particularly around memory and data center equipment, are expected to persist as Zscaler supports AI and Zero Trust infrastructure growth. A workforce restructuring affecting approximately 3% of employees is intended to reallocate resources toward AI-focused initiatives, but management signaled that these changes may create near-term cost headwinds before delivering efficiency gains.

Catalysts in Upcoming Quarters

Looking forward, our analysts will track (1) adoption rates and revenue contribution from newly launched AI security and Agentic SecOps products, (2) execution of expanded sales and channel initiatives aimed at new logo growth and platform upsell, and (3) the company’s ability to manage elevated capital expenditures while maintaining operating margins. Developments in the competitive landscape for cybersecurity, particularly around integrated Zero Trust and AI security, will also be closely watched.

Zscaler currently trades at $172.10, down from $178.69 just before the earnings. In the wake of this quarter, is it a buy or sell? See for yourself in our full research report (it’s free).

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