Why Zscaler’s Recent Rally Could Just Be Getting Started

Why Zscaler's Recent Rally Could Just Be Getting Started

Zscaler (NASDAQ: ZS) stock has been on a roller coaster. The stock hit an all-time high of $368 in 2021. Even after a strong rebound recently, it still trades around $175. That means investors who bought near the top are still deep underwater, even as the stock has surged roughly 30% in the past month alone.

The selloff before that was brutal. ZS dropped from a 52-week high of $337 in November 2025 to nearly $114 by late April 2026, wiping out about 66% of its value at the lows.

A few things drove the collapse. Investors started worrying that AI tools could eventually commoditize parts of cybersecurity. The worry was the tougher competition in the SASE market and concerns that Zscaler was not expanding much beyond its core products. Insider activity did not help either. Over the past six months, insiders sold shares 18 times and made zero purchases. See also, Is the Worst Over For Zscaler Stock?

But then came earnings, and the numbers were hard to ignore.

In Q2 FY2026, Zscaler reported revenue of $815.8 million, up 26% year over year. Annual recurring revenue reached $3.36 billion, also up 25%. Non-GAAP operating margin hit a record 22.2%, while EPS came in at $1.01, beating estimates by more than 13%. Free cash flow was $169 million.

The company also posted what it calls a "Rule of 62" score for the first half of the year. That combines revenue growth and free cash flow margin. Anything above 40 is considered strong. Zscaler hit 62.

Management raised full-year guidance too. ARR is now expected to reach $3.73 billion to $3.74 billion, while revenue guidance increased to $3.31 billion to $3.32 billion.

See how Zscaler's financials compare to its peers, Palo Alto Networks, Fortinet, Cloudflare, Crowdstrike and Netskope.

That helped set up the recent rally. The stock bounced from around $133 on April 23 to roughly $175 by May 19.

See also, POET Stock Doubled In Days. Can The Rally Last?

The move was also helped by strong earnings from cybersecurity peer Fortinet and solid AI-driven results from Cisco, which lifted sentiment across the software sector.

The company also picked up Google Cloud's 2026 Partner of the Year Award for Security, reinforcing its position in securing AI workloads.

Still, the risks have not disappeared. Zscaler remains unprofitable on a GAAP basis, posting a Q2 net loss of $34 million. Organic ARR growth excluding acquisitions was 21%, while net new ARR growth slowed to 7%.

Competition is getting tougher too, especially from Palo Alto Networks and CrowdStrike, both of which are aggressively expanding into zero trust and SASE.

Now all eyes are on Q3 earnings on May 26. Zscaler expects revenue of $834 million to $836 million, implying growth of around 23%.

If the company delivers another beat-and-raise quarter, the recovery could continue. But if ARR growth slows further or guidance disappoints, the stock could give back a chunk of its recent gains just as quickly.

The bigger picture is simple. AI is creating huge new security risks, and Zscaler believes its zero trust platform is built for exactly that environment. The stock has already gone through a massive reset. Now investors are trying to figure out whether the worst is finally over.

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