Cantor Fitzgerald reiterates Zscaler stock rating on strong results By Investing.com

Zscaler reported Q2 FY2026 revenue up 26% YoY and ARR up 25% to ~ $3.4B, with a trailing-12-month gross margin of 76.63% and raised full-year guidance. Cantor Fitzgerald reiterated Overweight while analysts adjusted price targets (Freedom $270 from $320; TD Cowen $220 from $260; Wells Fargo initiated Overweight $200), and the Red Canary acquisition adds ~ $130M ARR upside alongside a new Canadian data-sovereignty deployment supporting AI and data-security momentum.

Analysis

Zscaler’s setup is less about a one-quarter beat and more about structural margin leverage and enterprise contract dynamics. High gross margins give the company optionality to fund AI-security productization and customer success, which should accelerate net retention if execution stays tight; this converts growth into durable free cash flow over 12–36 months, not just headline ARR prints.

The Red Canary tuck‑in and data‑sovereignty builds are strategic bridges into regulated verticals; they expand addressable spend per customer but introduce integration and execution risk that can manifest as execution drag for 2–6 quarters. Large‑deal momentum implies concentration risk: a few >$1M deals can skew near‑term results and create lumpy renewal timing, so watch cohort economics and gross retention as the real health metrics over the next 4 quarters.

Macro and sentiment are the primary valve on multiple expansion. If the market rotates back to quality growth and AI spend flows into cybersecurity over the next 6–12 months, Zscaler’s multiple can re-rate materially; conversely, rate volatility or a slowdown in enterprise software spend would transmit quickly through multiple compression given the stock’s growth premium. Finally, the Anthropic/Claude wave materially increases buyer interest in ML‑aware security — a second‑order demand driver that should favor platforms with strong telemetry and policy programmability, creating durable competitive separation if product execution holds.

Key Decisions for Investors

• Long core position in ZS (12‑18 month horizon): buy shares sized 2–4% of portfolio with a target +30% and hard stop at -20%. Rationale: capture re‑rating if AI/security cross‑sell and regulated deployments accelerate; downside limited by execution risk and multiple compression.
• Buy a directional call spread (12 months) to express convexity: long ZS 12‑month 25%/45% OTM call spread sized at 0.5–1% notional of portfolio. Risk limited to premium, reward = spread width minus cost — attractive if you want leveraged upside to productization catalysts without full equity exposure.
• Relative‑value pair (6–12 months): long ZS / short one large legacy perimeter security vendor (e.g., PANW) sized 1:0.6 to neutralize market beta. Expectation: Zscaler captures cloud‑native security secular flows while legacy vendors face slower software transition; target relative outperformance of 20–30% over 12 months, risk is correlated drawdown during broad risk‑off.
• Hedge short‑term macro risk (0–6 months): sell ~30% of position into sharp rallies or buy 3–6 month puts if rates spike or tech selloff resumes. This preserves upside optionality while protecting against multiple compression shocks often realized inside 60–120 day windows.