Zscaler CEO Jay Chaudhry Talk Earnings, AI Trade

Summary

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Podcast Summary: Bloomberg Talks

Episode: Zscaler CEO Jay Chaudhry Talks Earnings, AI Trade
Date: February 27, 2026
Host: Bloomberg
Guests: Jay Chaudhry (Founder, Chairman & CEO, Zscaler), Mandeep Singh (Bloomberg Intelligence, Global Head of Technology Research)

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Overview

This episode delves into the challenging week for Zscaler, the cybersecurity company, amid volatile stock performance and broader industry turbulence. Host and analysts are joined by Jay Chaudhry to discuss Zscaler’s latest earnings, the AI-driven shifts in cybersecurity, sovereign cloud trends, competition from hyperscalers, and the case for Zscaler’s long-term value proposition. The tone is direct, informative, and focused on current investor and enterprise concerns around AI, operational shifts, and security efficacy.

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Key Discussion Points & Insights

1. Zscaler’s Earnings & Stock Volatility

• Zscaler shares dropped approximately 13% after Q2 results, with a 36% YTD decline and more than 60% since November 2021 (00:29–00:48).
• Although Q2 numbers beat estimates, the market found them insufficient to shift negative sentiment toward software names (00:48–01:13).
• Multiple analysts have since lowered price targets.

2. The AI Opportunity and Security Risks

• Jay Chaudhry emphasizes the growing importance (and risks) of AI agents in enterprise environments (01:52–02:30).
  • “AI is a massive opportunity because what AI is doing is bringing lots of AI agents in the enterprise ... Now AI agents are becoming the weakest link. How do you secure them?” – Jay Chaudhry [01:52]
• Zscaler’s “zero trust exchange” is positioned to protect both human users and AI agents, with fine-tuned, one-to-one access controls.

3. Addressing Billings Numbers & Growth Focus

• Mandeep Singh queries whether soft billings reflect slower seat growth or broader market contraction (02:32–02:55).
• Chaudhry maintains that billings is “a secondary number” and stresses ARR and revenue growth as key metrics:
  • Revenue +26% YoY
  • ARR +25%
  • Free cash flow +18%, operating margin +22% (02:55–03:36)
  • Z Flex program (multi-year deals) impacts billings, but shows strong customer commitment.

4. Impact of AI on Company Operations

• On operational use of AI: Zscaler leverages AI to boost productivity (especially engineering) and customer support, but doesn’t expect drastic headcount reduction as claimed by others, e.g., Block (Square) (04:12–05:20).
  • “We are increasing productivity of our engineering team by using all this stuff. But … in some of these critical areas you need people. I am hiring more developers for AI development for example.” – Jay Chaudhry [04:12]
• The proliferation of agents (not just users) will expand Zscaler’s total addressable market.

5. Sovereign Clouds & Global Expansion

• Singh brings up the trend of sovereign nations rolling out their own AI clouds (05:20–05:46).
• Chaudhry explains Zscaler’s architecture supports sovereign data requirements (locality, compliance) and sees such initiatives as “a positive development” (05:46–06:43).
  • “Our sovereign security cloud will make sure they can access the model whether it’s sovereign or non sovereign. So overall it’s a positive thing for us.” – Jay Chaudhry [06:15]

6. Competition with Hyperscalers & Security “Bundling”

• The episode addresses rising investment and offerings from hyperscalers like Amazon and Google (06:43–07:12).
• Chaudhry asserts that hyperscalers aren’t a direct threat; Zscaler remains the neutral “Switzerland” in zero trust network connections (07:12–08:09).
  • “We become the Switzerland that connects right party to right party … the more models they create, the more agents that get built, the more opportunities Zscaler has.” – Jay Chaudhry [07:47]

7. Enterprise Value Proposition vs. Bundled Security

• Zscaler’s global infrastructure (160+ locations) and policy enforcement are core differentiators (08:17–09:58).
  • “Zscaler is not a piece of code that you bundle ... Zscaler is a globally distributed infrastructure sitting in 160 locations around the globe ... we become the switchboard, the policy enforcement for that [traffic].” – Jay Chaudhry [09:10]
• 45%+ of the Fortune 500 rely on Zscaler.

8. Government Business and Pipeline

• Federal market remains strong; last year saw some changes, but now back on track (09:58–10:19).
  • “13 of the 14 cabinet level agencies use Zscaler to secure themselves.” – Jay Chaudhry [10:19]

9. Closing Confidence on AI

• AI seen as an opportunity, not a threat, with security for “agentic technology” a top CIO concern (10:37–11:02).
  • "Securing agentic technology is the number one thing. CIOs want to make sure they can do it. That's holding them back from larger rollout and we become enablers of it." – Jay Chaudhry [10:42]

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Notable Quotes & Memorable Moments

• “[With AI] agents are becoming the weakest link. That requires a global infrastructure ... That’s why we are very bullish about our future.” – Jay Chaudhry [01:52]
• “Billings is a secondary number for us … Z Flex … gives some flexibility in billings so billings can get impacted. But … customers are doing multi year, four or five year deals with us.” – Jay Chaudhry [02:55]
• “We are increasing productivity of our engineering team by using all this stuff. But … in some of these critical areas you need people. I am hiring more developers for AI development for example.” – Jay Chaudhry [04:12]
• “Our sovereign security cloud will make sure they can access the model whether it’s sovereign or non sovereign.” – Jay Chaudhry [06:15]
• “We become the Switzerland that connects right party to right party … the more models they create, the more agents that get built, the more opportunities Zscaler has.” – Jay Chaudhry [07:47]
• “Zscaler is a globally distributed infrastructure ... we become the switchboard, the policy enforcement for that [traffic].” – Jay Chaudhry [09:10]
• “13 of the 14 cabinet level agencies use Zscaler to secure themselves.” – Jay Chaudhry [10:19]
• "AI is an opportunity for our business. Not a threat at all." – Jay Chaudhry [10:42]

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Timestamps for Key Segments

• 00:29–01:13: Host introduction, stock/earnings context
• 01:52–02:30: Chaudhry on AI agents & security
• 02:32–03:36: Discussion of billings and focus on growth metrics
• 04:12–05:20: AI’s impact on Zscaler operations & hiring
• 05:46–06:43: Handling sovereign clouds globally
• 07:12–08:09: Competition with hyperscalers and the “Switzerland” analogy
• 08:17–09:58: Zscaler’s infrastructure and unique value proposition
• 09:58–10:19: Strength of U.S. federal business
• 10:37–11:02: Recap: AI is an opportunity, not a threat

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Final Takeaway

Zscaler’s leadership projects confidence in weathering stock volatility and rising AI challenges, positioning the firm as an indispensable “zero trust” security provider—both for human and AI actors—amid growing regulatory, operational, and competitive pressures. AI is framed throughout as a catalyst for expansion, not contraction, further reinforcing Zscaler’s differentiated value and global market position.

Transcript

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[Bloomberg Host]

Bloomberg Audio Studios Podcasts Radio News hey, we are also watching shares of Z Zscaler. They're getting smacked down a bit today down about 13% hitting a 52 week low now down about 36% year to date. Stock is down more than 60% TIM since November of 2021.

[Bloomberg Analyst]

Investors selling shares after the Security Software Company second quarter results. They beat estimates they weren't though strong, seen as strong enough to reverse recent negative sentiment toward software companies. It comes on top of a tough week for company Shares. Stock tumbled 10% on Monday on the scare worries again Carol, over the impact of AI on companies and industries. Shares though rallied back close to 17% in the next three days thanks to a calming down a little bit in the trade.

[Bloomberg Host]

Yeah, it's been a crazy week for zscaler, no doubt about that. We should point out a bunch of analysts weighing in on the company's earnings and lowering their price target on the stock. But let's get into the business, the outlook and more. Delighted to have back with us Jay Chowdhury, founder, chairman and CEO of zscaler, joining us from San Jose, California. Welcome back. Also with us, someone who understands follows this company very closely, our own Mandeep Singh. He is Bloomberg Intelligence Global Head of Technology Research here in studio. Jay, tell us a little about the quarter and I think we all want to know how AI is impacting your business. Let's start there.

[Jay Chowdhury]

So AI is a massive opportunity because what AI is doing is bringing lots of AI agents in the enterprise. Agents are some alike people. Traditionally users have been the weakest link for cybersecurity. Now AI agents are becoming the weakest link. How do you secure them? Well, you need to make sure that you can do one to one connection. That means an agent can only access certain applications and nothing more. That requires a global infrastructure that zscrow has built in the form of zero trust exchange. That's why we are very bullish about our future.

[Bloomberg Analyst]

So go ahead Mandeep.

[Mandeep Singh]

Yeah, I mean Jay, I think the street obviously didn't like the billings number in your print and that was seen as, you know, moderating. Like was that attributed primarily because of seed growth slowing down and we keep hearing, you know, layoffs like the one that Square announced yesterday or was there anything more to the billings number last night?

[Jay Chowdhury]

So billings is a secondary number for us. The number one area of focus for is ARR growth and revenue growth. Our revenue grew 26% year over year. ARR, 25% free cash flow, 18% operating margin, 22%. They're all great numbers. Now we have a Z Flex program that gives some flexibility in billings so billings can get impacted. But with Z Flex, customers are doing multi year, four or five year deals with us committing to zscaler, which is a very strong sign. So I don't think the billing should be viewed in a negative light. Overall, business is very strong.

[Bloomberg Analyst]

Jay, I want to go back to what you said about AI and protecting these AI agents and just how you're thinking about that because I think a lot of people are trying not just to understand the impact of AI on cybersecurity, but the impact of AI on a company like yours when it comes to operations. So from an operations perspective, with the context of what we saw from Block late yesterday, the company relying more on AI and less on actual human beings, how are you using AI at the company operationally to increase your margins, to make your employees more productive or get rid of employees? Nobody's going to answer that.

[Jay Chowdhury]

Well, everyone should and need to use AI. We use AI to make sure we can deliver better customer support to our employees. The AI agents are helping us. We are increasing productivity of our engineering team by using all this stuff. But I think the numbers that block share, they seem way out of line that anyone else is saying out there. We are seeing some reduction in hiring, additional hiring. But I do think that in some of these critical areas you need people. I am hiring more developers for AI development for example. And for us, many times customers think that as the number of employees may not grow, that means it impacts our user based pricing. The user base may slow down from growth point of view. But we are actually securing all the agentic traffic, all the agents. When we have millions of users, we'll have billions of agents to secure. That provides an opportunity for us to secure the enterprises and monetize it.

[Mandeep Singh]

Maybe. Jay, I want to go to a different topic around sovereigns because we've been hearing more and more that every sovereign wants to build their own AI. How does that impact a company like yours that operates globally, given sovereigns are more keen to deploy this on prem does that impact a cloud security company like yours?

[Jay Chowdhury]

Actually, sovereign clouds is a positive development and opportunity for us. We built Zscaler architecture where the data that we store, which is essentially metadata and logs, can stay in that country. We have had a cloud that's built for EU and is euro with data in EU for a long time now. Many of the large countries also want to operate the cloud in that country as well. We are working with many large countries to really provide them a sovereign security cloud that will access the data wherever the data is. So there are two aspects. There may be AI models sitting in India or France or Germany, but our sovereign security cloud will make sure they can access the model whether it's sovereign or non sovereign. So overall it's a positive thing for us. It's our architecture that allows us to build sovereign security clouds.

[Mandeep Singh]

Yeah, and look, I mean Amazon today announced this $50 billion investment in OpenAI Google, we know they have closed their acquisition of Wiz. So how do you see the hyperscalers playing in this space where they obviously are deploying the models on their cloud, they are bundling security. Is that going to have some sort an impact in terms of the AI security aspect that you alluded to?

[Jay Chowdhury]

Not directly on providers like Zscaler. Look, hyperscalers, the cloud providers have been building applications and people said, oh, can they take over security market? We haven't seen any of that. It is true that AI model builders will provide some of the applications such as perhaps testing and red teaming. But when it comes to being the zero trust exchange that makes sure that agents created by Microsoft, OpenAI, Anthropic or whoever can securely access the right application. They look for someone like Zscaler. We become the Switzerland that connects right party to right party. Just like we built such a strong business for securing users in spite of all these other vendors out there, the more models they create, the more application they create, the more agents that get built, the more opportunities Zscaler has.

[Bloomberg Host]

Does that mean the hyperscalers, you're getting bigger orders from them? I'm just curious, where are you getting business and is it the hyperscalers? Is it?

[Jay Chowdhury]

Yeah, we are getting business from enterprises because enterprises need to secure access to applications no matter where they are. So applications become destination for us. We are the switchboard providing zero trust access. The market we pioneered and we are way ahead of anyone else. The rest of the market is doing firewalls and VPNs and we are probably the only real credible choice for enterprises. And that's what has given us business, over 45% of Fortune firearm companies depend upon us today.

[Mandeep Singh]

How are these enterprises measuring the efficacy of your product versus whatever is coming bundled with the hyperscale solutions? What is it that is really making them go with Zscaler in terms of the efficacy aspects? Basically.

[Jay Chowdhury]

So Zscaler is not a piece of code that you bundle where the hyperscaler goes out there. Zscaler is a globally distributed infrastructure sitting in 160 locations around the globe. So any traffic from an enterprise that may be from users, that may be from cloud workloads, that may be from AI agents, it needs to access certain application services and we become the switchboard, the policy enforcement for that. That traffic will go to Microsoft, aws, Google, Anthropic, doesn't matter. We are the policy enforcement point to make sure right people get access to right application, right agents get access to right applications. Imagine agents getting hacked and hijacked on your network. That's a problem. That's what we secure.

[Bloomberg Analyst]

You mentioned Anthropic and fresh in our minds is the what's happening between the US Government, the Department of Defense and Anthropic right now we're going to be covering that in our 4 o' clock hour today. But on the government, is the US government actually buying more of your services right now? Are deals happening? Are they getting delayed? How would you characterize that?

[Jay Chowdhury]

So federal is a strong market segment for us. Last year it went through some changes but it is back on track. We have strong pipeline, we have strong business in the federal government. 13 of the 14 cabinet level agencies use escaler to secure themselves.

[Bloomberg Host]

So just to recap 30 seconds, AI not a threat to your business.

[Jay Chowdhury]

I mean software AI is an opportunity for our business. Not a threat, not a threat at all. And securing agentic technology is the number one thing. CIOs want to make sure they can do it. That's holding them back from larger rollout and we become enablers of it.

[Bloomberg Host]

Well, we always appreciate getting time with you Jay. Thank you. Thank you so much. On what was it, a busy week? Jay Choudhury there, Founder, chairman and CEO of Zscaler. Have a good weekend. Along with of course our own Mandeep Singh, Bloomberg Intelligence Global head of technology.

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