Zscaler CEO: AI can’t replace mission-critical traffic inspection requiring 100% reliability

Jeremy PhillipsMon, March 23, 2026 at 10:58 PM UTC

0

Quick Read -

Zscaler (ZS) reported Q2 FY2026 revenue of $815.75M, up 26% year-over-year, with ARR reaching $3.36B growing 25% year-over-year and full-year guidance raised to $3.730B–$3.745B, as enterprise AI usage surged 91% year-over-year creating expanded attack surface requiring inspection.

Zscaler’s CEO argues that AI agents proliferating across enterprises will multiply security threats requiring the company’s global distributed infrastructure, positioning AI expansion as a market growth driver rather than an existential threat to the business.

Have You read The New Report Shaking Up Retirement Plans? Americans are answering three questions and many are realizing they can retire earlier than expected.

At the annual RSA cybersecurity conference, Zscaler (NASDAQ:ZS) Chairman and CEO Jay Chaudhry sat down to address a question rattling investors: can AI replace what Zscaler does?

The concern wasn't hypothetical. A release from Anthropic sent cyber stocks lower as investors interpreted it as suggesting AI could simplify or replace certain cybersecurity functions. Chaudhry's response was direct:

"When you're talking about mission critical applications, sitting in line, inspecting traffic to make sure bad guys are not trying to reach your application, steal your data, you need a global distributed infrastructure that Zscaler has and 100% reliability. That's where AI doesn't really happen."

Have You read The New Report Shaking Up Retirement Plans? Americans are answering three questions and many are realizing they can retire earlier than expected.

His argument: AI can handle tasks like detecting code vulnerabilities, but cannot replicate the global distributed infrastructure and 100% reliability requirement that inline traffic inspection demands. Think of it like air traffic control: you can automate a lot of aviation, but you can't have the system go down 2% of the time when planes are in the air.

He also flipped the AI threat narrative entirely. Chaudhry has previously discussed the concept of 50 to 100 AI agents per employee — a massive proliferation of non-human entities that each need to be screened and secured. Every one of those agents is a potential attack surface. Where users are today's weakest link, AI agents become tomorrow's. That's not a threat to Zscaler's business; it's an expansion of its addressable market.

Advertisement

The numbers back up the demand signal. Enterprise AI usage surged 91% year-over-year across more than 3,400 applications in Q2 FY2026, with data transfers to AI and ML applications up 93%. Zscaler's Q2 revenue hit $815.75M, up 25.91% year-over-year, with ARR reaching $3.36B growing 25% year-over-year. The company raised full-year FY2026 ARR guidance to $3.730B–$3.745B.

Where We'd Push Back

Chaudhry's argument is coherent, but it deserves scrutiny. CEOs have an obvious incentive to frame existential threats as tailwinds. The "100% reliability" moat sounds durable today, but AI capabilities are compounding fast. What's genuinely impossible for an AI-native security architecture to handle in 2026 may look very different by 2028 or 2029.

The stock's -32.51% year-to-date decline from a 52-week high of $336.99 tells you the market isn't fully buying the reassurance either. Analysts remain largely constructive, with 39 buy ratings versus 9 holds and zero sells — but the gap between the $234.79 analyst target and the current price near $151.80 reflects real uncertainty.

Chaudhry's core thesis, that AI creates more attack surface requiring more inspection, not less, is the right framework for thinking about Zscaler's long-term positioning. But investors should hold that alongside an honest question: how long does "AI can't do this" remain true in a field where AI capabilities are rewriting the rules every 12 months.

The New Report Shaking Up Retirement Plans

You may think retirement is about picking the best stocks or ETFs and saving as much as possible, but you'd be wrong. After the release of a new retirement income report, wealthy Americans are rethinking their plans and realizing that even modest portfolios can be serious cash machines.

Many are even learning they can retire earlier than expected.

If you're thinking about retiring or know someone who is, take 5 minutes to learn more here.

Original Article on Source

Source: “AOL Money”