1 Top Tech Stock to Buy Right Now Before It Jumps Higher

Cybersecurity specialist Zscaler (NASDAQ: ZS) delivered respectable gains of 20% in the past six months, easily outperforming the S&P 500 index, which is roughly flat for the period. It looks like shares of this company could continue climbing higher following the release of its latest quarterly results.

Zscaler released its fiscal 2025 second-quarter results (for the three months ended January 31) on March 5. Shares of the company have been heading higher since then, thanks to its better-than-expected numbers and improved full-year guidance.

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Zscaler is setting itself up for solid long-term growth

Zscaler's fiscal Q2 revenue increased 23% year over year to $648 million, while the bottom line grew at a slightly faster pace of 24% to $0.78 per share. The numbers were well ahead of Zscaler's guidance and consensus expectations. The company's outlook was the icing on the cake as it increased its fiscal 2025 guidance for all of its key metrics, ranging from revenue to earnings to free cash flow margin to billings.

Zscaler now expects its revenue to increase by 22% this year. It bumped up its operating profit estimate for fiscal 2025 to $567 million from the earlier estimate of $554 million. However, don't be surprised to see Zscaler further enhance its guidance as the year progresses, thanks to the higher spending on its cybersecurity solutions by customers.

Zscaler estimates that the serviceable addressable market for its cloud-based cybersecurity solutions, such as zero trust security, data protection, and artificial intelligence (AI) analytics, is worth a massive $96 billion. The company, therefore, is scratching the surface of a lucrative end-market opportunity, and the good part is that its solutions have gained healthy traction among customers.

For instance, the annual recurring revenue (ARR) from Zscaler's emerging products increased at twice the pace of its core products last quarter, driven by the solid demand for the company's offerings related to AI analytics and data protection. Management points out that AI is playing an important role in driving the stronger adoption of its solutions. According to CEO Jagtar Singh Chaudhry:

With the widespread use of gen AI, all enterprises in all industries are confronting the risk of data loss to public AI apps, such as Microsoft 365 Copilot, DeepSeek, ChatGPT, and more. This is elevating the importance of data protection across all customers. And customers are purchasing our solution to gain visibility into public AI apps and prevent data loss.

What's worth noting is that the size of the global data protection market is expected to exceed $500 billion in annual revenue in 2032, thanks to the emergence of generative AI. That's much higher than the serviceable addressable market that Zscaler estimates, suggesting that the company is indeed capable of accelerating in its growth rate.

Another key metric that points toward healthy long-term growth at Zscaler is the impressive jump in its remaining performance obligations (RPO). This metric refers to the total value of the company's contracts that will be fulfilled. The fact that Zscaler's RPO growth of 28% to $4.6 billion exceeded the increase in its actual revenue means that it is getting more contracts than it is fulfilling.

Moreover, the increased spending by Zscaler's existing customers along with an improvement in the size of its large customer base is positively impacting its margins. Its operating profit margin increased by 2 percentage points last quarter as compared to the year-ago period. Not surprisingly, analysts are expecting Zscaler's earnings growth rate to accelerate going forward.

ZS EPS Estimates for Current Fiscal Year data by YCharts

It isn't too late to buy the stock

Zscaler trades at 12 times sales. While that is expensive when compared to the U.S. technology sector index's sales multiple of 7.3, the company's improving growth profile suggests that it can justify the rich valuation. Analysts, for instance, are forecasting Zscaler's revenue growth to pick up the pace in a couple of fiscal years, but don't be surprised to see it exceed those expectations.

ZS Revenue Estimates for Current Fiscal Year data by YCharts

Assuming Zscaler's top line indeed hits $3.84 billion after a couple of fiscal years and it maintains its current sales multiple at that time, its market cap could jump to $46 billion. That would be a 43% jump from current levels. However, the stock may be able to deliver even stronger gains in case its revenue jumps to higher levels in a couple of years, which is why investors who are looking to buy a tech stock right now should consider Zscaler for their portfolios before it soars further.

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Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Zscaler. The Motley Fool has a disclosure policy.