An Okta sign on a corporate office_ Image by Sundry Photography via Shutterstock_
Okta (OKTA) stock is suddenly moving like a high-growth software company. Shares have climbed 28% in the past five days and are up about 93% year-to-date (YTD). The catalyst is the stronger-than-expected fiscal second-quarter report, which has investors and analysts evaluating Okta’s growth potential.
Let’s dig into this potential further.
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AI Could Become the Bigger Story, but Not Yet
Valued at $29 billion, Okta is a cybersecurity company that manages digital identities and access. Essentially, Okta allows businesses to regulate who—and increasingly what—has access to their digital systems, including AI agents. In the second quarter of fiscal 2027, Okta generated $805 million in revenue, an increase of 11% year-over-year (YoY), while subscription revenue increased 12% to $793 million. Adjusted earnings came in at $1.05 per share, ahead of the roughly $0.96 consensus estimate. Current remaining performance obligations (cRPO) also climbed 14% to $2.58 billion.
Okta’s base of customers generating at least $1 million in annual contract value (ACV) grew by over 20%, bringing the total to over 600 customers. The credit goes to Okta’s traditional identity business, which does the heavy lifting. However, its newer products are expanding rapidly too, accounting for 30% of total bookings in Q2. Identity Governance was the biggest contributor, while deals containing any of the newer products generated an average 40% increase in ACV.
This means that a customer who came to Okta for workforce identity might eventually add identity governance, privileged access, identity security, and other products. If this happens, each contract’s value will increase. This is significant because Okta does not have to rely solely on acquiring thousands of new customers to expand. There is a sizeable opportunity to sell more products to customers it already has.
Furthermore, Okta’s partner strategy is beneficial here, as management stated that it was involved in all of Okta’s top 20 deals during the quarter. Okta closed dozens of AI deals in the quarter, including a multimillion-dollar deal with a Fortune 50 healthcare company. If AI agent adoption develops as Okta expects, it could provide another growth layer later.
Okta’s balance sheet and financial position give its bullish case some cushion. The company ended the quarter with $2.3 billion in cash and short-term investments. The company also generated $227 million of free cash flow in Q2, which allowed it to repurchase $125 million worth of shares, leaving $555 million under its $1 billion share-repurchase authorization. Okta expects to generate around $910 million to $930 million of free cash flow for the full year. Okta used $350 million in cash to settle the remaining principal on its convertible notes, eliminating its convertible debt. The cybersecurity company showed investors that it has enough financial flexibility to continue investing in its products while rewarding shareholders.
Okta’s improved outlook is another reason investors poured money into the stock. For the full fiscal year 2027, management now expects revenue of $3.21 billion to $3.226 billion, representing 10% to 11% growth. Adjusted EPS is expected at $3.90 to $3.94, an increase of around 12%, which is in line with the consensus estimate.
The interesting part is the disconnect between growth and valuation. Management expects revenue to grow 10% to 11% in fiscal 2027, alongside strong profitability and cash generation. Yet, at 42x forward earnings, the stock is valued more like a high-growth company, suggesting investors are already betting that newer products, bigger enterprise deals, and AI security will eventually push growth higher.
Wall Street responded positively to the results. Following a solid fiscal Q2, Several analysts raised their price targets after the results, including Goldman Sachs to $203, RBC Capital to $195, and JPMorgan to $190, while UBS, Morgan Stanley, and Jefferies raised it to $200.
Goldman Sachs analyst Gabriela Borges sees 14% cRPO growth as an important signal that revenue growth could pick up ahead, while growing demand for securing AI agents could become an increasingly important driver for Okta. Similarly, Morgan Stanley analyst Meta Marshall highlighted the early traction in newer products, particularly Okta for AI Agents and Okta Identity Governance, which are already contributing meaningfully to bookings and increasing contract values. The analyst believes Okta’s large customer base, vendor-neutral platform, and growing demand for AI-related identity security could support a multi-year acceleration in growth.
The average target price sits at $172, implying roughly 2% upside from recent levels, while the new high price estimate of $200 suggests OKTA stock can climb another 18% over the next 12 months. Overall, on Wall Street, OKTA is a consensus “Strong Buy,” with 33 out of 43 analysts covering the stock strongly bullish about it. Around three rate it a “Moderate Buy,” while seven say it is a “Hold.”
Is OKTA Stock a Buy Now?
Okta now appears to be a better business than it did before the Q2 earnings. Notably, enterprise demand is improving, customers are buying more of its products, and profitability is strong with robust free cash flow growth. However, OKTA stock is no longer a bargain, and its valuation leaves less room for disappointment. At around 42x forward 2027 earnings, investors are already paying a significant premium for future growth. If Okta can push revenue growth back toward the mid-teens and turn AI security into a meaningful contributor, the premium may be justified.
Although Wall Street expects, on the high side, an 18% upside, investors are better off waiting for a more favorable entry point.
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On the date of publication, Sushree Mohanty did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. This article was originally published on Barchart.com
