Hook - Why this matters now
Okta's core product - identity and access management for workforces and customers - is already a basic hygiene requirement for cloud-first enterprises. What most investors aren't talking about is how identity becomes the missing control plane for the next wave: agentic AI - autonomous software agents that act and make decisions on behalf of users. Agentic AI will need programmatic identity, credentialing, fine-grained permissions and safe delegation. That's Okta's product DNA.
I'm upgrading Okta to a long rating because the company is showing revenue growth, consistent operating profitability and strong operating cash flow while trading well below recent peaks. Those fundamentals give the company runway to invest in product integrations, tuck-in M&A and buybacks - all credible ways to extract more value as enterprises add agentic AI to their stacks.
What Okta does - in plain product terms
Okta sells cloud-native identity: single sign-on, multi-factor authentication, customer identity (CIAM) and workforce access. The product is both developer-facing (APIs, SDKs) and admin-facing (policy engines, lifecycle management). That dual orientation is an advantage: agents need developer hooks and audit-able admin controls. Okta's sticky directory integrations, session management and policy tooling are precisely the pieces enterprises will want to drop into any agentic AI orchestration layer.
Why the market should care - a fundamental driver
Agentic AI changes the ask from 'who is logging in' to 'what autonomous actor is acting, with which rights, and what audit trail exists.' This increases identity surface area - more credentials, sessions, cross-system tokens, and crucially, more enforcement needs. If agents are to run with limited but meaningful autonomy, IT and security teams will demand centralized identity orchestration and delegation controls. Okta sits at that crosswalk.
Supporting the thesis with numbers
Recent quarterly trends show the business is moving in the right direction:
- Revenue: 3Q fiscal 2026 revenue was $742M (period ended 10/31/2025). That follows $728M in 2Q and $688M in 1Q. The last two quarters imply sequential growth and roughly ~12-13% year-over-year improvement on quarter-to-quarter comparisons versus the corresponding prior year periods.
- Gross margin: Gross profit is high — Q3 gross profit was $572M, implying a gross margin in the high-70%s (572/742 ≈ 77%). That's typical of platform SaaS and gives room to invest in R&D while protecting leverage.
- Profitability and cash generation: Okta posted net income of $43M in Q3, after $67M in Q2 and $62M in Q1. Operating income was $23M in Q3 (positive), and operating cash flow remains healthy - $218M in Q3, and $241M in the earlier quarter, indicating the business produces real cash from operations.
- Balance sheet: Current assets were $3.201B and total assets $9.229B in Q3, with equity of $6.893B. Current liabilities were $2.184B. The balance sheet gives the company flexibility for M&A or capital allocation moves.
- Cash flow & capital allocation: Q3 shows net cash flow from investing of $105M (positive) and net cash used in financing of -$555M. The financing outflows suggest buybacks or debt paydown; management is putting capital to work on shareholder returns.
Valuation framing (rough and explicit about assumptions): the stock is trading near $83.64 as of the most recent snapshot (12/??/2025 market close). Using the latest diluted share count reported in the quarter (diluted average shares ~178.4M in the most recent quarter) implies an estimated market cap of roughly $14.9B (83.64 * 178.4M). Using a simple run-rate revenue as latest quarter annualized (742M * 4 ≈ $2.97B) gives a back-of-envelope price-to-sales of ~5.0x. That multiple is lower than where the company traded earlier in the year when shares peaked north of $120 (earlier peak price ~127 would have implied market cap ~22.6B and a P/S closer to 7-8x using the same run-rate). The point: the stock looks materially cheaper on a multiples basis vs. recent history, at a time when product relevance may be increasing thanks to agentic AI demand.
Actionable trade idea (upgrade to long)
Trade stance: tactical position-sized long (time horizon: position - months). Risk level: medium-high (tech cyclicality + competition). Suggested execution:
- Entry zone: $78 - $86. Current prints in that band provide a reasonable risk/reward considering historical volatility and nearby support around the low-$80s.
- Initial stop-loss: $72 (hard stop). That is ~13-15% below the mid-entry and sits below recent multi-week support; a stop here limits tail risk and respects recent liquidity ranges.
- Targets:
- T1 (near-term): $110 - tactical upside ≈ +32% from $83.64. Rationale: re-rating to previous multiple and near-term multiple expansion if management guides stronger AI-related product uptake or reports sustained revenue acceleration.
- T2 (base case / 12+ months): $150 - larger re-rating if Okta captures differentiated agentic AI platform integrations, reports sustained margin expansion, and continues buybacks. This implies upside near +80% from current levels and is contingent on execution.
- Position sizing: Risk no more than 1-2% of portfolio on initial trade (use stop to size). Re-enter on constructive pullbacks and scale out into target zones.
Catalysts to watch (2-5)
- Product announcements integrating agent controls or new delegation frameworks for autonomous agents - tangible demos and customer case studies would be a step-change.
- Enterprise customer wins or expansion specifically tied to AI/agent deployments - tracked as higher average deal sizes or new CIAM contracts with developer-platform metrics.
- Margin improvement or more aggressive buyback cadence showing management confidence (Q3 showed meaningful financing outflow - watch future disclosures).
- Strategic partnerships with cloud or AI platform players where Okta becomes a recommended identity orchestration layer for agents.
- Analyst reconciling guidance upgrades along with sequential revenue acceleration (Q1-Q3 showed 688M → 728M → 742M).
Risks and counterarguments
Below are material risks that would argue against the long thesis.
- Hyperscaler entrenchment: Microsoft (Azure AD) and other cloud providers can bundle identity into platform stacks, and enterprises could choose the hypervisor provider's identity services for agentic use-cases to reduce integration complexity. This could limit Okta's TAM or force deeper discounting.
- Competitive compression and commoditization: Identity is partly a scale business and partly product-driven. New entrants or aggressive pricing from incumbents could compress pricing and margins.
- Execution risk on agent integrations: The agentic AI opportunity requires product investments across APIs, governance, and auditing. If Okta fails to execute or is late, competitors may capture the narrative and wins.
- Legal & governance noise: Okta has had corporate/legal proceedings in recent periods (summary notices reported 08/26/2025). A material settlement or regulatory action could distract management or create costs.
- Macro/tech valuation reset: A broad selloff could erase valuation upside even if fundamentals improve. Stock moves with multiple expansion/contraction in the sector.
- Cash flow volatility from capital allocation: Q3 financing used a sizable net -$555M; poor use of capital (bad M&A or buybacks at high prices) could hurt returns.
Counterargument I take seriously: Agentic AI could consolidate under platform vendors who own compute, orchestration and identity. If enterprises prefer an all-in-one hyperscaler stack for agents, Okta could be squeezed. That outcome would materially compress Okta's revenue multiple and make the stock a value trap.
What would change my mind
I would downgrade the thesis if I saw: (a) persistent revenue deceleration (quarter-over-quarter declines or clear loss of enterprise contract momentum), (b) rising churn or material loss of large customers to hyperscalers, (c) sustained margin deterioration (operating income turning meaningfully negative while R&D and other opex fails to produce product wins), or (d) a material legal settlement that creates significant cash outflows or governance headwinds.
Conclusion - clear stance
Okta is a product-first identity platform with sticky enterprise footprints, improving profitability and healthy operating cash flow. The emergence of agentic AI makes identity more strategic, not less. Given the recent revenue trajectory (Q1: $688M, Q2: $728M, Q3: $742M), strong gross margins (~77%), and positive operating cash flow, the market's current price window looks like an attractive entry for a position-sized long. The actionable plan above balances upside from re-rating and agentic-AI-driven TAM expansion with disciplined downside protection.
Disclosure: This is a trade idea, not personalized financial advice. Manage risk and position size according to your portfolio and constraints.
Filing references: recent quarters through 10/31/2025 with results filed 12/02/2025 and earlier quarters in 2025.