Okta, Inc. (OKTA): A Bear Case Theory

We came across a bearish thesis on Okta, Inc. on Monopolistic Investor’s Substack by Antoni Nabzdyk. In this article, we will summarize the bulls’ thesis on OKTA. Okta, Inc.'s share was trading at $81.87 as of December 2nd. OKTA’s trailing and forward P/E were 96.00 and 22.27 respectively according to Yahoo Finance.

Okta, Inc. operates at the core of digital identity management, answering the questions of who a user is, what they seek to access, and whether they are authorized to do so. Its Universal Directory allows organizations to manage access for various user groups centrally, while Single Sign-On (SSO) and Adaptive Multi-Factor Authentication (MFA) ensure secure and seamless operations. Beyond enterprise user management, Okta’s developer platform, Auth0, enables app builders to implement secure, scalable authentication frameworks—vital for institutions requiring Enterprise-grade protocols like SAML and OIDC.

The company’s business model benefits from powerful network effects and strong pricing power, as once integrated, customers face high switching costs. This creates a durable competitive moat, reflected in its improving profitability, efficiency, and customer penetration across global enterprises.

However, Okta’s path to profitability has been lengthy. After years of negative earnings, the company only recently turned net positive, signaling improving cost discipline and operational leverage. While revenue growth remains robust, it is expected to decelerate as Okta matures. Market sentiment toward Okta is mixed following past security breaches, including criticism for delayed disclosure and heightened expectations for transparency and reliability.

Despite high gross margins and strong fundamentals, valuation remains a concern. A discounted cash flow analysis, assuming 11% annual growth and an 8% discount rate, yields an intrinsic value of approximately $28.58 per share—below current levels, implying the stock is overvalued. While Okta possesses a wide moat and solid long-term prospects, the current risk/reward profile appears unfavorable, leading to a near-term “Sell” stance despite its structural strengths.

Previously we covered a bullish thesis on Okta, Inc. (OKTA) by Antonio Linares in December 2024, which highlighted its AI-driven identity management platform and expanding federal contracts. The company’s stock price has appreciated approximately by 0.22% since our coverage. This is because product adoption remained strong. The thesis still stands as Okta’s technological edge supports long-term growth. Antoni Nabzdyk shares a contrarian view but emphasizes overvaluation concerns.

Okta, Inc. is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 57 hedge fund portfolios held OKTA at the end of the second quarter which was 65 in the previous quarter. While we acknowledge the risk and potential of OKTA as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than OKTA and that has 10,000% upside potential, check out our report about this cheapest AI stock.

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Disclosure: None.