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

We came across a bullish thesis on Okta, Inc. on Compounding Your Wealth’s Substack by Sergey. In this article, we will summarize the bulls’ thesis on OKTA. Okta, Inc.'s share was trading at $82.31 as of February 3rd. OKTA’s trailing and forward P/E were 80.12 and 23.58, respectively according to Yahoo Finance.

Okta, Inc. operates as an identity partner in the United States and internationally. OKTA is showing clear operational improvement, with margins moving in the right direction across the board. Gross margin expanded to 77%, operating margin reached 3%—up more than five points year over year—and free cash flow margin climbed to 29%, driven by disciplined spending and stronger sales productivity. Revenue grew 11.6%, ahead of expectations, supported by an 11.2% increase in subscription revenue and acceleration in professional services.

Guidance for Q4 and FY26 came in above sell-side estimates, reflecting confidence in pipeline quality and stabilizing win rates. Momentum among large customers was a key driver, with million-dollar cohorts growing double digits and RPO expanding 17.3%. Upsells in Workforce products and traction in Identity Governance further reinforced growth, while low AE attrition and multi-year high tenure provide management the capacity to expand quotas heading into FY26.

One cautionary note is the deceleration in dollar-based net retention, now at 106%, suggesting some moderation in expansion as customers consolidate architectures. However, the narrative becomes more compelling with Okta’s early surge in securing AI agents, with over 100 customers engaged and more than $200 million in ARR.

Products like Okta for AI Agents and Auth0 for AI Agents position identity as the control plane for enterprise AI, with early deployments already producing tangible ACV uplifts. Initiatives like Cross-app Access, now an MCP extension, further cement Okta as the connective tissue for agentic workflows.

Management remains committed to the Rule of 40 while leaning into top-line acceleration, with FY26 guidance implying 11% revenue growth, 26% non-GAAP operating margin, and roughly 29% free cash flow margin. Despite a modest post-earnings dip, Okta is transitioning from a cleanup phase to a platform poised to monetize a new wave of identity demand driven by AI, offering investors an attractive mix of operational stability and growth optionality.

Previously, we covered a bullish thesis on Okta, Inc. (OKTA) by Antonio Linares in December 2024, which highlighted the company’s leadership in cloud identity management, early AI agent adoption, improving profitability, and long-term growth potential. OKTA’s stock price has appreciated by approximately 0.76% since our coverage. Sergey shares a similar perspective but emphasizes recent margin expansion, free cash flow improvement, and strong FY26 guidance.

Okta, Inc. is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 55 hedge fund portfolios held OKTA at the end of the third quarter which was 57 in the previous quarter. While we acknowledge the potential of OKTA as an investment, we believe certain AI stocks offer greater upside potential and carry less downside risk. If you're looking for an extremely undervalued AI stock that also stands to benefit significantly from Trump-era tariffs and the onshoring trend, see our free report on the best short-term AI stock.

READ NEXT: 30 Stocks That Should Double in 3 Years and 11 Hidden AI Stocks to Buy NOW 

Disclosure: None.