Okta upgrade reflects stronger growth, AI traction but valuation limits upside

Investing.com -- Okta's improving growth profile and growing traction for newer identity products have prompted BofA Securities to turn more constructive on the cybersecurity company, while warning that much of its recovery may already be reflected in the stock.

BofA upgraded Okta to Neutral from Underperform and raised its price target to $170 from $75, citing stronger forward growth indicators and a more compelling artificial-intelligence opportunity. The brokerage based its new target on 9 times estimated fiscal 2027 enterprise value to sales, compared with 4.5 times previously.

Current remaining performance obligations rose 14% year over year to $2.59 billion in the second quarter of fiscal 2027, beating the brokerage's $2.51 billion expectation. Guidance for third-quarter current RPO of $2.6 billion also came in above the Street estimate of $2.57 billion, supporting the view that demand is beginning to accelerate.

Newer products accounted for 30% of bookings in the quarter, up from 25% in the first quarter, with Identity Governance remaining the main growth driver. Privileged Access and Identity Threat Protection also continued to gain momentum, according to the report.

Okta's AI security offering has added dozens of customers, including multi-million-dollar deals, as companies seek to discover, govern and secure AI agents. The broader product portfolio is also helping expand deal sizes, with transactions including newer products generating average contract values 40% higher than other deals.

Still, BofA said AI adoption remains at an early stage and disclosed metrics are limited, while management considers the contribution to fiscal 2027 results immaterial. The stock has risen more than 110% in four months and now trades above its historical enterprise-value-to-sales range, leaving less room for further gains if execution does not continue to improve.

You May Also Be Interested In

• Okta, Inc (OKTA) PT Raised to $143 at Bernstein SocGen Group
• Tim Cook’s final day today: What the $4.67T handoff means for Apple investors
• Soitec shares climb 6% as it locks in customers for AI wafer demand