By Dan Victor

Software investing is alive and well. Okta Inc. stock is up 63% since we recommended it in February.

From concerns that the rise of artificial intelligence would doom traditional software technology, a decisive sentiment shift is under way. The iShares Expanded Tech-Software Sector ETF has climbed 41% from its 2026 low. Within that group, Okta has outperformed, surging 30% on May 29 alone, a day after it reported stellar earnings.

We see more upside ahead for shares of the identity security and access management company's stock. Far from being a headwind, Okta appears to be successfully leveraging AI as a growth driver. We remain bullish on the stock.

Okta posted revenue of $765 million for its fiscal first quarter of 2027, up 11% year-over-year and ahead of analyst estimates of $752 million. Management cited the strength of its new products, including customer demand for tools to address rapidly evolving agentic AI security. Adjusted earnings per share came in at $0.91, beating the consensus estimate of $0.85.

"What struck me was how optimistic Okta CEO Todd McKinnon was regarding the growing pipeline that will handle identity management for AI agents, " says Ian Murray, president and portfolio manager at Ten Peak Capital. He sees room for Okta's growth to accelerate in the second half of 2026 as clients begin to adopt these AI identity offerings.

During the first quarter earnings conference call, McKinnon described the early pipeline interest for Okta for AI Agents and AuthO for AI Agents as "bigger than anything we've ever seen."

Okta CFO Brett Tighe noted that the multi-cloud AI agent deals closed thus far were significantly larger than Okta's historic average deal size, suggesting its enterprise customers view AI security as critical going forward. Other business lines picking up are Okta Identity Governance, which was previously sold as a cross-sell add-on for existing clients, but has transformed into more of a "land product," winning over new customers looking to replace legacy governance vendors.

For the rest of fiscal 2027, Okta hiked guidance and now expects full year revenue growth between 9% and 10%, up from a prior 9% target. The company also forecasts adjusted EPS between $3.79 and $3.87, compared with a prior midpoint estimate of $3.78.

According to UBS analyst Roger Boyd, growing attention to the opportunity in agentic AI bodes well for the stock. In his recent note, Boyd reiterated a buy rating on the stock while moving his price target from a prior $115 to $130 based on a 24x multiple of Okta's estimated fiscal 2027 free cash flow. "We think investors are discounting the extent Okta has expanded its platform to now touch all areas of identity, " Boyd says.

For us, it's a good idea to stick with what's working. It may not be a straight line higher from here, but plenty of tailwinds can keep the Okta stock price rally going, particularly if its growth rates continue exceeding market expectations.

   -- Our next live Q&A is coming up! Register here 
 
   -- Share your questions and thoughts in the "Conversation" section below to 
      engage directly with the author and our community 
 
   -- Receive alerts about more content from this author by clicking "Follow" 
      next to the author byline at top 

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

June 03, 2026 03:31 ET (07:31 GMT)

Copyright (c) 2026 Dow Jones & Company, Inc.