MW Okta's CEO says investors are getting two big things wrong about AI and software

By Emily Bary

Investors have worried that AI could 'eat' software, reducing the need for traditional applications

Okta delivered an earnings beat on Tuesday, though its stock was moving lower after hours.

The software sector has underperformed the broader market this year, and Okta's CEO thinks that reflects some investor misunderstandings around two key areas.

One narrative weighing on software stocks lately has been the idea that artificial intelligence will "eat" traditional software, meaning that AI services like ChatGPT and Google's $(GOOGL)$ $(GOOG)$ Gemini will dampen the need for legacy applications. It's a play on the classic Marc Andreessen mantra that software would eat "everything," a saying that emerged in 2011 as companies like Amazon (AMZN) grew more dominant.

But in terms of the AI version of the line, quite the opposite is true, according to Okta $(OKTA)$ CEO Todd McKinnon.

"You think software is good now, but it's going to be much better in the future and it's going to be much more valuable," McKinnon told MarketWatch. "You're going to see companies that are investing more and more of their budget into technology and applications and software."

More from MarketWatch: 16 software stocks for investors sifting through the bargain bin

Okta, which makes identity-management software, plays into just a portion of the software market; the company isn't out there building things like human-resources or coding software. But that gets to what McKinnon thinks is another misunderstanding about software in the AI era.

"The fact that you can secure identities is going to be the most important thing in cyber," he said. "People are missing that."

McKinnon's thesis is that as AI gets more prevalent, companies will have a greater need to make sure AI agents can access corporate tools in a secure way. Chatbots can be powerful and automate a lot of work, but companies will need to make sure they tap into only the data they need, and not any sensitive material.

Okta just rolled out a product for this market, and while it didn't really play into the financials that the company just reported, McKinnon said he's "never seen inbound interest like this" for a new offering.

Don't miss: Okta's earnings show the company is benefiting from the 'identity quagmire' of AI

Of course, Okta is not the only player that sees opportunity here; "every big cloud" is interested as well, McKinnon noted. But he thinks Okta stands out because it plays nicely with all the different models, which the CEO believes will appeal to customers that don't want to be locked into a given ecosystem.

For the fiscal third quarter that just wrapped up, Okta delivered revenue of $742 million, up 12% from a year before, whereas analysts tracked by FactSet were looking for $731 million. The company logged 82 cents in adjusted earnings per share, up from 67 cents a year before; the FactSet analyst consensus was for 76 cents.

Looking to the fiscal fourth quarter, Okta is modeling 84 to 85 cents in adjusted EPS, versus the 84-cent consensus analyst view.

Shares of Okta were off about 4% in Tuesday's extended trading session, after rising just 4% on the year though Tuesday's close. The iShares Expanded Tech Software ETF IGV is up only 5% for 2025, while the S&P 500 SPX has risen 16%.

Salesforce earnings: Can the software giant finally shake its AI 'curse'?

-Emily Bary

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

(END) Dow Jones Newswires

December 02, 2025 18:10 ET (23:10 GMT)

Copyright (c) 2025 Dow Jones & Company, Inc.