To The Moon

$Okta Inc.(OKTA)$  is about to enter the S&P 500 after its shares more than doubled this year. It is a significant milestone for the cybersecurity company, but I think there is a bigger story here than simply joining a major stock index.

The real question is whether Okta is becoming an increasingly important part of the next generation of cybersecurity, particularly as companies adopt more AI tools and automated agents.

1. Why S&P 500 inclusion matters

Okta will join the S&P 500 before trading begins on Wednesday, November 4, replacing Kenvue.

This move could bring additional demand from index-tracking funds and ETFs that need to hold Okta shares to reflect the index. It may also increase the company’s visibility among institutional investors and give it a broader shareholder base.

However, I would be careful about treating index inclusion as a reason to buy.

Some of the expected demand may already be reflected in the share price after its strong rally. Index funds generally buy because a company has been added to the benchmark, not necessarily because they believe its shares are undervalued.

The initial buying interest could support the stock, but longer-term performance will still depend on earnings growth, cash flow and valuation.

2. Why identity security is becoming more important

Okta operates in identity and access management. Its technology helps businesses verify users and control who can access their applications, systems and sensitive information.

This may sound less exciting than AI chips or cloud computing, but it is an important part of the technology infrastructure.

As businesses use more cloud applications, connect more devices and introduce AI-powered tools, the number of identities requiring protection continues to grow.

The next development could be AI agents.

Unlike traditional software, AI agents can carry out tasks, interact with other systems and potentially access sensitive company information. Businesses will need to establish which agents are authorised, what information they can access and what actions they are allowed to perform.

This creates a new cybersecurity challenge. Securing employees and customers is already important, but organisations may soon need to manage thousands of automated identities as well.

Okta is positioning its platform to address this opportunity by providing identity management and security for both human users and AI agents.

If AI adoption continues to expand, identity security could become an increasingly important spending category.

3. The financial results show a business generating real cash

Okta’s latest reported second-quarter FY2027 results provide some useful evidence of its underlying performance.

Revenue reached $805 million, up 11% year over year, while subscription revenue grew 12%.

More importantly, remaining performance obligations (RPO), which represent contracted revenue that has not yet been recognised, increased 17% to $4.86 billion. Current RPO, representing the portion expected to be recognised over the next 12 months, grew 14%.

These figures suggest that demand is not limited to revenue already recognised. The subscription backlog provides some visibility into future business activity.

Cash generation was another positive. Okta produced $227 million in free cash flow during the quarter, equivalent to a 28% margin. That was an improvement from $162 million and a 22% margin in the same period last year.

For FY2027, management expects revenue of approximately $3.22 billion, representing growth of 10%–11%, and free cash flow of $910 million to $930 million.

This is important because cybersecurity companies need to invest in product development, infrastructure and sales while maintaining profitable growth. Strong free cash flow gives Okta more flexibility to do that.

4. The challenge: can growth accelerate enough?

Despite the positive financial performance, I see a potential issue.

Revenue growth of 11% is solid, but it is not particularly aggressive for a technology company whose shares have more than doubled in a year.

Investors buying at today’s price need to consider how much future growth is already reflected in the valuation.

Competition is another concern. Okta operates in a market where established technology companies and specialist cybersecurity providers are competing for enterprise spending. Customers may also prefer integrated security solutions from existing technology suppliers rather than purchasing separate platforms.

There is also the question of customer retention and expansion. Okta’s dollar-based net retention rate was 107% in its latest reported quarter. This indicates that existing customers are spending more than they did previously, but it also means investors should watch whether this figure improves as demand for new identity products develops.

The AI opportunity is promising, but it still needs to translate into measurable customer adoption and additional revenue.

5. What I would watch next

For me, the next stage of Okta’s story comes down to three things:

• Revenue growth: Can Okta move beyond its current 10%–11% growth range as demand for identity security expands?

• AI monetisation: Will AI identity and governance products become a meaningful source of additional subscription revenue?

• Free cash flow: Can the company maintain strong cash generation while continuing to invest in growth?

S&P 500 inclusion gives Okta greater market recognition and potentially a new source of institutional demand. But the real test is whether its business can continue to deliver results that justify the higher expectations.

My takeaway

I think identity security is an interesting area of the cybersecurity market that deserves more attention as AI adoption grows.

The opportunity is not simply about protecting people logging into company systems. It is also about controlling what increasingly capable AI agents can access and do.

Okta has an established subscription business, a growing backlog and strong free cash flow. Those are meaningful positives. However, after such a substantial share price increase, I would want to see stronger evidence that AI-related demand can accelerate its growth before assuming the rally has further room to run.

For discussion purposes only, not financial advice.