Okta (OKTA) is back in the spotlight after Anthropic introduced Claude Code Security, an AI tool that scans codebases for vulnerabilities and suggests fixes, sparking a sharp selloff in cybersecurity names.

That Anthropic shock came after a tough stretch, with Okta’s 7 day share price return of 11.97% and 30 day return of 20.03% both negative, and the 1 year total shareholder return down 18.5%, hinting that momentum has been fading even as AI fueled security tools reset expectations for risk and growth.

If you are reassessing cybersecurity exposure in light of AI, it could be a good time to scan a curated list of 29 AI small caps that are already tied to this shift.

With Okta trading around US$73 against an average analyst target near US$112 and screens flagging a potential intrinsic discount, you have to ask: is this a reset creating upside, or is the market already baking in future growth?

Most Popular Narrative: 50.6% Undervalued

Tokyo’s widely followed narrative pegs Okta’s fair value at about $147.87, roughly double the last close around $73, which is a big gap for any security stock.

Okta has a solid foundation: a technically brilliant solution, a strong market position and a recurring revenue model. But to be truly successful, Todd McKinnon needs to take strategic risks and further develop the business model. It is not enough to have a better solution than the competition. The key is to find a business model that solves a “problem” for customers so elegantly that they are willing to pay for it, and profitably. CrowdStrike and Okta offer exciting opportunities in this context. A more intensive collaboration or even a merger could strengthen both companies and create a market giant that could have a lasting impact on the security market. The next step is the most difficult, but also the most important. Todd McKinnon and Okta have the opportunity to become a sustainable and profitable company. It is now a matter of seizing this opportunity.

Curious what kind of revenue growth, profit margins and future earnings multiple Tokyo uses to reach that higher fair value for Okta? The full narrative lays out a specific profitability path, detailed free cash flow run rate and a premium earnings profile that supports the $147.87 figure.

Result: Fair Value of $147.87 (UNDERVALUED)

However, this hinges on Okta defending its identity market position as AI security tools evolve and on management converting current revenue into durable, growing profitability.

Another View: Price Signals A Very Different Story

That $147.87 fair value from Tokyo’s narrative and our own cash flow work sits awkwardly beside how the market is pricing Okta today. At roughly $73, the stock trades on a P/E of 66.4x, more than double the US IT industry average of 20.3x and also well above our fair ratio of 34.7x.

In plain terms, the current P/E implies investors are paying a premium price for each dollar of Okta’s earnings, even though the share price sits well below some fair value estimates. That mix of discount to fair value yet premium earnings multiple raises a simple question for you: is this a mispriced opportunity or a sign that expectations are already stretched?

Next Steps

If the mixed signals here leave you unsure, that is a useful sign to check the numbers yourself and act while sentiment is still split. A good place to start is by reviewing the 3 key rewards that our work has surfaced for Okta so you can weigh those positives against the risks in your own way.

Looking for more investment ideas?

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.