While cybersecurity is a sector that Jim Cramer has been increasingly bullish on for more than a year, primarily due to AI generated tailwinds, Okta, Inc. (NASDAQ:OKTA) is a stock that the CNBC TV host has only recently started to frequently discuss. The shares are up by more than 141% year-to-date. Recently, the firm has caught the CNBC TV host’s attention as the debate rages about the dangers of AI systems going out of control. Cramer, who insisted at the start of the year that cybersecurity companies would continue to play a role in the market even as Anthropic’s CEO Dario Amodei claimed that AI would be enough for cybersecurity, has had a lot to say about the matter and cybersecurity stocks as he remarked on Monday:
“I mean Okta’s an amazing company, Tod McKinnon is, so non promotional. He came on Mad Money and just said, look, Jim, we know this, we knew it, we can stop it, basically, why don’t they use us? I mean, what are they doing? And I think that’s the attitude among some of the people out there.
“Now as it is, CrowdStrike, Okta, and Palo Alto are going up today because they’re integral.
“I mean talk to these guys, talk to Todd McKinnon, he’s not a promotion artist. But he has it! And you should feel much less doom and gloom after you talk to those companies than you do after you talk to the people who’re not happy about at they’re doing but tare full speed ahead.”
Looking at Okta’s share price performance, it is accompanied by strong financial performance as well. However, compared to its cybersecurity peers, growth has been slower. For instance, in the second quarter, the firm grew revenue by 11%, while Palo Alto and CrowdStrike grew revenue by 15% and 26%, respectively. Additionally, and analyzing Cramer’s remarks, as the Q2 results were released, CEO McKinnon outlined to CNBC that the agentic AI opportunity was “very early” as incidents such as OpenAI’s agents hacking Hugging Face were only starting to catalyze interest. Of course, Cramer would remark that the CEO was being ‘non promotional’ when it came to the opportunity from rogue AI agents.
However, the same CEO was slightly more optimistic during Okta’s second quarter earnings call. Explicitly mentioning his firm’s agentic platform, Okta for AI Agents, McKinnon had remarked that “there were dozens of deals in the quarter, including several million-dollar-plus deals” while cautioning that the reality was that “it is still very early” and Okta for AI Agents was “too small to show up in the numbers right now.”
Apart from the focus on agents, Okta’s second quarter saw new products account for 30% of the firm’s bookings to indicate that there was sustained customer interest in its products. Additionally, the firms also landed big customers as those with an annual contract value (ACV) greater than $1 million grew by more than 20% to over 600.
While Cramer’s focused on AI agents, for Okta, the latest results were also more about diversification. Traditionally a workforce identity management software provider, the quarter was a big one for the firm as its Customer Identity ACV jumped by 13% to account for 41% of overall ACV and outpaced Workforce Identity’s 11% growth. This growing share of the new platform shows business diversification is working well for Okta to potentially unlock new markets.
Yet, at the same time, Okta is operating in a tough market. For instance, one major player in the identity management market is Microsoft, which operates through its Microsoft Entra ID platform that is bundled with its Microsoft 365 E5 and Security products. On this front, a key metric to watch particularly for future trends is Okta’s retention rate. During the second quarter, the retention rate was 107%, which marked a one percentage point gain over the year-ago figure. Yet, compared to Q2 FY25’s 110%, the rate is still lower and even lower than the historical peak of 122%.
Looking at hedge fund sentiment, 58 funds had disclosed a stake in the firm in Q2, which was higher than Q1’s 49 and lower than CrowdStrike’s Q2 figure of 89. The stock currently trades at a forward P/E ratio of 54.35, which is significantly lower than CrowdStrike’s 208. Yet, short interest as a percentage of float of 5.49% is higher than CrowdStrike’s 2.77%.
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