AI Panic Hits Okta — But Strong Backlog and a Surprise Earnings Beat May Signal the Bottom

Okta (OKTA) delivered a solid set of fourth-quarter results that topped Wall Street expectations, but the company’s cautious near-term outlook initially weighed on the stock before buyers stepped in. Shares slipped to roughly $68 following the release before rebounding into the low $70s as investors digested the details of the report. The early volatility underscores the current tension surrounding the software sector, where fears that artificial intelligence could disrupt traditional SaaS models have pressured valuations across the group.

For the fourth quarter of fiscal 2026, Okta reported adjusted earnings per share of $0.90, comfortably above the $0.85 consensus estimate. Revenue came in at $761 million, also beating expectations of about $749 million. The company’s top line grew 11% year-over-year, matching the growth rate of its subscription revenue, which reached $747 million during the period.

Profitability also improved meaningfully. Okta reported GAAP net income of $63 million, or $0.35 per share, compared with $23 million, or $0.13 per share, in the same quarter a year earlier. Non-GAAP operating income came in at $202 million, representing a margin of 26%, slightly higher than the 25% margin posted in the prior-year period. The results reflected continued operating leverage even as the company invests in new products and go-to-market initiatives.

One of the most closely watched metrics in the report was current remaining performance obligations (cRPO), a key measure of future revenue visibility for subscription software companies. Okta reported cRPO of $2.513 billion, up 12% year-over-year and above prior expectations. Total remaining performance obligations climbed 15% to $4.83 billion. These figures suggested continued healthy demand for Okta’s identity platform despite the broader slowdown in enterprise software spending.

The company also posted strong cash flow performance. Operating cash flow reached $258 million in the quarter while free cash flow totaled $252 million, representing a margin of roughly 33%. For the full fiscal year, Okta generated $863 million in free cash flow, highlighting the company’s ability to convert revenue growth into meaningful cash generation. The balance sheet remains strong as well, with roughly $2.55 billion in cash, cash equivalents, and short-term investments.

Despite the solid quarter, guidance became the focal point for investors. For the first quarter of fiscal 2027, Okta expects revenue between $749 million and $753 million, slightly below the roughly $755 million analysts were forecasting. Adjusted earnings are expected to come in between $0.84 and $0.86 per share, compared with consensus estimates of around $0.87. Management described the outlook as a “prudent approach” that reflects current market conditions.

For the full fiscal year 2027, Okta guided for revenue between $3.17 billion and $3.19 billion, roughly in line with Wall Street expectations. The company expects about 9% revenue growth for the year, with non-GAAP operating margins projected between 25% and 26%. Management noted that the revenue growth forecast includes roughly a one-percentage-point headwind from the company’s decision to shift more professional services work to global system integrator partners.

Investor concerns about artificial intelligence disrupting traditional software vendors have also weighed heavily on Okta’s shares in recent months. However, management pushed back on that narrative during the earnings call, arguing that AI may actually expand the company’s opportunity. CEO Todd McKinnon emphasized that the proliferation of AI agents will require new identity and security infrastructure, positioning Okta at the center of a rapidly emerging market.

In particular, Okta highlighted growing interest in its new products designed to secure AI agents. Offerings such as Okta for AI Agents and Auth0 for AI Agents are aimed at authenticating and governing machine identities as enterprises increasingly deploy autonomous software systems. Management noted that new products accounted for roughly 30% of bookings during the quarter and typically generate about a 40% uplift in contract value when attached to deals.

Analyst reaction to the report was broadly constructive despite the cautious guidance. Stephens maintained an Overweight rating while lowering its price target to $95 from $120, citing growing momentum in larger platform deals and improving sales execution. The firm also pointed to encouraging early demand signals around “agentic identity,” which it sees as a long-term growth opportunity.

Needham also reiterated its Buy rating, though it trimmed its price target to $90 from $110. The firm characterized the outlook as consistent with management’s historically conservative guidance philosophy and noted that Okta’s subscription revenue outlook actually came in modestly above Street expectations. Needham also highlighted that the company has been adding quota-carrying sales capacity for several quarters, which could help reaccelerate growth in the second half of fiscal 2027.

Other analysts echoed similar themes. Wolfe Research maintained its Outperform rating and argued that the company’s revenue outlook was stronger than it initially appeared, potentially setting up an acceleration in subscription growth later in the year. RBC pointed to the cRPO beat as evidence of strong execution, while Truist said the company may be approaching an inflection point as investments in go-to-market strategy and AI security products begin to gain traction.

From a technical perspective, the $68 level appears to be emerging as an important support zone for the stock after the post-earnings selloff briefly tested that area before buyers stepped in. The bounce back into the low $70s suggests investors were willing to look past the conservative guidance and focus on the company’s improving fundamentals and long-term AI opportunity.

Ultimately, Okta’s results suggest that fears about AI destroying the software sector may be overstated, at least in the company’s case. The quarter showed continued demand for identity security solutions, solid backlog growth, and strong cash flow generation. While the guidance reflects a cautious near-term outlook, many analysts believe it leaves room for upside if the company’s new AI-focused products gain traction faster than expected.