Buy OKTA Stock Before Earnings: Valuation Gap vs. AI-Driven Growth

As Okta (OKTA) prepares to report Q1 2025 earnings on May 27, investors face a critical crossroads: Should you buy, hold, or sell this cloud identity giant amid conflicting signals of product momentum, valuation skepticism, and macroeconomic caution? The answer hinges on weighing Okta’s strategic wins in AI and security against its current undervalued multiples and near-term risks.

The Case for Buying OKTA Before Earnings

1. AI-Driven Product Momentum is Accelerating
Okta’s Q1 results are expected to highlight its leadership in AI-integrated identity security. In Q4 2024, AI-powered solutions like Identity Threat Protection contributed 69% year-over-year growth in Fortune 500 adoption, while AI-Powered Workflows surged 34% in key markets like Japan and France. These products are core to Okta’s $140 million+ bookings in Q4, with AI now driving 20% of total bookings.

The Okta AI Threat Protection platform, which identifies risky user behavior in real time, is already securing major wins. For instance, its $200 million+ Department of Defense deal in 2024 underscores demand for FedRAMP-compliant security in regulated sectors—a market growing at 20% annually.

2. Valuation is at a 5-Year Low—But Fundamentals Are Strong
Okta’s stock trades at an EV/EBITDA NTM of 23.3x, nearly 40% below its 5-year average of 41.3x and 12% below its peer median of 20.8x. This discount ignores the company’s operational excellence:
- Q1 2025 free cash flow hit $214 million (+72% YoY), with margins at 35%.
- Gross margins rose to 83%, up from 78% a year ago.
- Remaining performance obligations (RPO) reached $4 billion, up 25% YoY, signaling robust future revenue visibility.

The Zacks #4 Sell rating focuses on near-term earnings estimate cuts (-0.3% over 30 days). But this misses the bigger picture: Okta’s long-term growth is tied to a $15.7 trillion AI-driven automation boom by 2030. Its AI partnerships (e.g., OpenAI) and FedRAMP compliance position it to capture share in high-margin regulated markets.

The Risks: Why Caution Still Exists

1. Near-Term Revenue Pressures
Okta’s Q1 revenue of $617 million missed estimates, highlighting macro-driven hesitancy in enterprise spending. Seat-based pricing models remain vulnerable to cost-cutting, and the company’s +19% YoY revenue growth trails peers like Palo Alto Networks (PANW) and CrowdStrike (CRWD).

2. Valuation Skepticism
The forward P/E of 35x is still elevated versus peers, and the Zacks Value Style Score of “F” suggests investors are pricing in execution risks. If Okta’s AI adoption slows or large enterprise deals falter, the stock could face further pressure.

The Bottom Line: Buy OKTA at These Levels

The $122 share price is a rare entry point for a company with:
- $2.5 billion in cash, no debt, and a net cash position.
- A 25% YoY rise in $1M+ ACV customers (now 470), signaling enterprise stickiness.
- A Loop Capital price target of $140 (+24% upside), based on RPO growth and AI’s scalability.

Action to Take:
- Buy OKTA ahead of earnings if you have a 12–18 month horizon. The EV/EBITDA discount and AI tailwinds suggest a rebound is likely.
- Hold if you’ve already invested, as Q1’s operational metrics (free cash flow, margins) are positives that could re-rate the stock.
- Sell only if AI adoption stumbles, RPO growth slows below 20%, or macro headwinds force a strategic pivot.

Final Take

Okta is caught in a valuation tug-of-war: its $14 billion market cap doesn’t reflect its AI-driven moat in regulated security markets. With the stock down 30% from its 2023 highs, this is a rare chance to buy a leader in identity-as-a-service at a discount. The Q1 earnings call will test whether Okta can convert AI’s promise into consistent revenue growth—but the data so far suggests it’s on track.

Investor’s Bottom Line: The valuation gap is too wide to ignore. Buy OKTA now.