Prediction: The Next Microsoft-Level Stock Could Come From an Unexpected AI Niche

Technology giant Microsoft (NASDAQ: MSFT) is gearing its portfolio to serve "human-led, agent-operated" enterprises.

The company has built a robust end-to-end artificial intelligence (AI) technology stack, comprising underlying hardware, a data layer made of the data and analytics platform Fabric, large language model orchestration through Foundry, and a dev layer categorizing activities as pro code and low code. And it's positioning Copilot as the front-end layer that can orchestrate specialized agents to get work done efficiently and effectively.

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Copilot is already gaining momentum. The virtual AI assistant boasts 100 million monthly active users. Nearly 70% of Fortune 500 companies are already using Copilot extensively. With a 430 million Microsoft 365 user base, there is still significant runway ahead for Copilot.

However, as AI agents proliferate in the global enterprise landscape, demand for a trusted identity infrastructure will also rise. Demand for identity security is also growing as enterprises migrate workloads from on-premises infrastructure to the cloud .

The surging need for authentication, authorization, and governance, not only of human users, but also of chatbots, digital agents, and agentic workflows, has opened a vast target market for cybersecurity players. With its identity-as-a-service platform, cybersecurity player Okta (NASDAQ: OKTA) is well-positioned to capitalize on this opportunity. The company is also leveraging AI technologies further to strengthen its threat detection and access control capabilities.

Microsoft is now laying the foundation for the next agentic AI wave. Similarly, here's why Okta can play an equally critical role in the identity security landscape.

Identity Security Fabric

Okta is helping clients build the Identity Security Fabric, an architecture that helps secure every identity, including employees, customers, partners, machines, and AI agents. It also secures all use cases of all these identities, as well as all the resources used in the organization.

Several specialized products, such as Identity Threat Protection, Okta Identity Governance, Okta Privileged Access, Highly Regulated Identity, and Fine Grained authorization, together form the Identity Security Fabric. These products are already contributing to the company's top-line growth. The company has consolidated all these specialized products into a complete identity security platform.

The success of this platform strategy is evident, considering that a major technology company is already upgrading its identity security infrastructure from several point solutions to Okta. The trend may continue among other enterprises, as Okta offers a more cost-effective yet technologically superior way for identity security management.

Okta's identity solutions are increasingly finding their way in mission-critical national infrastructure. The company's neutrality to cloud providers is also helping foster confidence. In the second quarter of fiscal 2026 (ending July 31, 2025), five out of the company's 10 top deals were with the U.S. public sector.

A robust go-to-market strategy

Okta has created dedicated sales teams, each with deep knowledge of specific buyer types, such as developers, IT buyers, and data security professionals. Additionally, the company has also created a broad partner ecosystem. All 20 out of the company's top 20 deals involved partners. This robust go-to-market strategy seems to mirror Microsoft's distributor ecosystem in its early years of growth.

Strong financials

Okta reported impressive financial performance in the second quarter, with revenues and earnings surpassing consensus estimates. Revenues were up 13% year over year to $728 million, of which $711 million were subscription revenues.

Okta's non-GAAP (generally accepted accounting principles) net income also soared 29% year over year to $169 million, while free cash flow was $162 million or 22% of its total revenues. The company ended the second quarter with a $4.15 billion subscription backlog, highlighting solid revenue visibility.

Okta has provided healthy guidance for fiscal 2025, with revenues expected to grow year over year by 10% to 11% and non-GAAP operating margin in the range of 25% to 26%. The company also expects a non-GAAP free cash flow margin of 28%. Further improvements in financials further reiterate confidence in the company's future growth story.

Long-term catalysts

The most significant catalyst for Okta is securing AI and nonhuman entities such as bots and autonomous AI agents.

Okta's Auth0 platform is helping developers build agents that are designed to be secure and compatible with the identity security fabric. Auth0 for AI agents offers services such as user authentication, safe credential storage, giving agents some autonomy while maintaining user control, and ensuring agents get access only to authorized resources.

Okta has also created a new open standard called Cross App Access to control resources that the AI agents can access. Several partners and internet service providers, including Amazon's AWS, Boomi, Box, Ryder, and Zoom, have showed interest in this innovation.

Okta is further extending its identity security capabilities through the acquisition of a modern Privileged Access Management (PAM) company called Axiom Security. Once completed, the deal will enable the company to ensure superior security and compliance across areas such as just-in-time access and unified control. The deal will also strengthen Okta's reach in areas such as securing connections between machines and with databases.

Okta's valuation

Okta is currently trading at 24.5 times forward earnings. The valuation is more like that of a software-as-a-service (SaaS) player, not as a category leader in the identity security landscape. Hence, there is definitely significant scope for expansion in valuation multiples, as the company sees rapid expansion in use cases in the AI agent dominated enterprise.

Improving profitability and an expanding product portfolio can potentially position the company as the "Microsoft" of the identity security layer in coming years.

Manali Pradhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Microsoft, Okta, and Zoom Communications. The Motley Fool recommends Box and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.