Why Okta's Shares Tumbled 14% Last Month
Key Points
Anthropic debuted Claude Code Security, which scans codebases and suggests security fixes.
Okta's underlying business remains strong, and its fourth-quarter results beat Wall Street's consensus estimates.
AI will be disruptive to many tech companies, but it's too early to write off cybersecurity stocks.
Shares of Okta (NASDAQ: OKTA), an identity and access management (IAM) cybersecurity company, fell 14.2% in February, according to data provided by S&P Global Market Intelligence, after artificial intelligence company Anthropic debuted a new security tool that scans computer code for vulnerabilities.
Investors have been jittery about how artificial intelligence companies might disrupt established tech leaders, and that fear spread to many cybersecurity stocks last month, including Okta.
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Cybersecurity stocks are feeling the AI pressure
Anthropic, the maker of the chatbot Claude, announced last month a new tool called Claude Code Security that can scan codebases for security vulnerabilities and suggest targeted software patches to fix them. There are existing security tools similar to this already available, but Anthropic says Claude Code Security goes a step further by finding more subtle issues others may miss and making it easier for companies to find potential problems.
The security features are currently available only as a limited research preview to Anthropic's Enterprise and Team customers, but they're likely to be released to more customers eventually.
Okta investors viewed this as very bad news for the company and other cybersecurity stocks, sending the stock tumbling at the end of the month. Investors had already been worried about AI's potential to disrupt software stocks, and now they are concerned that cybersecurity companies are vulnerable to AI-driven disruption.
It's too early to call the end of cybersecurity companies
While it's understandable that AI fears are spreading to cybersecurity companies, it's unlikely the software and tools they offer are going away any time soon. It's worth remembering that Okta and other security companies are implementing AI into their existing tools to make them better, rather than being replaced by them.
Okta reported its fourth-quarter results on March 4, and investors regained some of their optimism in the stock following the results. The company's revenue increased 11% from the year-ago quarter to $761 million, beating Wall Street's consensus estimate of $749 million. Diluted earnings per share of $0.90 in the quarter also outpaced consensus estimates of $0.85 per share. That's helped push Okta's share price higher since the beginning of March.
While AI will bring major changes to Okta and cybersecurity companies, I think existing shareholders should take a wait-and-see approach with these stocks rather than selling on AI fears. Some companies are using AI in ways that make their security tools more effective than ever, creating greater value for customers. So, until there's a clear AI threat that's eroding Okta's business, investors may want to stay the course for now.
Chris Neiger has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Okta. The Motley Fool has a disclosure policy.