Within the technology sector, software stocks have outperformed hardware stocks by 26 percentage points year to date. Software companies are more attractive in the current market environment (particularly those involved with artificial intelligence) because they are generally exempt from tariffs.
Investors can lean into that trend with Snowflake (SNOW 0.23%) and Okta (OKTA 2.11%). Both stocks handily beat the broader software industry through the first five months of 2025, and most Wall Street analysts anticipated more upside in the next year.
- Among the 50 analysts that follow Snowflake, the median target price is $222 per share. That implies 8% upside from the current share price of $205.
- Among the 47 analysts that follow Okta, the median target price is $130 per share. That implies 26% upside from the current share price of $103.
Investors with $450 to spend should consider spreading the money evenly across Snowflake and Okta. Here's why.
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1. Snowflake
Snowflake specializes in analytics. Its cloud platform lets customers unify and make sense of data, share and monetize datasets, and develop artificial intelligence (AI) models and data-driven applications. Consultancy Gartner recently recognized the company as a technology leader in database management systems.
Snowflake has introduced numerous artificial intelligence features during the last two years. Cortex AI is a fully managed service (inclusive of a custom large language model called Arctic) that can understand data, summarize information, and answer questions in natural language. Snowflake has also added AI tools for anomaly detection, classification, and forecasting.
Snowflake reported strong financial results in the first quarter of fiscal 2026, which ended in April. Total customers increased 18% to 11,578 and the average existing customer spent 24% more. In turn, revenue rose 26% to $1 billion, and non-GAAP net income jumped 71% to $0.24 per diluted share. The company also raised full-year guidance, such that revenue is projected to increase 25%.
Looking ahead, Snowflake values its total addressable market at $342 billion by 2028. Wall Street expects adjusted earnings to grow at 35% annually through fiscal 2027, which ends in January 2027. That makes the current valuation of 222 times earnings seem absurd. But analysts have consistently underestimated the company. Snowflake topped the consensus earnings estimate by an average of 34% in the last six quarters.
Admittedly, Snowflake stock would still be expensive today even if that trend continues, but I think long-term investors can buy a very small position right now and add more shares as better opportunities present themselves.
2. Okta
Okta specializes in identity and access management (IAM) software. IAM is a cybersecurity framework that lets administrators set system permissions, so only specified users and devices can access applications and resources. Its platform leans on AI to authenticate users and (thanks to a recently released threat protection product) continuously assess risk. Gartner has ranked Okta as an industry leader for eight consecutive years.
Importantly, Okta provides solutions for customer identity and workforce identity, and it supplements its core IAM solutions with privileged access management (PAM) and identity governance and administration (IGA) products. The former protects highly privileged (superuser) accounts and the latter simplifies compliance reporting and automates IAM workflows.
Okta reported solid results in the first quarter of fiscal 2026, which ended in April, beating estimates on the top and bottom lines. Revenue rose 12% to $688 million and non-GAAP net income increased 32% to $0.86 per diluted share. But the stock plunged following the report because management chose not to raise full-year guidance, citing macroeconomic uncertainty.
Looking ahead, Okta values its addressable market at $80 billion. Wall Street estimates earnings will increase at 10% annually through fiscal 2027, which ends in January 2027. That makes the current valuation of 33 times earnings look rather expensive, but I believe analysts are underestimating the company as they have in the past.
Okta beat the consensus earnings estimate by an average 15% in the last six quarters. I believe that trend will continue. IAM spending is forecast to increase at 12.6% annually through 2030, which means Okta can beat the consensus earnings estimate if it merely keeps pace with the market. Investors should feel comfortable buying a small position in this stock right now.
