Can digital identity demand boost smart city stock Okta?

As urban populations swell, seamless interaction with urban infrastructure and services will be vital to ensuring the smooth flow of people, goods and money. This is putting smart city stocks like Okta in the spotlight. 

- Okta is helping Singaporeans access the city’s digital ID system.

- The digital ID solutions market is set to grow at a CAGR of 17.2% between 2023 and 2030.

- Okta is the top holding in the Lyxor MSCI Smart Cities ESG ETF, which is down 3.31% in the past year.

Smart cities powered by connected devices and the Internet of Things (IoT) are transforming the ways in which we live, work, and even interact with urban infrastructure. 

According to the UK government, the term ‘smart city’ “often refers to the use of digital technologies and data to improve places by providing citizens with social, economic, and environmental benefits”.

The pandemic and rise of hybrid working have accelerated the adoption of digitisation, connected devices and IoT, as well as increased investment in the research and development of smart technologies. According to a report published last month by Guidehouse Insights, the global smart city technology market should generate $121.1bn in annual revenue this year and grow to $301.2bn by 2032, a CAGR of 10.7%. 

“These global challenges are amplifying long-standing local issues around the quality of public services, environmental standards and social inequalities,” Eric Woods, research director at Guidehouse Insights, said in a press release. 

Yet, while smarter cities make our lives easier, challenges remain, among them security and privacy concerns — for example, around how personal data is collected and used. There is also the potential issue of inequality when it comes to accessing smart city services, warns the UK government, particularly “if the benefits of such projects are not experienced equally by rural and urban communities, or if they disadvantage those without digital skills or access to digital technology”.


Okta helps Singaporeans access services smartly

Singapore is often regarded as the world’s smartest city, partly thanks to its digital ID system, Singpass. Created back in 2003, it allows citizens to access government and banking services through a single log-in. 

Identity and access management vendor Okta [OKTA] announced in April that it has integrated Singpass into its systems. Users can now access Singpass without a password, by using Okta’s cloud-based universal login feature. 

“The integration with Singpass expands Okta’s authentication network and will no doubt help organisations to securely address their biggest digital challenges while enabling them to continue to innovate,” said Ben Goodman, senior vice president and general manager of Asia Pacific at Okta, in a statement. 

Alphabet [GOOGL] is working with Okta and VMware [VMW] to improve the security of device management for enterprise and public sector teams managing hybrid work. 

“Global enterprises want to provide their workforces with more effective and secure ways of collaborating, with tools that increase productivity and avoid the vulnerabilities of legacy productivity solutions,” said Sunil Potti, vice president and general manager of cloud security at Google, in a statement.


Capitalising on digital ID demand

Digital identities are regarded as a key building block in the development of smart cities. The UK government has been working on its own digital ID system, under the banner ‘One Login’, through which UK residents will be able to access multiple government services. 

The global digital ID solutions market size was worth $27.5m in 2022, according to research published by Grand View Research. It’s forecast to grow at a CAGR of 17.2% between 2023 and 2030. 

In a bid to capitalise on this opportunity and accelerate growth, in early April Okta launched a revamped partner programme, Okta Elevate. 

Digital ID “sits at the intersection of cloud, digital transformation and cybersecurity,” said Bill Hustad, senior vice president of global partners and alliances at Okta. “The strategic nature of identity creates huge opportunities for our partner ecosystem.”


Biometrics will propel future growth

One of the main factors driving growth in the digital ID market is the evolution of biometric technologies integrated into smartphones. Logging into multiple online services with a thumbprint is much more seamless than relying on passwords. 

As populations increase, more and more people will be living in cities, so seamless interaction with services will be essential to facilitating the smooth flow of people, goods and money. 

According to data published by the World Bank, seven in 10 people will be living in cities by 2050. 

Smart solutions will ease strain on cities 

“The global migration from the countryside to cities, and the challenges and opportunities that emerge as a result, are creating a new generation of megacities,” noted analysts at iShares in recent commentary on the theme. 

Growing populations will put a huge strain on urban infrastructure and services, which is likely to further heighten the call for smart technologies. Increased deployment of smart devices and IoT will mean a vast amount of data being generated, increasing attack surfaces. But handling and processing data securely will help minimise potential problems.

“Reducing the inefficiencies that come with this rapid growth, for instance, traffic jams, pollution, and waste, will require re-thinking of urban development, and introduction of novel technologies and services,” concluded the iShares analysts.


Funds in focus: Lyxor MSCI Smart Cities ESG Filtered ETF

There are two main smart city-focused funds. They offer broad exposure to the companies building services and solutions to enable the smooth running of smart cities. 

Okta is the top holding in the Lyxor MSCI Smart Cities ESG Filtered DR UCITS ETF [IQCT.L]. The fund is weighted 45.38% and 43.70% in favour of industrials and information technology. Communication services, utilities and energy stocks make up almost the rest of the portfolio. It is principally focused on the US (55.65%) and Japan (10.01%). 

The fund is down 2.95% in the past year through 28 April, but up 4.86% in the past six months.  

Similarly, the iShares Smart City Infrastructure UCITS ETF [CITY.MI], which doesn’t hold Okta, is heavily weighted in favour of industrials and information technology — the sectors have allocations of 50.17% and 35.21%, respectively. The rest of the portfolio comprises communications, materials and real estate stocks, among others. It too is focused on US (48.87%) and Japanese (10.44%) companies. 

The fund is down 1.12% over the past year through 28 April and up 1.79% in the past six months.

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