Hey Income Futurists,
Everybody’s excited about AI agents doing the grunt work for us.
Paying the invoices, booking the flights, digging through company files at 3 AM while the humans sleep.
I’m excited too.
But every one of those agents needs somebody to let it in the door, and somebody has to pour the concrete for the buildings it runs in.
This week I’ve got one of each, and only one of them gets my money.
Who Gets Past the Velvet Rope
Here’s the simple version: Every AI agent you turn loose has to log in somewhere. It needs permission to act in your name, and somebody has to vouch for it.
Okta Inc. (OKTA) sits right at that door.
We’re going from people logging in to armies of agents logging in, and each one’s a new identity somebody has to track and lock down.
On Okta’s last earnings call, the company cited a survey where 81% of security chiefs said unsecured AI agents already leave their companies exposed.
The stock’s roughly tripled in six months and hit $235 on October 12th.
Management says agent revenue won’t move the numbers until fiscal 2028.
So why do I still love it? The core business got better before the agents paid a dime.
In the quarter that ended in July, revenue grew 11% to $805 million. Free cash flow jumped to $227 million from $162 million a year earlier. Customers paying Okta more than $1 million a year grew more than 20%, to over 600 of them, and management raised its full-year guidance on top of all that.
Then after Okta’s big conference in September, Roth Capital said the agent product lifts deal sizes 50% to 60% when a customer adds it.
It isn’t cheap, and buyers won’t forgive a sloppy quarter at this price. But while the builders keep taking heat over power and cost and efficiency, the company selling trust gets paid whether those builds pencil out or not. Okta doesn’t have to build it and pray. It just has to check the badges.
That’s my one to love.
Concrete on Credit
Debt’s a four-letter word right now, and it’s what Applied Digital (APLD) is built on. The company borrows money to build AI data centers.
That’s the whole model.
Look at the balance sheet.
It ended August with $6.4 billion in debt against $2.9 billion in cash, plus about $700 million of restricted cash. With the stock around $19, that debt’s bigger than the entire market value of the company. And the build eats cash fast. In that one quarter it poured $2.1 billion into building out while operations brought in $64 million, and it borrowed $1.6 billion to cover the gap.
At that pace the cash on hand lasts four or five months. That’s not a cushion, that’s a tightrope.
To be fair, Applied has about $36 billion in signed leases, and more than 80% of its debt doesn’t come due until fiscal 2031 or later. So there’s no maturity wall. It doesn’t need one to get hurt.
Now layer on rates.
The 10-year closed Friday right at 5%, a few weeks after it touched 5.36%, its highest since 2002. Applied Digital’s last big raise in June cost it 7%. I don’t think sticky’s done. When yields stay up, money stops paying for stories and goes looking for strong balance sheets and real cash flow. You can already see it in this stock. It dropped 11.5% on October 16th as traders rotated out of debt-funded AI builders, and it’s down more than 60% from its $50.73 high. A lending pause slows the build, and the build’s the entire story.
I like the AI theme.
I don’t want to own it through a balance sheet like this. It’s fringe, and fringe just won’t do in this market.
Monday Morning’s Cut
I mean I have to wonder: Is the stock pick I hate so bad that the crew will see it as the best candidate to buy puts on? Or will play I love be so perfect that Mark stops the pruning process early to declare that the winner?
Here for a good time AND a long time,
Hans