TipRanks Smart Growth Portfolio #32: Zero-Loss Game
Dear Investors,
Welcome to the 32nd edition of the Smart Growth Portfolio and Newsletter.
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Portfolio Updates
❖ We are happy to announce the addition of Atlanticus Holdings Corporation (ATLC) – which was recommended in one of our previous Newsletters – to the Smart Growth Portfolio.
Atlanticus is a fintech platform redefining consumer credit access for underbanked and non-prime borrowers through its Credit-as-a-Service model. By embedding lending infrastructure within retailers, healthcare providers, and partner banks, Atlanticus delivers real-time credit decisions and full-stack servicing across origination, underwriting, and collections. This vertically integrated model generates high-margin, recurring finance income and steady servicing fees while avoiding the regulatory burdens of a traditional bank.
The company has established clear leadership in non-prime consumer credit – a segment long ignored by major financial institutions but representing nearly half of U.S. adults. Backed by more than two decades of proprietary data and AI-driven underwriting, Atlanticus combines precision risk modeling with scalable cloud infrastructure. The result is a capital-efficient growth engine that has delivered consistent GAAP and non-GAAP profitability, accelerating double-digit EPS growth, and a multi-year streak of earnings beats.
Recent results reinforced that trajectory. In Q2 2025, revenue rose 42.6% year-over-year to $244.5 million, while EPS of $1.31 extended Atlanticus’s record of consistent profitability and expanding margins. The balance sheet remains robust, with more than $350 million in unrestricted cash, strong liquidity, and double-digit return on equity – an uncommon combination in consumer finance.
The September 2025 acquisition of Mercury Financial marked a major milestone, adding 1.3 million credit card accounts and $3.2 billion in receivables, making Atlanticus one of the largest non-bank credit providers in the U.S. The deal is expected to boost EPS by $1.00 in 2026 and $3.00 in 2027, while expanding the customer base to over five million and receivables to more than $6 billion.
Analysts see substantial upside as the company integrates Mercury, optimizes pricing and fee structures, and scales its embedded credit partnerships. ATLC remains deeply undervalued on both forward P/E and PEG metrics relative to fintech peers, despite sustained profitability and growth that outpaces most of the sector.
Adding Atlanticus strengthens our fintech exposure with a best-in-class Credit-as-a-Service platform, complementing existing portfolio holdings like Enova and EverQuote. With durable margins, expanding scale, and structural tailwinds in alternative credit and embedded finance, Atlanticus represents the kind of under-recognized compounder that fits the Smart Growth Portfolio’s focus on profitable innovation and long-run compounding potential.
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Portfolio News
❖ Applied Digital (APLD) surged in pre-market trading after delivering blowout fiscal Q1 2026 results on October 9, following market close. Revenues soared 84% year-over-year to $64.2 million, easily surpassing consensus estimates of roughly $45.5 million, led by $26.3 million in tenant fit-out services for its high-performance computing (HPC) hosting segment.
Despite the dramatic revenue gains, overall operating expenses rose markedly due to rapid business expansion, resulting in continued net losses. However, the company reported adjusted EPS of –$0.03, far ahead of analyst expectations of –$0.13, reflecting a 275% improvement in net loss compared to the prior year.
A standout achievement in the quarter was Applied Digital’s finalization of a new lease agreement with CoreWeave for an additional 150 megawatts at its Polaris Forge 1 campus, bringing the site to full 400 MW capacity and securing about $11 billion in total anticipated contracted lease revenue over ~15 years. The 400 MW “AI Factory” in Ellendale, North Dakota, is now on a fully financed completion trajectory after the initial $112.5 million draw from the $5 billion perpetual preferred equity facility with Macquarie Asset Management. This non-dilutive structure supports build-out and reduces future equity capital requirements across APLD’s platform.
The company also broke ground on its second North Dakota campus, Polaris Forge 2, with an initial 200 MW phase scheduled to come online in 2026 and campus design ultimately scalable to 1 GW. Meanwhile, its HPC and crypto hosting businesses advanced, with the first 100 MW HPC facility on track for Q4 2025 launch, and crypto data center revenues posting a 9% YoY increase.
Management reiterated confidence in continued revenue ramp driven by a multi-gigawatt active development pipeline and significant capacity under construction. The initial 100 MW CoreWeave lease revenue is expected to be fully recognized this quarter, and APLD’s long-term target remains $1 billion in annual net operating income within five years, based on growing demand and strong contract visibility.
APLD stock has posted more than 70% gains in the past month and 283% year-to-date, with analyst price targets rising on optimism about the company’s aggressive expansion in AI-focused data centers, multi-year contracted revenue streams, and rapid progress at Polaris Forge 2 – all supporting higher valuations and sustained momentum.
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❖ Itron (ITRI) announced the acquisition of Urbint, Inc., for $325 million, expanding its AI capabilities in utility infrastructure resilience. Urbint’s platform uses predictive AI to help utilities prevent failures and optimize operations amid aging infrastructure and extreme weather – a natural extension of Itron’s Grid Edge and Outcomes software segments. The deal, funded with cash on hand, is expected to close in Q4 2025 and is anticipated to be modestly accretive to earnings in FY2026. The acquisition strengthens Itron’s position in grid intelligence and resilience analytics, deepening its recurring software mix and aligning with increased federal investment in critical infrastructure modernization.
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❖ Micron’s (MU) has seen notable analyst action over the past week. Morgan Stanley upgraded the stock to “Buy” from “Hold,” raising its price target to $220 from $160 and citing expectations for multiple quarters of double-digit DRAM price increases driven by strong server and storage demand, as well as buyer anxiety about availability through 2026. Robert W. Baird reiterated a “Buy” rating and increased its price target to $235 from $200. Analysts highlighted MU’s robust quarter and outlook, supported by strong execution in high-bandwidth memory (HBM) sales fueling AI demand. Itau Unibanco initiated coverage with a “Buy” and a $249 price target, projecting multiple quarters of upward EPS revisions and significant upside potential from accelerating AI-related memory demand. UBS raised its price target to $225 from $195 and maintained a “Buy” rating, reflecting higher demand projections for HBM in 2025 and 2026, with Micron expected to benefit from the global AI-driven memory cycle.
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Under Review
❖ We are keeping Clear Secure (YOU) under review following its underperformance over the past three weeks.
The stock dropped by about 18% from its recent peak on September 22 despite several positive news items and announcements. YOU expanded CLEAR+ enrollment to travelers from 40 additional countries across Europe, Asia, and the Americas, enabling international visitors to expedite security screening at U.S. airports through the company’s network of over 150 lanes operating at 60 airports nationwide. Additionally, Clear announced an eGate pilot program designed to provide scalable security solutions ahead of the World Cup and America’s 250th-anniversary celebration.
Earlier, the company revealed a new identity verification solution developed in partnership with Docusign. This solution leverages Clear’s B2B secure identity platform, CLEAR1, and its biometric verification technology to make it easier and more secure for people to verify their identity directly within the Docusign agreement experience. The partnership aims to address the challenge of maintaining security amid the growing threat of identity fraud, driven by generative AI’s rising abilities.
Clear Secure’s broad push into finance, real estate, healthcare, and automotive verticals showcases its ability to leverage biometric identity solutions across diverse industries, unlocking new revenue opportunities. Together with extensive partnerships – recent examples include Fidelity National Financial, Nordic, Hackensack Meridian Health, and Snappt – these solutions strengthen its long-term potential. However, investors need to see at least some of it reflected in YOU’s bookings growth when it reports Q3 results on November 17.
The recent stock weakness may be driven in part by profit-taking after a ~55% rally from mid-July to mid-September, and was also likely exacerbated by worries about the government shutdown impacting Clear’s existing operations and delaying new contracts and regulatory approvals. If these concerns are quickly dispelled, this could lead to a relief rally – potentially even producing a short squeeze. YOU’s short interest is high at about 21% of its float – one of the highest in the software sector – reflecting entrenched negative investor sentiment.
While the company’s fundamentals remain intact and its expansion into various verticals is expected to continue driving growth, investors – along with some analysts like Wells Fargo – question its government-dependent business model at a time when the Trump administration continues to send conflicting signals regarding federal spending plans.
Wells Fargo recently maintained a “Sell” with a price target implying a ~20% downside, citing concerns about the company’s business challenges, competitive risks, and financial outlook. In contrast, D.A. Davidson initiated coverage with a “Buy” rating and a Street-high PT of $45, which signals an upside of nearly 44%, citing optimism about Clear Secure’s growth potential, expanding partnerships, and the increasing adoption of its biometric identity solutions.
With analyst opinion mixed and the stock firmly in oversold territory, we will be keeping YOU under a magnifying glass for a while.
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This Week’s Top Growth Pick: Rubrik (RBRK)
Rubrik, Inc. is a cybersecurity and data resilience company reshaping how enterprises protect, manage, and recover their information in an era defined by ever-rising cyber threats and escalating data complexity. Its cloud-native Rubrik Security Cloud platform unifies backup, recovery, threat detection, and data observability across hybrid and multi-cloud environments. The platform safeguards critical business operations by pairing zero-trust resilience with intelligence-driven automation, enabling rapid recovery from ransomware and other data-borne threats. Rubrik’s integration of AI and metadata insights helps organizations not only defend against attacks but also optimize compliance and operational continuity. Positioned at the crossroads of cybersecurity, cloud infrastructure, and AI innovation, Rubrik is becoming an essential layer of enterprise defense in an increasingly data-dependent world.
Source: Rubrik, Inc. Website
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Control–Alt–Rebuild
Founded in 2014, Rubrik began as a disruptor in enterprise backup and recovery, challenging legacy storage vendors with a cloud-first approach that emphasized simplicity, scalability, and security. In its early years, the company built a strong foothold in data protection for virtualized and on-prem environments. But the past five years have been far more transformative – as Rubrik evolved into a cybersecurity and data resilience platform at the center of enterprise cloud and AI adoption.
A major inflection point came in 2021 with the launch of Rubrik Security Cloud (RSC), a unified SaaS platform integrating backup, recovery, and data-threat analytics across hybrid and multi-cloud infrastructures. This move redefined Rubrik’s value proposition – shifting it from storage management to active data defense. Since then, the company has embedded AI-driven automation, sensitive-data monitoring, and anomaly detection directly into its architecture, enabling faster threat response and compliance management at scale.
Strategic collaborations with major cloud and technology providers have reinforced that transformation. Rubrik maintains deep integrations with Microsoft Azure, Amazon Web Services, and Google Cloud, while also partnering with cybersecurity leaders such as Palo Alto Networks and Zscaler to extend visibility and policy enforcement across enterprise systems. These alliances ensure Rubrik’s platform fits seamlessly within the broader zero-trust and multi-cloud ecosystem driving enterprise IT strategy.
Recent M&A has further expanded its technological scope. In 2025, RBRK completed the acquisition of Predibase, a move that accelerated its entry into agentic AI – enabling enterprises to build and control domain-specific AI models trained on their own secure data. The integration of Predibase has already produced new innovations such as Agent Rewind, a tool that allows organizations to undo actions taken by AI agents, reinforcing Rubrik’s positioning as both an AI and data-security pioneer.
Rubrik’s focus on automation, AI, and strategic partnerships has expanded its addressable market and positioned it as a key infrastructure layer in the next phase of enterprise data security growth.
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Restore to Power
Rubrik operates a subscription-driven SaaS model built around its cloud-native Rubrik Security Cloud (RSC) platform. Customers sign multi-year contracts for backup, recovery, and data-threat analytics, giving the company high renewal visibility and predictable recurring revenue. Over the past few quarters, Rubrik has completed its shift to a fully subscription model, with recurring contracts now representing more than 90% of total sales. Retention remains exceptional – a net retention rate above 120% underscores robust upsell momentum and durable customer expansion. Professional services play only a supporting role – designed to accelerate onboarding rather than drive scale.
The company’s strength lies in how it fuses data protection with cyber resilience. RSC layers AI and metadata intelligence to continuously analyze data patterns, detect encryption spikes or abnormal access, and isolate safe restore points – enabling teams to pinpoint where ransomware or data-tampering began and recover cleanly within minutes. This elevates Rubrik from a backup provider to a full recovery orchestrator – one capable of out-responding and out-recovering legacy peers.
The identity-focused rollout – including a new Okta identity data backup unveiled at Oktane 2025 – expands Rubrik’s reach into identity resilience, a key pillar of zero-trust security. The integration with Okta Identity Threat Protection lets enterprises restore compromised credentials or directories while correlating user-risk signals for faster, cleaner recovery when authentication layers are breached.
Source: Rubrik, Inc. Q2 Fiscal 2026 Investor Presentation
Rubrik’s cloud alliances with AWS, Microsoft Azure, Google Cloud, and Oracle Cloud ensure native deployment and scalability across hybrid environments, while its security collaborations with CrowdStrike, Palo Alto Networks, Zscaler, and Mandiant (owned by Google) link endpoint and identity intelligence with data recovery for faster post-attack restoration. While a meaningful portion of sales still flows through channel partners, Rubrik is steadily expanding direct enterprise relationships and co-selling with hyperscalers to reduce reseller dependency. No single customer accounted for more than 10% of its revenue – underscoring a diversified client base even as the partner model scales.
In 2025, Gartner again named Rubrik a Leader in its Magic Quadrant for Backup and Data Protection Platforms, citing its strength in cyber recovery, AI-driven anomaly detection, and integrated identity protection. The recognition reflects Rubrik’s broad execution and deep product innovation – and reinforces its competitive edge in a crowded market.
The backdrop is just as compelling. Rubrik’s total addressable market across data security, backup, and identity resilience stood near $36 billion in 2024 and is projected to exceed $50 billion by 2027 – one of the fastest-growing arenas in enterprise software. Even with modest market share today, its AI-driven recovery engine positions it to capture meaningful upside as enterprises modernize cyber-recovery architectures.
That innovation cycle is also helped by the One Big Beautiful Bill (OBBB) fiscal package, which restored immediate R&D expensing and extended bonus depreciation in the U.S. For a development-intensive company like Rubrik – where AI, automation, and threat analytics are constant work in progress – the measure frees up cash otherwise tied in deferred tax assets, adding incremental fuel to its already powerful innovation engine.
Source: Gartner, Inc.
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Margin Encryption
Rubrik continued its streak of outperformance in Q2 FY2026, extending a run of six consecutive quarters beating analyst estimates on both revenue and non-GAAP EPS. The company posted total revenue of $309.9 million, up 51% year-over-year, surpassing its own guidance and consensus forecasts. Subscription revenue – now 96% of the total – rose 55%, underscoring the strength of Rubrik’s transition to a fully recurring model. This was Rubrik’s fifth straight quarter of double-digit EPS growth, with earnings momentum visibly accelerating as the scale continues to improve.
Annual recurring revenue remains the company’s growth anchor. Subscription ARR climbed 36% year-over-year to $1.25 billion, while cloud ARR surged 57% to $1.06 billion. Customers generating over $100,000 in annual subscription revenue grew 27%, and their number now exceeds 2,500. Gross margins remained elite – 79.5% GAAP and 81.6% non-GAAP – reflecting high software mix and disciplined cost control.
Rubrik’s subscription ARR contribution margin improved by roughly 1,800 basis points year-over-year to 9%, signaling healthy operating leverage even as R&D spending rises to support AI-driven product initiatives. This means that the company’s subscription business is now profitable at the unit level (direct revenue minus direct costs), showing clear scalability.
Profitability trends continue to move in the right direction. Non-GAAP EPS improved to –$0.03, a sharp turnaround from –$0.40 a year ago and well above the Street’s –$0.34 forecast. Free cash flow reached $57 million in the quarter, a 19% margin, compared with a loss a year earlier. Operating cash flow turned positive, aided by stronger collections and deferred revenue growth. On a GAAP basis, RBRK remains loss-making but is steadily narrowing its deficit. Non-GAAP losses are now minimal, and the company is on pace to reach consistent non-GAAP profitability within two to three quarters if current trends hold.
The balance sheet remains healthy, with no material debt and cash and equivalents comfortably above $500 million, providing ample runway to sustain high R&D investment, absorb seasonality, and potentially fund targeted acquisitions without external financing pressure.
Management again raised full-year guidance after Q2’s performance. For FY2026, Rubrik expects subscription ARR of $1.408-1.416 billion (up 29-30% year-over-year), total revenue of $1.227-1.237 billion (up 38-40%), and free cash flow of $145-155 million. The company also guided for a non-GAAP subscription ARR contribution margin of ~7%. Q3 FY2026 revenue is forecast at $319-321 million (up 35-36% year-over-year), with non-GAAP EPS between –$0.18 and –$0.16, reflecting typical seasonality ahead of a stronger Q4. Analyst consensus sits at the lower end of that range, implying potential upside if current momentum holds.
With high gross margins, rapid ARR expansion, and visible operating leverage, Rubrik is clearly marching toward sustained non-GAAP profitability and, in time, GAAP breakeven. The combination of recurring revenue scale, improving cash generation, and margin discipline is already reshaping its financial profile – turning what was once a pure-growth story into one approaching durable operating strength.
Source: Rubrik, Inc. Q2 Fiscal 2026 Investor Presentation
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Cache Flow
Rubrik’s peer set spans a range of data resilience and cybersecurity firms, each at a different level of SaaS transition and growth stage. The closest comps include the more mature but slower-growing direct competitor Commvault; data-protection specialist Varonis, which has re-accelerated with its SaaS and AI transition; the slower, steady vulnerability and exposure management firm Tenable; and the larger but still fast-growing SaaS cloud security platform Zscaler.
Rubrik’s much faster recurring-revenue growth has driven its outperformance versus both the broad indexes and its peers over the past year, with shares gaining over 130%. Despite that, analysts believe it has further room to run, with the average price target implying an upside of more than 35% from current levels. The “Strong Buy”-rated stock recently received a target upgrade from Robert W. Baird, which cited Rubrik’s strong market position, impressive ARR expansion, and significant increases in RPO signaling a solid pipeline and reliable future revenue stream. Earlier, CIBC gave Rubrik a Street-high target of $130 – an implied upside of over 50% – reflecting confidence in Rubrik’s growth trajectory and expanding market opportunity.
Since Rubrik is still scaling margins and yet to achieve profitability, standard valuation ratios such as P/E are not yet meaningful. However, comparisons in terms of growth and recurring revenue are instructive. In the subscription realm, Rubrik far outpaces peers with its 36% year-over-year subscription ARR growth, far surpassing Zscaler’s 22% and Commvault’s 21%. Needless to say, RBRK’s total revenue growth – both trailing and expected – exceeds that of all listed peers by a wide margin.
It’s no surprise that a company like Rubrik – still in hypergrowth mode with surging recurring sales – looks expensive compared to the Technology sector median. Yet when compared to higher-growth comps such as Zscaler, RBRK’s trailing and forward EV/Sales multiples appear moderate, likely reflecting its smaller scale and higher perceived risk rather than any real overvaluation. Given this setup, Rubrik offers a compelling risk/reward tradeoff in the rapidly expanding data security and resilience market – suggesting current valuations reflect growth in progress.
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To Sum It All Up
Rubrik offers a growth investment case built on resilience, intelligence, and timing. The company sits at the intersection of cybersecurity and cloud infrastructure – protecting data and identities as AI and automation reshape enterprise risk. Its platform converts backup and recovery into a recurring SaaS model, embedding analytics, AI, and policy control directly into data operations. Execution has been steady, with rapid enterprise adoption, improving efficiency, and rising visibility through multi-year contracts. Yet the stock remains priced more like an early-stage software name than a leader in one of the fastest-growing security categories. That dislocation creates a GARP-style setup – investors can capture durable, compounding growth in a market still underestimating Rubrik’s role in securing the data layer of modern digital infrastructure.
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Smart Growth Portfolio
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Disclaimer
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