While Everyone’s Swinging for the Fences, I’ll Continue to Hit Singles
Wolf Street put out a good article late this week around market concentration. Nine stocks, all of them technology names, now have a combined market value of nearly $27 billion, and represent approximately 40% of total market capitalization. Eras with this sort of market concentration are extremely rare and historically have not ended well for investors over the longer term.
Technology is one of few bright spots in a bifurcated, and, in my opinion, overbought market. The sector drove an 8% rise in the Nasdaq in May despite no resolution to the situation in the Middle East. The State Street Technology Select Sector SPDR ETF ($XLK) was up nearly 20% during the month driven by big earnings beats by the likes of Intel ($INTC), Dell Technologies ($DELL) and other AI-related names.
I have some covered call holdings in select technology names, including Marvell Technology ($MRVL), Qualcomm ($QCOM), Salesforce ($CRM) and Bandwidth Inc. ($BAND). However, I have no feelings of FOMO even as I have left plenty of cash on the table. I am just trying to grind out gains within a market where Intel trades at north of 100 times forward earnings.
In today’s trade idea, I will highlight an off-the-radar technology name I recently executed covered call orders against as I look to continue to consistently hit singles and the occasional double in a home run era.
Alkami Technology ($ALKT) was caught up in the “SaaSPocalypse” but the stock has been putting in a bottom over the past three months. Alkami operates a digital sales and service platform for financial institutions. It provides some three-dozen cloud-based software-as-a-service (SaaS) offerings that allow banks to onboard depositors, manage their accounts, handle payments and receivables, receive data insights and analytics — among many other functionalities — across retail, business, and commercial banking, all in the name of modernizing their operations.
Alkami’s customer base consists of the top 2,000-plus financial intermediaries (banks and credit unions) by asset size outside the major banks, such as JPMorgan Chase & Co. ($JPM), that have their own integrated systems. Of Alkami’s revenues 95% come from subscription services. The company provides these via under multi-year contracts with an average life of nearly six years.
Of note, there was nothing in the company’s first-quarter results in late April to suggest weakening or any threat from AI. Recurring revenues rose 22% on a year-over-year basis on a 12% rise in registered users. Management boosted full-year EBITDA and sales guidance following this report. Alkami’s Remaining Performance Obligations, or RPO, stand at more than three times 2026’s projected revenues as well.
Alkami’s balance sheet is in decent shape, and management recently authorized a $100 million stock buyback, which would retire 5% of the outstanding float at current prices. The company is projected to make $0.81 cents per share in 2026, $1.14 a share in 2027 and $1.49 a share in 2028 on revenue growth in the mid-to-high teens annually.
With the shares trading at roughly $18, that estimated growth is more than reasonably valued. I can make the shares cheaper by employing the following covered call strategy.
Option Strategy
Here is how one can establish a position in ALKT using a covered call strategy. As a reminder, covered-call orders involve buying an equity and simultaneously selling just out of the money call strikes against the new position.
Selecting the December $17.50 call strikes, fashion a covered call order with a net debit in the $14.50 to $15.00 a share range (net stock price – option premium).
This strategy delivers downside protection of just over 18% across the trade expiration with similar upside potential even if the stock trades down 4% over the option duration.
At the time of publication, Jensen was long ALKT, BAND, CRM, MRVL and QCOM.
