As Markets Ignore Reality, Akamai’s Selloff Creates an Opportunity

If I had gone on CNBC in late February and projected that the Strait of Hormuz would still be closed to most maritime traffic in late April, and stocks would have rallied to all-time highs anyway, a lot of viewers would have looked at me as if I had three heads. Yet here we are.

Intel (INTC) and Texas Instruments (TXN) showed again, with their quarterly results this week, how the huge surge in tech spending driven by the AI revolution is translating massive growth in profits and revenue for those supplying the picks and shovels for this huge AI infrastructure buildout.

However, outside of AI-related names and those companies building bombs, bullets, missiles and other munitions and defense goods, there isn’t a whole lot of earnings growth clarity right now. If the situation in the Middle East doesn’t get resolved favorably soon, the best-case scenario ahead is a bout of stagflation. Nevertheless, one has to have at least some chips in the center of the table should markets continue to defy reality.

Utilizing covered call orders can at least provide some decent downside protection. I continue to target stocks I wouldn't mind owning at lower entry points using this simple option strategy as there are few stocks I want to own outright at these levels.

Akamai Technologies (AKAM) is not delivering the impressive growth rates of an Intel or Advanced Micro Devices (AMD) , but the stock doesn’t trade at 50 times earnings either. Nor is Akamai in the vanguard of the AI revolution like Oracle (ORCL) . However, it also isn’t executing tens of billions of debt issuance or willing to endure years of negative free cash flow in a massive AI infrastructure buildout.

Akamai was born during the last true technology paradigm shift, the birth of the internet, as a content delivery network. Its three current business segments are Security, Delivery, and Cloud Computing. Now, like most network, SaaS and related technology concerns, there are some fears that AI could eventually allow clients to bypass some of Akamai’s offerings.

This has triggered an approximate 20% decline in the stock this month. But the company’s transformation into cloud security and edge AI inference should continue to more than offset slow revenue declines from its content delivery network.

I first initiated a covered call strategy on Akamai in March of last year and have rolled the options on that position. That holding is expiring in the money soon, though, so I have initiated a new position even as the shares are up in the mid-teens since my initial stake.

Akamai, with an approximate $14 billion market cap, has a solid balance sheet and repurchased $800 million worth of stock in 2025. Price targets this month from Evercore ISI, Oppenheimer and Morgan Stanley were in the $120 to $130 a share range. The stock currently trades around $95.

More importantly, AKAM’s valuation is reasonable and I can get either a solid return or a significantly lower entry point via the covered call trade highlighted below. Currently, profits are projected to fall slightly this year but grow in the low teens annually in the years ahead on mid-to-high single-digit sales growth. The stock trades at just under 14 times forward earnings and does not pay a dividend.

Option Strategy

Here is how one can initiate a position in AKAM utilizing 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 $90 call strikes, fashion a covered call order with a net debit in the $77.00 to $78.00 a share range (net stock price - option premium). Liquidity is average with the options against this equity.

The midpoint of this range provides downside protection of over 18%. This strategy also provides upside return potential of 16%, even if the stock trades down 5% over its option duration.

For investors that want to be slightly more aggressive, utilize the December $95 call strikes.

At the time of publication, Jensen was long AKAM.