Issue #91

Analyzing the "Buy" ratings and profitability milestones of Grid Dynamics and Telos.

The digital transformation of the Fortune 500 and the defense of national infrastructure aren't happening through flashy consumer apps—they are being built in the secure trenches of high-end engineering and identity verification. As the global economy shifts from "testing" AI and cybersecurity to fully integrating them into the bedrock of society, two critical layers have emerged as the most vital: the elite architects who build the systems and the gatekeepers who ensure only the right people can access them.

This is where the conversation shifts from speculative hype to mission-critical infrastructure—and where the most resilient, high-conviction winners are taking territory.

👉 One company has become the go-to "brain trust" for the world's largest brands, turning complex AI dreams into scalable, revenue-generating reality.

👉 The other is the invisible shield protecting the U.S. government and the TSA, serving as the definitive identity layer for our most sensitive networks.

👉 Both have hit major profitability milestones, are capturing record contract wins, and are currently viewed by Wall Street as significantly undervalued.

In this edition, we break down the engineering powerhouse and the security titan powering the next phase of the digital economy—and why these two stocks are the "picks and shovels" for an increasingly complex world.

Grid Dynamics (NASDAQ: GDYN)

Grid Dynamics (NASDAQ: GDYN) has rapidly transitioned from a traditional digital engineering firm to a premier AI transformation partner for the Fortune 1000. Headquartered in Silicon Valley, the company specializes in high-end cloud, data, and AI consulting, helping some of the world’s largest brands—including Google and Apple—navigate the complexities of modernizing their digital infrastructure.

Business Model and Revenue Streams 📦

Grid Dynamics operates an engineering-services model centered on high-value, complex technical transformation rather than high-volume, low-cost maintenance. Its revenue is primarily generated through time-and-materials contracts for professional services. The company's business is segmented across several high-growth verticals:

• Retail & E-commerce: Historically its largest segment (contributing ~28% of revenue), where it builds AI-powered search and personalization engines.
• Technology, Media, and Telecommunications (TMT): A rapidly expanding segment (~27% of revenue) driven by deep partnerships with major hyperscale cloud providers.
• Finance and Healthcare: Emerging verticals where the company is applying "Agentic AI" to automate complex workflows and risk management.

Macroeconomic Sensitivity:

The business is heavily influenced by corporate IT budgets and the shift from discretionary spending to ROI-driven AI investment. While high interest rates in 2024–2025 initially caused some clients to hesitate on long-term projects, the current 2026 landscape shows a "flight to quality." As central banks moderate rates, enterprises are re-engaging with high-end consultants like Grid Dynamics to gain a competitive edge in AI-native architecture. However, its concentration in the Fortune 1000 means it is sensitive to the capital allocation shifts of a small group of "mega-cap" clients.

Recent Performance and Corporate Developments 📈

Grid Dynamics enters early 2026 with significant momentum, specifically in its AI-related offerings, which now account for over 25% of organic revenue.

Financial Highlights (Q3/Q4 2025 Performance): 💰

• Record Revenue: The company achieved record quarterly revenues of $104.2 million in late 2025, marking a 19.1% year-over-year increase.
• AI Surge: AI services grew 10% sequentially, signaling that the "AI hype" is finally translating into tangible, billable engineering hours.
• Operational Efficiency: Despite the broader tech sector's volatility, Grid Dynamics increased its billable engineering headcount while maintaining a lean non-billable structure, improving its average revenue per person by 4%.

Strategic Initiatives and Mergers: 🤝

In February 2026, Grid Dynamics announced it achieved Preferred Vendor status with a major global hyperscale cloud provider following a multi-year consolidation process. This designation is a significant "moat" as it positions GDYN as one of the few elite partners allowed to co-sell and develop AI solutions with the world's largest cloud platforms. Additionally, the company recently launched the Nvidia Solutions Center, a strategic hub designed to accelerate the deployment of generative AI across its client base. There have been no major mergers in early 2026, as the company remains focused on organic growth and its $50 million share repurchase program.

Profitability and Fair Value 🎯

Grid Dynamics is currently in a "scale-up" phase where it is balancing GAAP profitability with aggressive reinvestment into AI R&D. While its operating margins have been tight (around breakeven on a GAAP basis), its Non-GAAP EBITDA remains healthy, reaching approximately $12.7 million in the most recent quarter (a 12.2% margin).

The company's fair value is a point of debate among investors. With a strong cash position of over $338 million and no debt, it has a "fortress balance sheet." Some valuation models suggest an intrinsic value closer to $12.50, implying the stock is currently undervalued relative to its 29% five-year compounded growth rate. However, the market currently applies a premium P/E multiple because of its elite position in the AI services niche.

Analyst Estimates and Ratings 📊

Grid Dynamics has recently become a favorite among Wall Street analysts, receiving a wave of positive sentiment in the last 30 days.

• Consensus Rating: The stock currently holds a "Strong Buy" consensus. Out of the analysts actively covering the stock in early 2026, nearly 70% maintain a Strong Buy rating, with the remainder at a Buy.
• Price Target: The average 12-month price target sits at $11.00, representing a potential upside of over 60% from recent price levels near $6.80. Some aggressive targets from firms like JPMorgan and Needham range as high as $15.00 to $17.00.

Investor-Focused Takeaway: Is GDYN Right for Your Portfolio?

Grid Dynamics is a high-beta play on the "picks and shovels" of the AI revolution. Unlike hardware companies that sell chips, GDYN sells the brainpower required to make those chips work for a business. It is a "pure play" on AI engineering without the overhead of massive manufacturing facilities.

What to Watch in the Near Term: 📈

1. Hyperscaler Revenue: Watch for the first revenue contributions from their new Preferred Vendor status; this could be the catalyst for a major earnings beat in 2026.
2. Client Concentration: Monitor the revenue share of their Top 5 customers (currently ~40%). Any diversification away from this reliance will de-risk the stock.
3. Margin Expansion: As the company finishes its heavy "AI infrastructure" investment phase, investors should look for Non-GAAP EBITDA margins to climb toward the 15% range.

Recommendation:

Grid Dynamics is a compelling choice for investors who believe that AI implementation is the next great secular trend. With a strong endorsement from analysts and a healthy cash reserve, it is well-positioned to outperform as enterprises move from AI experimentation to full-scale production.

Telos Corporation (NASDAQ: TLS)

Telos Corporation (NASDAQ: TLS) is a veteran in the cybersecurity and identity management space, providing high-end defense solutions to the world’s most security-conscious organizations. From the U.S. Department of Defense to the TSA, Telos specializes in ensuring that complex, large-scale networks remain compliant and secure against sophisticated global threats.

Business Model and Revenue Streams 📦

Telos operates a diversified security business focused on mission-critical government and enterprise environments. The company has strategically shifted its focus toward higher-growth, recurring revenue segments, moving away from legacy low-margin network installations. Its revenue is primarily categorized into two segments:

• Security Solutions: This is the company’s primary growth engine (~90% of total revenue). It includes Telos ID (biometrics and identity verification services like TSA PreCheck), Xacta (a leading cyber-compliance platform), and newer AI-driven GRC (Governance, Risk, and Compliance) tools.
• Secure Networks: This segment provides secure mobility and network defense for military and civilian agencies. While this segment has seen a contraction as legacy programs ramp down, it remains a stable baseline for government relationship management.

Macroeconomic Sensitivity:

Telos is uniquely positioned to weather general economic downturns because its primary clients are government agencies with non-discretionary security mandates. However, it is highly sensitive to federal budget cycles and legislative delays. In the current 2026 environment, increased global geopolitical tension has acted as a tailwind, as governments prioritize "Zero Trust" architectures and biometric border security.

Recent Performance and Corporate Developments 📈

The end of 2025 and the beginning of 2026 have been a period of significant operational turnaround for Telos, marked by massive program wins and a return to topline growth.

Q3/Q4 2025 Financial Highlights: 💰

• Revenue Growth: In Q3 2025, Telos reported revenue of $51.4 million, a staggering 116% increase year-over-year, far exceeding analyst expectations.
• Earnings Surprise: The company posted an adjusted EPS of $0.09, shattering the consensus estimate of a $0.03 loss. This 400% beat was driven by the rapid expansion of TSA PreCheck enrollment sites.
• Gross Margins: Cash gross margins reached a healthy 44.8%, reflecting a more profitable product mix as high-margin software and identity services became a larger portion of the pie.

Strategic Initiatives and Mergers: 🤝

Telos has stayed active on the contract front rather than through traditional M&A. In December 2025, the company was selected for the Missile Defense Agency SHIELD IDIQ contract, a massive vehicle with a total ceiling of $151 billion, positioning Telos for significant task orders over the coming years. Most recently, in January 2026, Telos renewed a $5.4 million Cyber GRC engagement with a Fortune 100 technology giant, proving its ability to retain high-value commercial clients alongside its government base.

Profitability and Fair Value 🎯

After several years of restructuring, Telos has finally hit the "profitability inflection point." The company moved from a cash-burn position in 2024 to generating $9.1 million in operating cash flow by late 2025.

Regarding fair value, Telos currently presents a "deep value" opportunity. As of February 2026, the stock trades at a Price-to-Sales (P/S) ratio of roughly 2.1x, which is significantly lower than the software industry average of 3.5x. Analysts suggest the market has not yet fully "priced in" the long-term cash flow from the TSA PreCheck expansion. Some estimates place the intrinsic fair value near $8.80, suggesting the stock is trading at a nearly 50% discount to its long-term potential.

Analyst Estimates and Ratings 📊

The sentiment surrounding Telos has turned decidedly bullish in the last 30 days as the company continues to beat earnings targets.

• Consensus Rating: The consensus among analysts is a "Buy". While some firms remain cautious with a "Hold" due to previous volatility, the "Strong Buy" ratings have increased following the recent Q3/Q4 earnings beats.
• Price Target: The 12-month average price target has moved up to $7.75, with some analysts projecting a high of $10.00. This suggests a massive potential upside from the current trading range of approximately $4.10.

Investor-Focused Takeaway: Is TLS Right for Your Portfolio?

Telos is a "turnaround story" that has finally begun to deliver results. It offers a rare combination of government-contract stability and the high-growth potential of the consumer identity market (TSA PreCheck).

What to Watch in the Near Term: 📈

1. TSA Enrollment Volume: Success is currently tied to how many people sign up for PreCheck. Watch for monthly enrollment numbers as a leading indicator of revenue.
2. Backlog Conversion: With the SHIELD IDIQ win, the focus is now on how quickly Telos can convert that "potential" ceiling into actual "funded" task orders.
3. Commercial Expansion: Continued renewals with Fortune 100 companies will prove that Telos is more than just a "government shop," potentially leading to a higher valuation multiple.

Recommendation:

Telos (TLS) is a high-reward play for investors seeking exposure to cybersecurity and identity infrastructure. While the stock has faced headwinds in the past, its recent return to profitability and massive contract pipeline make it a standout candidate for a growth-oriented portfolio.

Final Take: The Engineering Architects and the Identity Gatekeepers

The next phase of the digital economy isn't about general experimentation—it’s about secure execution at scale. That requires two things: elite engineering to build the AI systems and unshakeable identity verification to protect them.

That’s where Grid Dynamics (GDYN) and Telos (TLS) stand apart.

🤖 Grid Dynamics (GDYN) — The Architects of Enterprise AI

• ✔ Preferred Partner Status: Elite "Preferred Vendor" standing with global cloud hyperscalers.
• ✔ Fortune 1000 DNA: Deeply embedded in the technical roadmaps of the world’s largest brands.
• ✔ Massive Upside Potential: Trading at a significant discount to analyst price targets despite record revenues.
• ➤ Best for: Investors looking for a high-conviction, debt-free AI services play that turns corporate "AI hype" into billable, high-margin engineering reality.

🛡️ Telos (TLS) — The Identity Layer of National Security

• ✔ Mission-Critical Moat: Protecting the U.S. DoD and expanding the TSA PreCheck ecosystem.
• ✔ Profitability Inflection: Successfully pivoted from a legacy model to a high-margin, cash-flow-positive SaaS and identity business.
• ✔ Explosive Earnings Momentum: Recent 116% year-over-year revenue growth and massive EPS beats.
• ➤ Best for: Value-oriented investors seeking a cybersecurity turnaround story with "sticky" government contracts and clear catalysts for a valuation rerating.

Investor Insight

🧩 Want the elite brainpower building the next generation of AI-native enterprises? → GDYN

⚙️ Want the secure identity infrastructure that protects the world’s most sensitive networks? → TLS

Bottom Line:

Global infrastructure doesn't scale on promises—it scales on engineering precision and verified trust.

Grid Dynamics provides the talent that builds the future, while Telos provides the security that allows that future to function safely. As enterprise and government spending shifts toward mission-critical digital defense, GDYN and TLS aren't just IT stocks—they are the foundation.

​
Happy Trading
​— Team Premium Stock Alerts