Issue #172

Software: 2 Picks Under $10

The software sector is undergoing a massive structural shift. While mega-cap tech giants capture the headlines with trillion-dollar valuations, the real opportunity for capital appreciation is often found in the overlooked, highly specialized platforms trading at a fraction of those multiples. Specifically, the sub-$10 software space is quietly producing resilient, deeply integrated businesses that are essential to how enterprise data is stored and how mobile applications are distributed.

As organizations optimize their budgets and demand greater efficiency, the market is shifting away from speculative valuations toward proven utility. It is no longer about who has the flashiest presentation, but who owns the plumbing.

👉 One company is a specialized cloud storage and data protection platform, acting as a highly efficient systems software layer for the data-heavy AI era.

👉 The other is an independent application software provider that bypasses traditional app stores to connect mobile operators, OEMs, and developers directly.

👉 Both trade under $10, are deeply embedded in their respective ecosystems, and offer asymmetric upside as digital infrastructure demands scale.

In this edition, we break down how Backblaze, Inc. (BLZE) is capturing market share in secure cloud storage, and how Digital Turbine, Inc. (APPS) is reshaping mobile app distribution—and why these two under-$10 software players are positioned for significant long-term expansion.

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Backblaze, Inc. (NASDAQ: BLZE) is a specialized cloud storage and data protection platform that is rapidly transitioning from a legacy computer backup provider into a critical infrastructure player for the artificial intelligence era. Operating within the Systems Software sub-industry of the Information Technology sector, the company has built its reputation on offering simple, reliable, and highly cost-effective storage solutions. Historically known for helping individuals and mid-market enterprises back up their physical servers and personal computers, Backblaze has strategically pivoted to address the explosive demand for cloud-based object storage. By providing an open, high-performance alternative to the restrictive and expensive storage ecosystems of legacy hyperscalers, the company is positioning itself as a foundational "neocloud" data-lake layer where developers and AI companies can store massive datasets without the financial friction typically associated with data retrieval and transfer.

Business Model and Revenue Streams 📦

To understand the investment thesis for Backblaze, one must first unpack its dual-pronged business model and how it generates recurring revenue. The company operates two primary service lines: Computer Backup and B2 Cloud Storage. The Computer Backup segment is the company's legacy cash cow, providing unlimited cloud backup for personal computers and business servers through a simple, subscription-based pricing model. While this segment continues to generate stable, highly predictable cash flows, the real growth engine is B2 Cloud Storage. B2 is an Infrastructure-as-a-Service (IaaS) offering that provides developer-focused, developer-friendly object storage. Unlike traditional backup, B2 allows customers to store, retrieve, and serve data on demand, making it an ideal repository for media archives, application data, backups, and, increasingly, massive datasets used for machine learning and artificial intelligence model training.

The core competitive advantage of the B2 Cloud Storage model lies in its pricing structure, specifically its approach to egress fees. In the cloud storage industry, legacy giants like Amazon Web Services (S3), Microsoft Azure, and Google Cloud Platform charge customers significant fees to retrieve or transfer their data out of their respective ecosystems—a practice known as charging "egress fees." Backblaze has pioneered an egress-free or low-egress pricing model, often partnering with content delivery networks (CDNs) and compute providers to eliminate these transfer costs entirely. This makes Backblaze exceptionally attractive to modern enterprise customers who need to frequently move and analyze large volumes of data. Revenue is generated primarily through recurring subscriptions and usage-based pricing models, where customers pay a monthly rate based on the exact number of gigabytes stored and downloaded. This creates a highly scalable financial model: as customers accumulate more data over time, their monthly spend naturally expands, driving strong net revenue retention.

Macroeconomic policies and broader economic shifts exert a dual influence on Backblaze's operations. On one hand, persistent inflation and elevated interest rates have forced enterprise IT departments to optimize their cloud budgets. During periods of economic tightening, corporations aggressively look for ways to trim their operational expenses, and cloud storage is often one of the largest line items on an IT balance sheet. Because Backblaze offers object storage at a fraction of the cost of the major hyperscalers—often saving companies up to 70% on their storage bills—the current macroeconomic environment of cost-consciousness acts as a powerful customer acquisition tool. On the other hand, high interest rates can lengthen corporate sales cycles and delay large-scale IT migrations, as enterprises exercise caution before committing to new infrastructure transitions.

Furthermore, the global regulatory environment surrounding data privacy and sovereignty is shifting. Governments worldwide are implementing stricter mandates regarding where data must be physically stored and how it must be protected. Backblaze addresses this by expanding its geographic data center footprint, allowing customers to comply with localized regulations. However, the most significant macro driver currently impacting the company is the unprecedented explosion of generative artificial intelligence. AI models require astronomical amounts of data for training, and storing these multi-exabyte datasets is becoming cost-prohibitive on traditional clouds. This structural shift in technology demand is transforming Backblaze from a utility-like backup service into an essential infrastructure partner for the AI boom, as companies seek alternative "neocloud" solutions to house their massive data lakes.

Recent Performance and Corporate Developments 📈

Backblaze's recent financial performance and corporate milestones highlight a business at a pivotal inflection point, characterized by accelerating enterprise adoption and major commercial victories.

Q1 2026 Financial Highlights: 💰

• Revenue: $38,666,000 for the latest reported quarter ended 2026-03-31, representing a solid Year-over-Year growth rate of 11.71%.
• Net Loss: $6,147,000 for the quarter ended 2026-03-31, as the company continues to invest heavily in scaling its infrastructure and expanding its enterprise sales force.
• EPS: -$0.10 per share for the quarter ended 2026-03-31, reflecting ongoing growth-oriented capital expenditures.
• Segment Growth: B2 Cloud Storage Annual Recurring Revenue (ARR) grew by 28% Year-over-Year, continuing to outpace the legacy backup business and increasing its overall share of the corporate revenue mix.

Strategic Initiatives and Mergers: 🤝

While Backblaze has reported no recent mergers or acquisitions, its corporate development pipeline has been electrified by a massive, game-changing commercial agreement that has completely redefined the company's growth trajectory. On June 23, 2026, Backblaze announced a monumental five-year, $335 million multi-exabyte data storage agreement with CoreWeave, Inc. (NASDAQ: CRWV), widely recognized as "The Essential Cloud for AI." Under this landmark partnership, CoreWeave will utilize Backblaze's B2 Cloud Storage platform to power its high-performance AI workloads. This agreement is a transformative milestone for Backblaze, serving as a powerful validation of its technology stack and its ability to handle data at an absolute elite, exabyte-scale level. The deal immediately caught the attention of the broader market, sending Backblaze shares surging by 30% on the day of the announcement, followed by an additional 43.6% gain in the subsequent trading session on exceptionally high volume.

This partnership highlights a material shift in market dynamics: AI-focused companies are actively bypassing traditional hyperscalers in favor of specialized, high-performance, and cost-efficient storage partners. To support this rapid commercial scaling, Backblaze has also made key leadership moves, including the appointment of Anuj Kumar as Chief Revenue Officer (CRO) in late May 2026. To secure his talent, the company granted an equity inducement award under Nasdaq Listing Rule 5635(c)(4), signaling a highly aggressive push to expand its enterprise sales pipeline and capitalize on the massive inbound interest generated by the CoreWeave deal. This corporate momentum has even begun penetrating mainstream financial media, with commentators like Jim Cramer dedicating segments to dissecting this small-cap cloud storage player, noting that Wall Street is rapidly waking up to a company it once overlooked.

Profitability and Fair Value 🎯

Analyzing Backblaze's path to profitability requires a balanced look at its current financial state and its long-term operating model. In the latest reported quarter ended 2026-03-31, the company recorded a net loss of $6,147,000. This net loss is primarily a function of upfront investments required to build out data center capacity, purchase storage hardware, and expand the enterprise sales team to win large-scale contracts. However, the underlying business model possesses immense operating leverage. Once the physical storage infrastructure is established and connected to the network, the incremental cost of hosting additional petabytes of customer data is remarkably low. As the company scales its revenue—particularly through massive, multi-year commitments like the $335 million CoreWeave contract—fixed costs will be distributed across a much larger revenue base, paving a clear path toward sustained GAAP profitability and free cash flow generation.

From a valuation standpoint, Backblaze currently trades at a share price of approximately $7.67, representing a market capitalization of roughly $460 million. Because the company is currently unprofitable on a net income basis, its trailing twelve months P/E ratio is negative at -20.27. In alignment with strict valuation discipline, we omit the PEG ratio, as a positive PEG cannot be logically paired with negative trailing earnings. Looking at sales-based metrics, the company's valuation presents an interesting contrast: its profile P/S (TTM) stands at 3.07, while its FMP valuation lists a trailing twelve months P/S of 5.67. This discrepancy reflects the rapid and dramatic price action following the CoreWeave announcement, as the market aggressively repriced the stock to account for its suddenly accelerated growth profile. The company's EV/EBITDA (TTM) is elevated at 141.02, indicating that while Backblaze is generating positive adjusted EBITDA, it is still in the very early stages of translating its top-line growth into substantial bottom-line profits.

Despite the recent surge in the share price, a strong argument can be made that Backblaze remains highly attractive and potentially undervalued relative to its long-term growth prospects. A $460 million market capitalization seems remarkably modest when contrasted against a single, contracted five-year agreement worth $335 million. This contract alone represents an average of $67 million in annual revenue, which, when layered on top of the company's current annualized revenue run rate of approximately $155 million (extrapolated from the Q1 2026 revenue of $38.67 million), represents an immediate and massive expansion of the company's financial footprint. When compared to legacy systems software peers and high-flying AI infrastructure providers trading at double-digit price-to-sales multiples, Backblaze's valuation multiples appear highly reasonable, especially considering that the market is only beginning to price in its transition to a core AI data-lake provider.

Analyst Estimates and Ratings 📊

Wall Street's sentiment toward Backblaze has turned overwhelmingly positive, reflecting a growing consensus that the company is a prime beneficiary of the ongoing AI infrastructure build-out.

Consensus Rating: Buy

Price Target: While a specific numerical average price target is not explicitly detailed in the current research packet, the consensus among the six covering brokerage firms is highly bullish, consisting of 6 Buy ratings, 0 Strong Buy ratings, 0 Hold ratings, and only 1 Sell rating.

This newsletter specifically screens for stocks exhibiting strong, recent buy-side action and institutional accumulation, and Backblaze fits this profile perfectly. Over the last 90 days, the company has secured one major analyst upgrade, and the latest street action remains a firm "Buy." Wall Street analysts are increasingly recognizing that the legacy perception of Backblaze as a simple consumer backup company is entirely outdated. The massive volume spike accompanying the recent price action—with average daily trading volume sitting at a robust 1,255,129 shares—underscores that institutional investors are actively building positions. The upcoming Q2 2026 earnings release, scheduled in approximately 47 days, is widely anticipated by the analyst community as a key catalyst that could trigger further upward revisions in earnings estimates and price targets as the financial impact of the CoreWeave deal begins to be formally modeled.

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

What to Watch in the Near Term: 📈

• CoreWeave Contract Execution: Monitor how quickly the multi-exabyte storage agreement begins to scale and translate into recognized quarterly revenue in the coming quarters.
• Q2 2026 Earnings Release: Watch for signs of operating leverage and margin expansion in the upcoming earnings report, which will serve as a critical sustained profitability signal.
• B2 Cloud Storage ARR Growth: Ensure that the developer-focused B2 segment maintains its high-double-digit growth trajectory to successfully offset any mature deceleration in the legacy personal backup business.
• Hyperscaler Competitive Response: Keep an eye on potential pricing adjustments or competitive maneuvers from dominant cloud giants like Amazon S3 or Google Cloud as specialized neoclouds gain market share.

Recommendation:

Backblaze, Inc. (NASDAQ: BLZE) presents a compelling, high-potential opportunity for growth-oriented investors looking to gain exposure to the artificial intelligence boom without paying the astronomical valuations associated with semiconductor manufacturers or primary AI software developers. The company's successful transformation from a legacy backup provider into a vital AI data-lake infrastructure partner is heavily validated by its massive $335 million contract with CoreWeave. This single deal provides a highly predictable revenue backlog that dramatically de-risks the investment thesis. However, investors must maintain a balanced perspective: Backblaze remains a small-cap company with a market capitalization of $460 million, and it is still working toward GAAP net profitability, as evidenced by its Q1 2026 net loss of $6.15 million. Consequently, the stock is subject to heightened volatility and execution risks. For investors with a medium-to-high risk tolerance and a long-term investment horizon, BLZE represents an exceptionally well-positioned "picks and shovels" play on the AI revolution, offering a unique combination of recurring SaaS revenue, explosive demand tailwinds, and a highly reasonable valuation.

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Digital Turbine, Inc. (NASDAQ: APPS) operates at the critical intersection of mobile technology, application distribution, and digital advertising. As an independent platform, the company provides a vital link between mobile network operators, original equipment manufacturers (OEMs), and application developers who are constantly searching for efficient ways to acquire and retain users. By bypassing traditional app store friction and offering on-device software solutions, Digital Turbine has carved out a unique niche in the highly competitive global application software market. With a market capitalization of approximately $1.1 billion and a share price trading around $8.78, the company has recently captured the attention of momentum investors and analysts alike, signaling a potential operational turnaround after a challenging period of market adjustment.

Business Model and Revenue Streams 📦

Digital Turbine’s core business model revolves around its proprietary on-device technology, which is pre-installed on mobile devices through strategic partnerships with major telecommunications carriers and hardware manufacturers. The company’s flagship offering, SingleTap, is a revolutionary technology that allows mobile users to install applications with a single click directly from an interactive advertisement, completely bypassing the traditional multi-step download process of standard app stores. This frictionless experience significantly increases conversion rates for advertisers and app developers, making Digital Turbine an attractive alternative to the duopoly of Apple's App Store and Google's Play Store.

The company generates revenue through two primary segments: On-Device Media and the App Growth Platform. The On-Device Media segment monetization occurs primarily through pre-installations (where developers pay to have their apps loaded onto new phones during the initial setup process) and notifications or wizard-based recommendations. The App Growth Platform segment operates as an end-to-end programmatic advertising ecosystem. This includes demand-side platforms (DSPs), supply-side platforms (SSPs), and ad mediation services that help developers monetize their existing user bases through targeted in-app advertising. By controlling both the initial on-device real estate and the subsequent advertising lifecycle, Digital Turbine creates a continuous feedback loop of user data and monetization opportunities.

Macroeconomic policies and broader industry trends exert a powerful influence on Digital Turbine's operational trajectory. In times of high interest rates and monetary tightening, corporate advertising budgets are often the first to be trimmed, which directly impacts the programmatic ad-tech space. Furthermore, inflation pressures consumer spending, leading app developers to scale back their user acquisition budgets. However, the regulatory environment is shifting rapidly in a direction that favors Digital Turbine's long-term thesis. Antitrust scrutiny and legislative actions, such as the European Union’s Digital Markets Act (DMA), are forcing dominant operating systems to permit alternative app stores and third-party billing systems. This regulatory tailwind lowers barriers to entry for independent distributors, positioning Digital Turbine to capture market share as developers seek out more cost-effective, non-monopolistic distribution channels.

Recent Performance and Corporate Developments 📈

Q1 2026 Financial Highlights: 💰

• Latest Reported Quarter: Ended 2026-03-31 (Calendar Q1 2026)
• Revenue: $152.0 million, representing a robust year-over-year revenue growth rate of approximately 27.57%
• Net Loss: $14.631 million for the quarter
• Diluted Earnings Per Share (EPS): -$0.11 per share
• Trading Volume: Highly liquid with an average daily volume of 14,041,860 shares
• Price Action: The stock has exhibited significant momentum, posting a 1-year price change of 86.02%

Strategic Initiatives and Mergers: 🤝

On the product development front, Digital Turbine achieved a major milestone on June 2, 2026, with the introduction of "Launchpad." Launchpad is a unified platform designed for modern app distribution, giving developers highly flexible and direct ways to reach users and drive distribution across the global mobile ecosystem. This launch is highly strategic, as it consolidates several of Digital Turbine's legacy technologies into a single, cohesive platform that directly challenges traditional app store distribution models.

While there are no major corporate mergers or acquisitions to report in the most recent quarter, Digital Turbine has been highly active on the corporate relations and marketing front to rebuild investor confidence. Throughout May and June of 2026, executive leadership participated in several high-profile financial events, including the Bank of America Global Technology Conference in San Francisco and the Roth 5th Annual Ad-Tech Summit, alongside the 16th Annual Roth London Conference. These appearances have been crucial for showcasing the company's stabilizing fundamentals and its integrated product roadmap to institutional investors.

Profitability and Fair Value 🎯

Digital Turbine is currently navigating a classic transition phase, a common characteristic of high-growth software stocks attempting to pivot toward sustained profitability. On a GAAP basis, the company remains unprofitable, posting a net loss of $14.631 million for the quarter ended March 31, 2026. Because of this net loss, the trailing twelve months (TTM) P/E ratio is negative at -26.28. Consequently, traditional valuation metrics like the Price-to-Earnings-to-Growth (PEG) ratio are not applicable or meaningful at this stage of the company's lifecycle.

However, looking at top-line and enterprise-level valuation metrics reveals a more nuanced picture. The company's TTM Price-to-Sales (P/S) ratio stands at a modest 1.87 (with some data feeds placing the TTM P/S at 2.32), which is remarkably low for an application software company experiencing a near-28% year-over-year revenue acceleration. Additionally, the company's TTM EV/EBITDA ratio is currently sitting at 31.10. This indicates that while the market is assigning a premium to the company's enterprise value relative to its current cash generation, the valuation is not entirely detached from reality, especially when factoring in the double-digit revenue recovery.

The debate over whether Digital Turbine's current price of $8.78 is fair has created a sharp divide among market participants. On one hand, momentum-focused investors point to the stock's inclusion in top momentum lists in early June 2026 and its impressive 86% run over the past year as clear indicators that the market is pricing in a major cyclical turnaround. This camp believes that as margins continue to improve and the Launchpad platform gains traction, operating leverage will quickly pull the company into GAAP profitability. On the other hand, more conservative analysts urge caution, pointing out that the underlying financials still show substandard margins, high debt levels, and ongoing free cash flow challenges. For these reasons, APPS is best viewed as a high-beta, speculative turnaround play rather than a stable, defensive value stock.

Analyst Estimates and Ratings 📊

Consensus Rating: Buy

Price Target: Not specified in the current consensus tracker, but recent buy-side action remains highly supportive.

Digital Turbine has recently experienced a positive shift in Wall Street sentiment. The consensus rating over the last six months stands at 1 Buy, with 0 Strong Buys, 0 Holds, and 0 Sells. Highlighting this upward shift in sentiment, the company received 1 analyst upgrade within the last 90 days, culminating in a "Buy" headline as its latest street action. This newsletter specifically screens for stocks exhibiting strong recent buy-side action and momentum, and Digital Turbine’s combination of high trading volume (exceeding 14 million shares daily) and recent positive earnings revisions suggests that institutional accumulation may be quietly underway ahead of the next earnings cycle.

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

What to Watch in the Near Term: 📈

• Q2 2026 Earnings Release (Expected August 4, 2026): This upcoming catalyst will be critical to verify whether the double-digit revenue growth and margin improvements observed in the prior quarter are sustainable.
• Q1 FY2027 Earnings Release (Expected August 6, 2026): Occurring just two days after the Q2 release due to fiscal calendar alignments, this report will provide forward-looking guidance that could dictate the stock's trajectory for the rest of the year.
• Ad-Tech Ecosystem Regulatory Updates (September 15, 2026): Investors must closely monitor global regulatory developments, as any policies that weaken the Google/Apple app store duopoly will act as a direct catalyst for Digital Turbine's Launchpad platform.
• Debt Reduction and Margin Expansion: Monitoring the company's progress in addressing its debt load and converting its top-line growth into positive free cash flow.

Recommendation:

Digital Turbine (NASDAQ: APPS) represents a compelling, high-reward turnaround opportunity for growth-oriented portfolios, though it is not without clear risks. The bullish thesis is supported by a powerful revenue acceleration of 27.57% YoY, strong price momentum, and a highly strategic product rollout in Launchpad that capitalizes on global regulatory crackdowns against big-tech app monopolies. However, the company's current GAAP unprofitability, represented by a $14.631 million quarterly net loss and a negative TTM P/E, means that conservative or income-focused investors should likely stand on the sidelines. For investors with a higher risk tolerance, initiating a disciplined, staged position in APPS ahead of the August 2026 earnings catalysts could offer substantial upside if the company successfully translates its top-line momentum into bottom-line profitability.

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Final Take: The Cloud Storage Vault and the Mobile Distribution Engine

The software ecosystem is expanding far beyond basic enterprise SaaS applications. Real operational leverage is found in the infrastructure that securely stores massive datasets and the on-device engines that distribute software directly to global users.

That is where Backblaze (BLZE) and Digital Turbine (APPS) offer distinct, non-consensus opportunities in the software landscape.

💾 Backblaze (BLZE) — The Open Cloud Storage Alternative for the Data Era

✔ Disrupting legacy hyperscalers with simple, high-performance, and highly cost-effective object storage

✔ Transitioning from traditional computer backup to a foundational "neocloud" data-lake layer for developers and AI workloads

✔ Positioned to capture explosive demand as organizations seek independent, lower-cost storage alternatives for massive datasets

➤ Best for: Investors looking for an under-the-radar infrastructure play that provides a high-utility, cost-efficient alternative to dominant cloud giants.

📱 Digital Turbine (APPS) — The On-Device Software Distribution Network

✔ Bypasses traditional app store friction by managing and recommending software directly on mobile devices

✔ Serves as a critical independent bridge between mobile carriers, original equipment manufacturers (OEMs), and application developers

✔ Offers significant operational leverage and turnaround potential as global ad markets stabilize and on-device distribution demand scales

➤ Best for: Investors seeking a high-beta turnaround play in the mobile application ecosystem with direct exposure to global device activations.

Investor Insight

🧩 Want low-cost, developer-friendly cloud storage with structural data tailwinds? → BLZE

⚙️ Want mobile software distribution leverage and potential turnaround upside? → APPS

Bottom Line:

Software success isn't just about building the flashiest application—it is about how data is stored and how software is delivered to the end user. Backblaze provides the essential, cost-effective storage foundation for the next generation of data-heavy platforms, while Digital Turbine bypasses traditional gatekeepers to put software directly into consumers' hands. As enterprises optimize their cloud budgets and mobile developers seek independent distribution channels, both BLZE and APPS offer unique entry points into the plumbing of the software economy.

Not investment advice. Do your own research.