OpenAI's Own AI Agents Went Rogue

Today I want to talk about the dark side of AI.

Plus, we'd like to hear from you, too (see below).

Let's start by looking at what happens when superhuman AI becomes cheap enough for the bad guys, too…

You wake up and, if you're like me, you get your dog a snack... and take him outside.

You come in and open your Bloomberg terminal to read headlines and track futures.

But today, nothing. Connection Lost.

You try your brokerage. You get a blank screen.

You turn on Bloomberg TV. The anchor looks like she's been up all night:

"...some are calling it an AI apocalypse... the New York Stock Exchange and Nasdaq just hit their breakers... several major brokerages are reporting outages... officials say they are investigating 'coordinated, automated activity' across financial networks..."

Then the rumors start. Hackers. A foreign government. A rogue AI swarm. Suspicious trades. Big bets against the market.

Nobody knows what the truth is, but you're about to discover your retirement portfolio is down big.

Mark my words: This will happen.

Here's how to prepare…

I Love You

In the year 2000, millions received an email from someone they knew with the subject line, "I love you"...

It included an attachment that, if you opened it, took over your computer.

Many opened it.

The ILOVEYOU worm caused up to $10 billion in damage.

The coming AI disruption could be much bigger.

It could be a rogue AI agent swarm.

It could be a criminal hacker group with access to powerful jailbroken AI models.

It could be a state actor: A government with money, patience and a reason to disrupt a rival's financial system.

It could be an individual hacker who loaded up on out-of-the-money Nvidia puts.

A Gray Swan

Nefarious humans leveraging AI for chaos is a gray swan event...

A serious risk we can imagine, even though we don't know when it will happen.

As investors, we need a plan that has us prepared for the rise of AI agents.

AI agents use tools, check results and keep working toward a goal you give them.

But AI models have been trained on ALL of human knowledge.

This includes the motivations of heroes and villains. They've also been trained on the Terminator movie script.

On September 28, The Wall Street Journal reported that OpenAI halted the planned release of its newest ChatGPT model after testing raised safety concerns.

Earlier…

OpenAI disclosed that, during internal cybersecurity evaluations in July, AI agents escaped their sandbox and compromised parts of its research infrastructure and Hugging Face's systems.

These were agents simply working toward a goal.

Now imagine thousands of unsafe agents in the wrong hands.

Three Companies On The Defensive Line

Now, the good guys have AI too.

In April, Mozilla found and fixed 271 security vulnerabilities in the Firefox web browser thanks to Anthropic's best AI.

So, AI can not only find those doors to exploit but it can seal them shut, too.

Better tools help security teams find weaknesses, investigate attacks and restore operations.

The question for investors is who can turn that service into lasting, profitable customer relationships.

So, today we'll look at three cybersecurity tasks in the age of AI: Controlling access, keeping services available, and recovering when protection fails.

Think of these three stocks as the keymaster, the bouncer and the fixer.

PALO ALTO NETWORKS: The Keymaster

Palo Alto Networks (PANW) sells hardware and software security products across networks, cloud systems and security operations.

Now, here's what's interesting...

Earlier this year, it acquired CyberArk, which controls who gets keys, and which doors those keys can open.

That becomes increasingly important as AI agents swarm across the matrix.

Give an AI agent permission to move through a business and business risk rises: Which doors should its key open? Who can revoke it? Can anyone see where it went and what it did?

More automated AI agents means more identities, keys and permissions to manage… across many vendors.

The investment case for Palo Alto Networks is that their existing customers add this new "keymaster" service.

Software is a higher-margin business than their hardware business…

So, I'll be monitoring this acquisition for you because CyberArk could become a significant earnings driver as their customers adopt AI.

CLOUDFLARE: The Bouncer

Cloudflare (NET) helps websites and applications stay online and protects them against attacks, including attempts to overwhelm them with traffic.

In our hypothetical morning, availability is critical.

A brokerage can have customers ready to buy and sell and won't collect commissions if nobody can trade.

Cloudflare's network puts a bouncer between customers and the services they want to use.

That unique service gives them the opportunity to sell add-on security and computing services.

I use Cloudflare in my business, and for the services where it overlaps with AWS and Google Cloud, I've found it so much easier to use that if they add a non-overlapping service, I'd switch.

Second-quarter revenue reached $696.1 million, up 36% from a year earlier.

That's companywide growth, not a measurement of revenue from AI attacks.

As more agents zip across cyberspace working on tasks...

Someone has to distinguish a paying customer's assistant from an attacker trying to sneak behind the velvet rope.

And consider this…

Should We Buy Some Calls On Cloudflare?

On May 4, 2000, as the ILOVEYOU worm spread, McAfee.com closed up 25.8% and Network Associates gained 5.5%. Trend Micro was reported up 17% during the day's trading.

When a new threat becomes front-page news, security spending moves from "maybe next quarter" to "install it today."

That's the opportunity I'm watching in Cloudflare: businesses paying to keep their doors open as AI traffic and the threats multiply.

In fact, buying out-of-the-money LEAPS call options has the potential to be a great asymmetric trade on the stock...

As well as any gray swan events.

Two years ago, a call on Cloudflare about 50% out of the money paid 24X in a year.

Unfortunately, Cloudflare option volatility is too high right now…

But I have my own AI agents keeping an eye on them for you.

RUBRIK: The Fixer

Rubrik (RBRK) addresses the question every security presentation ends with...

What happens in the worst-case scenario? How do we fix it?

Its business includes saving backup data as well as helping customers recover it.

Pristine saved copies isolated from compromised systems are the difference between resuming operations and spending weeks trying to rebuild.

For the quarter ended July 31, Rubrik reported $427.3 million in revenue, up 38%, and $65.7 million in free cash flow.

Companies and governments worldwide spend more than $10 billion a year on backup and recovery software.

Recovery is critical. Downtime costs money and threatens lawsuits. Losing essential records can threaten the business.

Rubrik now has 3,084 customers generating at least $100,000 each in annual subscription revenue.

These subscriptions account for roughly 95% of quarterly revenue.

That's an ongoing relationship built around something businesses can't afford to cut.

Management now expects $323 million to $333 million in free cash flow this fiscal year. That's roughly 38% more than last year.

As businesses put more data and operations in the hands of AI, the ability to recover from an event becomes more valuable.

Rubrik can also sell add-on protection to customers who already trust them.

More large customers. More subscription revenue. More cash to build the business.

Of these three cybersecurity stocks (Rubrik, Cloudflare and Palo Alto Networks), Rubrik is my favorite to own.

That said, the AI growth story already has these three stocks at high valuations.

So, I'm not yet comfortable rolling out the ILOVEYOU playbook to buy call options on them to profit from any gray swans.

But there's another way to play a gray swan…

Buy The Insurance Before The Fire

Markets consistently underprice rare, extreme events.

Crashes happen more often than models say they should, and when they hit, they hit harder than expected.

That mispricing is an opportunity.

It means you can buy protection today against a future loss... and get compensated well when it arrives.

There are two kinds of events worth protecting against, and the difference matters.

A black swan is an event the market had no price for.

The 1987 crash. 9/11. The Swiss franc coming off its peg in 2015 while the central bank was still promising it never would.

Even if someone somewhere predicted them, the market wasn't positioned for them.

A gray swan is an event you know is coming but you just don't know when.

In fact, Axios reported on October 9 that OpenAI, Anthropic and other AI companies are already making plans on how to respond the day after it happens.

The only unknown is timing.

I've spent my career on the gray swan side.

I've gone from programming on an Atari 800 to mainframes to supercomputers to clusters to the cloud with AI.

Spotting the rare, profitable moment when a new technology rolls out is what I enjoy.

The good news: One investing tool covers both swans.

Here's the strategy…

The ideas here come from Nassim Taleb (author of The Black Swan) and Mark Spitznagel, who runs the Universa hedge fund Taleb advises.

I've simplified this approach into something any investor can run:

1. Pick a ticker that will be affected by the event you're worried about.

2. Each quarter, budget 0.25% of your portfolio for puts roughly six months from expiration.

3. Look at strikes about 25–30% below the current price.

4. Three months later, sell what's left and reassess before buying a fresh batch.

On a $1,000,000 portfolio, that's a $2,500 quarterly budget. Four purchases a year commit roughly 1% of the portfolio.

I had this in place before COVID and made 521% and 602% on 74-cent SPY puts.

Choosing the ticker…

For a black swan (the market-wide shock nobody is positioned for), SPY puts do the job.

For a gray swan, pick the stock sitting closest to the blast.

Worried that China moves on Taiwan and the AI buildout grinds to a halt?

Instead of SPY, buy puts on TSMC (TSM).

Important: You must be willing to lose far more often than you win.

You could go years, or your entire investing life, without a payoff.

That's how insurance works.

But when it pays, it can pay enough to cover every premium you've spent along the way.

Again, because the market underestimates volatility.

In Asimov's Foundation, the hero's great insight was that you can't stop the fall of an empire...

But you can shorten the dark age that follows.

That's the spirit of insurance.

As investors, we're witnessing the race toward AGI: broadly capable, human-level machine intelligence.

There will be predictable and unpredictable disruptions.

I want to profit from the upside… and the downside.

What are you worried about?

Just reply to this email...

And tell DD and me what the biggest gray swan you're worried about is…

And we'll share our thoughts on them in a future issue.

Always be prospering,

Harry Seldon
Moonshot Minute

P.S. #1: If you haven’t already, check out DD’s sell and buy alert below for Premium. It’s a 150% winner and a fresh new buy alert he sent out on Friday.

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