Akamai Bets Big on AI in Latest Earnings

Akamai Technologies ((AKAM)) has held its Q1 earnings call. Read on for the main highlights of the call.

Akamai Technologies’ latest earnings call struck a cautiously optimistic tone as management framed the quarter as a strategic pivot toward cloud infrastructure and AI inference, anchored by a record $1.8 billion customer commitment. Executives were upbeat on long‑term growth and competitive positioning but transparent about near‑term margin pressure from heavy CapEx, higher depreciation, and a shrinking legacy delivery business.

Record $1.8 Billion Landmark Customer Win

Akamai highlighted the signing of a seven‑year, $1.8 billion committed contract, the largest customer deal in its history and a clear validation of its cloud and AI strategy. Management said revenue from this customer will begin modestly, with roughly $20 million to $25 million expected in the fourth quarter of 2026, then ramp as the deployment scales over the subsequent years.

Cloud Infrastructure Services Accelerate

Cloud Infrastructure Services (CIS) remained the key growth engine, posting first‑quarter revenue of $95 million, up 40% year over year in reported terms and 39% in constant currency. Reflecting stronger demand and the large new contract, Akamai lifted its full‑year CIS outlook to at least 50% growth in constant currency for 2026, underscoring management’s confidence in the business’s trajectory.

Security Segment Maintains Strong Momentum

Security continued to provide a solid foundation with first‑quarter revenue of $590 million, up 11% year over year on a reported basis and 9% in constant currency. The company cited strong demand for its web application firewall, API security, and Guardicore segmentation products, pointing to notable expansion wins, including a $24 million retailer renewal and an $80 million two‑year deal with a major video game company.

Balanced Overall Revenue Growth and Outlook

Total company revenue reached $1.074 billion in the first quarter, representing 6% year‑over‑year growth, or 4% in constant currency, driven by CIS and security strength. For the second quarter, Akamai guided revenue between $1.075 billion and $1.1 billion, implying 3% to 5% growth, and for 2026 it projected $4.445 billion to $4.55 billion in sales, a 6% to 8% increase on a reported basis and 5% to 8% in constant currency.

NVIDIA Partnership and Massive GPU Rollout

Management showcased an “industry‑first” global‑scale implementation of NVIDIA’s AI grid alongside the rollout of thousands of NVIDIA RTX Pro 6000 GPUs, designed to position Akamai as a distributed AI inference provider at the edge. Executives said this build‑out is already strengthening the CIS pipeline, as customers look for low‑latency AI inference capabilities that leverage Akamai’s globally distributed network.

Healthy Cash Position and Active Buybacks

Akamai ended the quarter with roughly $1.7 billion in cash, cash equivalents, and marketable securities, giving it ample flexibility to fund its aggressive infrastructure build‑out. The company repurchased about $206 million of stock, or roughly 2 million shares, in the quarter and retains around $975 million of remaining authorization, while emphasizing that growth investments will be funded largely from internal cash, with credit and capital markets as backup.

Industry Recognition Underpins Security Franchise

The call highlighted strong third‑party validation of Akamai’s security tools, which management views as a key differentiator in a crowded market and a driver of customer stickiness. The company noted a 99% recommendation rating on Gartner Peer Insights for microsegmentation and said it is currently the sole Customers’ Choice on Gartner Peer Insights for API protection, reinforcing confidence in continued security demand.

Profitability Squeezed by Heavy Investment

Non‑GAAP net income came in at $239 million, with non‑GAAP earnings per share of $1.61, down 5% versus the prior year as spending ramped. The company cited expanded colocation investments, rising depreciation from its infrastructure build, and higher headcount tied to CIS as the primary drivers of margin compression, signaling that profitability will remain under pressure as it chases long‑term AI opportunities.

Delivery and Other Cloud Apps Under Structural Pressure

Akamai’s legacy delivery and other cloud applications segment declined to $389 million in first‑quarter revenue, a 7% year‑over‑year drop, or 8% in constant currency, reflecting ongoing structural headwinds in traditional content delivery. Management indicated it expects mid‑single‑digit declines for this segment in 2026, as customers migrate workloads and the company reallocates focus and capital toward higher‑growth CIS and security offerings.

CapEx Surges as AI Build‑Out Accelerates

Capital expenditures surged to $206 million in the first quarter, equal to 19% of revenue, and are set to spike sharply in the near term as the company builds capacity for its AI and cloud deals, including the $1.8 billion contract. Akamai guided second‑quarter CapEx of $433 million to $453 million, or about 40% to 41% of revenue, and expects full‑year CapEx of roughly 40% to 42% of revenue, including about $700 million of 2026 spending for the large customer and around $800 million to $825 million of total near‑term spend tied to that contract.

Operating Margins to Stay Tight

Non‑GAAP operating margin was 26% in the first quarter, and management signaled it will likely hover around 25% to 26% through the year as investments ramp, even as revenue grows. The company emphasized that large dedicated capacity deals carry lower margins due to heavy depreciation compared with on‑demand GPU services, meaning the revenue mix shift toward infrastructure will structurally cap margins in the near term despite the long‑term growth opportunity.

Potential for Additional GPU Spend and Mix Complexity

Executives noted that customer appetite for GPUs significantly exceeds Akamai’s current inventory, and they may place additional GPU orders in the second half of 2026, which are not yet included in the CapEx outlook, implying potential upside to capital spending and associated timing risks. Management also highlighted that revenue from the $1.8 billion contract will ramp gradually, with some contributions only starting in the fourth quarter of 2026, and that a modest foreign‑exchange tailwind and revenue‑timing nuances around deliveries and remaining performance obligations could add volatility.

Forward‑Looking Guidance and Outlook

For the second quarter, Akamai expects cash gross margins of roughly 70% to 71%, EBITDA margins of about 38% to 39%, non‑GAAP operating expenses between $346 million and $357 million, and non‑GAAP EPS of $1.45 to $1.65, assuming a non‑GAAP tax rate of around 18.5% and about 146 million diluted shares. For 2026, management forecast revenue of $4.445 billion to $4.55 billion, at least 50% constant‑currency growth in CIS, high‑single‑digit security growth, a mid‑single‑digit decline in delivery, a non‑GAAP operating margin near 26%, CapEx at 40% to 42% of revenue, and non‑GAAP EPS in the $6.40 to $7.15 range, with an initial $20 million to $25 million contribution from the $1.8 billion customer in the fourth quarter.

Akamai’s earnings call painted a picture of a company in transition, trading near‑term earnings and margin expansion for a larger share of a nascent AI and cloud infrastructure market. For investors, the story hinges on whether the heavy CapEx, GPU build‑out, and large customer commitments translate into durable, high‑growth revenue streams that eventually restore margin leverage once the current investment cycle peaks.