Akamai (AKAM) Q2 FY26 earnings call: guidance and Q&A

Akamai is leveraging its global distributed platform for content delivery and cybersecurity to become a key infrastructure provider for the AI-driven economy. The company's strategy focuses on providing a unified distributed grid for AI inference, pushing workloads to the edge for low latency and cost optimization, particularly for Agentic AI workloads. This approach is validated by strong industry recognition and customer adoption, with Akamai positioning itself as a critical player in the evolving AI ecosystem.

Akamai announced a new 4-year, $600 million GPU services deal with a U.S.-based technology company for robotics development, bringing total multi-year commitments for cloud infrastructure services to over $2.8 billion year-to-date. These deals provide strong multi-year revenue visibility and underscore the scale of Akamai's CIS business. Management expects these commitments to accelerate overall revenue growth into the low teens by 2027, with revenue from the new $600 million deal fully ramping throughout 2027.

The security segment saw 10% year-over-year revenue growth (9% constant currency), driven by strong demand for API security and Guardicore Segmentation. AI is a significant tailwind for security solutions, with increased demand for web app firewall (WAF) and DDoS services due to the proliferation of larger bot armies and zero-day vulnerabilities. The recent win of CrowdStrike as a customer for web security and content delivery further validates Akamai's enterprise security capabilities and reputation for reliability.

Akamai acquired LayerX for approximately $205 million, rebranding it as Akamai Workforce Protector. This acquisition enhances the Zero Trust portfolio by providing deep visibility into how employees interact with web content, SaaS applications, and AI tools. The solution aims to protect against sensitive data leaks and unauthorized AI agents, aligning with Akamai's existing microsegmentation, Zero Trust Network Access, and DNS security solutions to offer a unified workforce security solution.

The company is temporarily pausing share repurchases to reallocate capital to support the high-growth CIS pipeline. This strategic shift includes a planned investment of up to $500 million in CapEx for new GPU capacity, with approximately $60 million expected to be spent in FY26 and the remainder in early 2027. This decision reflects management's confidence in the significant growth opportunity presented by CIS and the need to fund its expansion.

Large multi-hundred million dollar, multi-year CIS contracts are structured with take-or-pay commitments, designed to deliver strong cash flows over their life. These deals typically reflect non-GAAP cash gross margins spanning from mid-60s% to mid-70s% and non-GAAP operating margins ranging from low to mid-20s% up to low 30s%. While initial capital deployment is upfront, profitability ramps quickly, generally within a quarter or 5-6 months, due to efficient setup and customer demand for immediate capacity.

Akamai leverages its extensive experience and relationships with data center providers, operating infrastructure in over 700 cities globally, to secure necessary data center space and power. The company's flexibility in choosing locations and its ability to act as an anchor tenant for new data centers allow for favorable economics, guaranteed power, and efficient build-outs. This capability is crucial for supporting the rapid expansion of its CIS business and meeting customer demands.

While Q3 CIS revenue growth is not expected to accelerate due to GPU shipment timing delays from Q2, a significant acceleration, described as a 'hockey stick,' is anticipated in Q4 FY26 and into Q1 FY27. This ramp-up is expected as new GPU capacity comes online and large contracts begin generating revenue, with management expressing confidence that everything is on track for this acceleration.