Following Akamai's FY2025 earnings report and 2026 guidance, how effectively is the growth in the Security and Compute segments offsetting the accelerating margin compression in the legacy Delivery business, and what does this shift imply for AKAM's free cash flow yield over the next twelve months?

Following Akamai Technologies' (AKAM) FY2025 earnings report and the issuance of its 2026 guidance, the company’s transition from a legacy Content Delivery Network (CDN) to a Security and Compute-first provider has reached a critical inflection point. While the legacy Delivery business continues to face structural headwinds, the rapid scaling of higher-margin segments and a projected easing of the capital expenditure (CapEx) cycle are reshaping the company’s cash flow profile. Segment Performance: The "Great Offset" Dynamics The growth in Security and Compute has successfully stabilized Akamai's top-line revenue, effectively neutralizing the persistent contraction in the Delivery segment. Security Segment: Now the primary revenue driver, accounting for approximately 53% of total revenue. Growth remains resilient at 10-12% YoY, bolstered by strong demand for microsegmentation (Guardicore) and API security. Compute / Cloud Infrastructure Services (CIS): This is the fastest-growing vertical, with revenue accelerating to 39% YoY in late 2025. The launch of the NVIDIA-powered Inference Cloud has positioned Akamai to capture edge-AI workloads, providing a high-growth counterweight to legacy declines. Delivery (Legacy): Revenue in this segment continues to decline at a rate of -3% to -5% YoY. Margin compression here is driven by aggressive price competition and the "DIY" CDN strategies of major media tenants, which have reduced Akamai's pricing power in commodity traffic. Margin Compression and Operating Leverage Despite the successful revenue offset, operating margins have remained under pressure throughout 2025 due to the heavy investment required to build out the "Connected Cloud" infrastructure. Non-GAAP Operating Margins: Currently stabilized in the 28% to 30% range. While the mix shift toward higher-margin Security products is a tailwind, it has been temporarily offset by the high operational costs of scaling 41 new data centers and integrating NVIDIA Blackwell GPUs. CapEx Intensity: Akamai’s CapEx peaked in late 2025 at 19-24% of revenue. Management’s 2026 guidance, however, points to a "normalization" of spending to approximately 16-18% of revenue, which is the primary catalyst for margin expansion in the coming twelve months. Free Cash Flow (FCF) Yield Outlook (NTM) The shift in Akamai’s financial strategy implies a significant expansion in Free Cash Flow over the next twelve months (NTM) as the heavy investment phase of 2024–2025 transitions into a harvest phase. FCF Projection: Analysts project FCF to grow from approximately $650M (TTM) to nearly $900M in 2026. This growth is driven by the combination of double-digit growth in high-margin segments and the 400-600 bps reduction in CapEx intensity. Implied FCF Yield: Based on a current market capitalization of approximately $15.7B , the NTM FCF yield is estimated at 5.7% . This represents a attractive premium compared to high-growth cybersecurity peers (often yielding -10% would require the Security business to shoulder an even greater portion of the company's fixed-cost base.

Given the recent industry-wide focus on 'Edge AI' and Akamai's deployment of its Generalized Compute (Gecko) initiative, to what extent is AKAM successfully capturing enterprise AI inference workloads compared to hyperscalers, and how should this impact the stock's forward P/E multiple?

Akamai’s deployment of its Generalized Edge Compute (Gecko) initiative and the subsequent launch of Akamai Cloud Inference (powered by NVIDIA Blackwell) represent a fundamental pivot from a legacy Content Delivery Network (CDN) to a distributed AI infrastructure provider. While Akamai remains a "minnow" in total cloud revenue compared to hyperscalers, it is successfully capturing high-value, latency-sensitive enterprise AI inference workloads in specific niches. 1. Extent of Success in Capturing AI Inference Workloads Akamai’s success is currently measured by its traction in "Edge AI"—workloads where centralized hyperscaler data centers are physically too far from the end-user to meet performance requirements. Competitive Win-Rate & Performance: Akamai claims its distributed model offers 3x better throughput and 60% lower latency than traditional hyperscalers for inference tasks. By leveraging its 4,200+ points of presence (PoPs), Akamai is winning workloads in sectors like 8K video processing (Harmonic), live video intelligence (Monks), and real-time retail recommendation engines. Cost Advantage: A critical driver of enterprise adoption is the 86% cost reduction Akamai claims over hyperscalers for inference and agentic AI workloads. This is largely achieved by eliminating the "egress tax" and high centralized compute costs associated with AWS or Azure. Segment Momentum: The success is reflected in the Cloud Infrastructure Services (CIS) sub-segment, which saw revenue growth accelerate to 39% YoY in Q3 2025. Management has targeted a 40% to 45% growth in CIS Annual Recurring Revenue (ARR) by year-end 2025. 2. Competitive Positioning vs. Hyperscalers Akamai is not competing for the "heavy lifting" of AI training (dominated by AWS/Azure/GCP) but rather for the "actionable" phase of AI. | Feature | Akamai (Gecko/Cloud Inference) | Hyperscalers (AWS/Azure/GCP) | | :--- | :--- | :--- | | Architecture | Massively Distributed (4,200+ PoPs) | Centralized (Core Regions + Local Zones) | | Primary AI Focus | Real-time Inference & Agentic AI | Model Training & Batch Inference | | Cost Structure | Low Egress; Competitive Spot Pricing | High Egress; Complex Tiered Pricing | | Ecosystem | Open Source (Kubernetes/LKE) | Proprietary (SageMaker/Vertex AI) | 3. Impact on Forward P/E Multiple The market has historically valued Akamai as a "utility-like" CDN provider with a low-growth profile, typically trading at a forward P/E of 12x to 15x (non-GAAP). The successful capture of AI inference workloads should drive a multiple re-rating based on two factors: Business Mix Shift: As of 2025, Security and Compute combined represent over 65% of total revenue, while the declining legacy Delivery (CDN) business has shrunk to roughly 30% . As the high-multiple Compute segment (growing 25%+ ) becomes a larger portion of the mix, the blended P/E multiple should naturally expand. Valuation Gap Closure: Pure-play edge and security peers like Cloudflare (NET) often trade at forward P/E multiples exceeding 50x . While Akamai’s capital intensity (CapEx at 20% of revenue) prevents it from reaching those levels, a shift toward a "Cloud-to-Edge" narrative supports a re-rating toward the 20x to 25x range, provided the CIS ARR growth remains above 40% . 4. Risks and Limitations Execution Risk: The Gecko rollout is in its third phase (orchestration). Any delays in automated workload management could allow hyperscalers to close the latency gap with their own "Local Zones." Margin Pressure: The transition to AI infrastructure requires heavy investment in NVIDIA GPUs and Blackwell architecture, which may weigh on GAAP operating margins (currently 16% ) even as non-GAAP EPS (projected $6.93 - $7.13 for FY25) remains strong.

In light of recent cybersecurity consolidation and the rising demand for API security, how does Akamai's current market share in the Web Application and API Protection (WAAP) space justify a re-rating of AKAM shares, particularly as the company pivots away from a CDN-centric valuation model?

The strategic evolution of Akamai Technologies (AKAM) from a legacy Content Delivery Network (CDN) provider to a diversified leader in Web Application and API Protection (WAAP) and Cloud Computing represents a fundamental shift in its investment narrative. As of early 2026, the company’s market position and financial mix provide a data-driven justification for a valuation re-rating, driven by the dominance of high-margin security revenue and the rapid expansion of its API security portfolio. Market Leadership in WAAP and API Security Akamai has successfully leveraged its massive edge network—comprising over 4,300 points of presence (PoPs)—to dominate the WAAP sector. Institutional Recognition: Akamai has maintained "Leader" status in the Gartner Magic Quadrant for Cloud WAAP for seven consecutive years and was named a Leader in the 2024 IDC MarketScape for WAAP. API Security Dominance: The $450M acquisition of Noname Security in 2024, combined with its existing Neosec technology, has positioned Akamai as a premier provider in the high-growth API security sub-sector. This is critical as APIs now account for an estimated 71% of all internet traffic. Competitive Edge: Unlike "point solution" competitors, Akamai integrates WAAP, bot management, and DDoS mitigation into a single "App & API Protector" platform, increasing customer "stickiness" and raising switching costs. Financial Pivot: The End of CDN-Centricity For the first time in the company’s history, the Security segment has become the primary revenue driver, fundamentally altering the risk-return profile of the stock. Revenue Mix Shift: In Q3 2025, Security revenue reached $568M (up 10% YoY), while legacy Delivery (CDN) revenue contracted to $306M (down 4% YoY). Security and Compute combined now represent approximately 70% of total revenue. Compute Acceleration: The Cloud Infrastructure Services (CIS) sub-segment reported 39% YoY growth in late 2025, fueled by the launch of the Akamai Inference Cloud (powered by NVIDIA), which enables AI processing at the edge. Profitability Resilience: Despite the heavy investment in cloud infrastructure, Akamai maintains a non-GAAP operating margin of 31% , significantly higher than high-growth peers like Cloudflare (NET), which often operates at much lower or negative GAAP margins. Valuation Re-Rating Justification The "re-rating" thesis posits that Akamai should be valued as a Cybersecurity/Cloud platform rather than a Commoditized Utility (CDN). Multiple Compression vs. Peer Premium: Akamai currently trades at an EV/Revenue multiple of approximately 4.2x and a Forward P/E of 12.1x . In contrast, pure-play security leaders like Palo Alto Networks (PANW) trade at 11x–13x EV/Revenue, and Cloudflare (NET) often commands multiples exceeding 30x . Sum-of-the-Parts (SOTP) Upside: Analysts argue that if Akamai's security business (growing at 10%+ with $2B+ in annual revenue) were valued at even half the multiple of its peers, the implied share price would be significantly higher than current levels. Stabilization of the "Floor": The legacy CDN business is expected to stabilize at a revenue floor of $1.1B–$1.2B . Once this "drag" ceases to accelerate in its decline, the high-growth segments will dictate the overall corporate growth rate, likely triggering a multiple expansion. Risks and Strategic Limitations Execution Risk: The transition to a "distributed cloud" provider requires sustained high Capital Expenditure (CapEx), which may pressure Free Cash Flow (FCF) in the short term. Competitive Intensity: Hyperscalers (AWS, Azure, GCP) and specialized security firms are aggressively expanding their own WAAP and edge computing capabilities, potentially leading to pricing pressure. CDN Volatility: If the CDN segment declines faster than the -4% to -6% projected range, it could mask the growth of the security business and delay the market's willingness to re-rate the shares.

Akamai Technologies, Inc. (AKAM) Stock Price & AI Analysis

GoAI Score

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Valuation

50Fair Value

Sentiment

90Bullish

Risk

91Low Risk

Momentum

73Positive

Institutional-Grade Intelligence

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Actionable Intelligence

AI-driven stance, execution logic & risk thresholds

Catalyst Roadmap

Event timeline with expected impact & market context

Deep Insights

Fact-checked analysis & score logic breakdown

Financial Statements

Margin Trends

Gross

58.9%▼0.4pp

Revenue after COGS

Operating

14.9%▲1.5pp

After operating expenses

Net

10.7%▼1.9pp

Bottom-line profitability

Gross Margin

Operating Margin

Net Margin

Valuation Snapshot

P/E Ratio

28.1

Price vs earnings

EV/EBITDA

14.0

Enterprise value

FCF Yield

5.5%

Cash generation

Earnings Yield

3.6%

Inverse of P/E

Capital Efficiency

6

GoAI Quality ScoreWeak

ROEReturn on Equity

9.1%Fair

ROAReturn on Assets

3.9%Fair

ROICReturn on Invested Capital

4.3%Fair

Financial Health

Current RatioHealthy

2.36

Short-term solvency (>1.5)

Net Debt / EBITDAHigh

4.48x

Debt repayment capacity (<3x)

Income QualityStrong

3.36

Cash backs earnings (>1)

Revenue & Profitability

Revenue

Net Income

Net Loss

Income Statement

Metric	FY2025	FY2024	FY2023	FY2022	FY2021
Revenue	$4.21B	$3.99B	$3.81B	$3.62B	$3.46B
Gross Profit	$2.48B	$2.37B	$2.30B	$2.23B	$2.19B
Gross Margin	58.9%	59.4%	60.4%	61.7%	63.3%
Operating Income	$625.00M	$533.41M	$637.34M	$676.27M	$783.15M
Net Income	$452.03M	$504.92M	$547.63M	$523.67M	$651.64M
Net Margin	10.7%	12.7%	14.4%	14.5%	18.8%
EPS	$3.11	$3.34	$3.59	$3.29	$4.01

Average Price Target

$113.22▲ 20.2% Upside

Past 12 Months

12 Month Forecast

Based on 50 Wall Street analysts offering 12 month price targets for Akamai Technologies, Inc., the average price target is $113.22, with a high forecast of $120.00 and a low forecast of $89.00. The average price target represents a 20.2% increase from the current price of $94.17.

Highest

$120.00

Average

$113.22

Lowest

$89.00

Rating Distribution

Strong Buy

1

2%

Buy

24

46%

Hold

25

48%

Sell

2

4%

Strong Sell

0

0%

Recent Analyst Ratings

FirmActionRatingDate

Susquehanna● Maintain

Positive

2026-02-20

UBS● Maintain

Neutral

2026-02-20

Baird● Maintain

Outperform

2026-02-20

Keybanc● Maintain

Overweight

2026-02-20

Evercore ISI Group● Maintain

Outperform

2026-02-20

TD Cowen● Maintain

Hold

2026-02-20

RBC Capital● Maintain

Sector Perform

2026-02-20

Scotiabank● Maintain

Sector Outperform

2026-02-20

DA Davidson● Maintain

Buy

2026-02-13

Citigroup● Maintain

Neutral

2026-01-16

Earnings History & Surprises

BEAT RATE

89%

Last 18 quarters

AVG SURPRISE

+5.5%

EPS vs Estimate

BEATS / MISSES

16/1

1 met exactly

LATEST EPS

$1.84

Q1 '26

QUARTERLY EPS TREND

Estimated

Beat

Miss

QUARTERLY DETAIL

Q1 '26

+5.1%

$1.84 vs $1.75

Q4 '25

+13.4%

$1.86 vs $1.64

Q3 '25

+11.6%

$1.73 vs $1.55

Q2 '25

+8.3%

$1.70 vs $1.57

Q1 '25

+9.2%

$1.66 vs $1.52

Q4 '24

$1.59 vs $1.59

Q3 '24

+3.3%

$1.58 vs $1.53

Q2 '24

+1.9%

$1.64 vs $1.61

Q1 '24

+6.3%

$1.69 vs $1.59

Q4 '23

+7.9%

$1.63 vs $1.51

Q3 '23

+5.7%

$1.49 vs $1.41

Q2 '23

+6.1%

$1.40 vs $1.32

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