Akamai Technologies, Inc.'s Q2 results were mixed: non-GAAP metrics improved, but GAAP metrics and legacy CDN revenues declined, while debt increased significantly. Akamai is strategically pivoting from legacy CDN to higher-growth cloud security, infrastructure, and edge computing, with AI as a key growth driver. Management raised full-year guidance, citing strong security and cloud momentum, but I remain skeptical about the pace and scale of the pivot's impact. I maintain a hold rating on AKAM stock, as the transition will take time and top-line growth will likely remain tepid until new segments gain more traction.\n\nSales came in at $1.04B, up 6%, which beat estimates by $20m. Looking at the revenue breakdown in more detail, Security revenue was up 11% y/y to $552m, delivery revenue declined 3% to $329m, while cloud computing saw growth of 13%. Within it, cloud infrastructure services revenue came in at $71m, up 30% y/y. Revenues by region came in quite even, with $528m in the U.S. and $516m internationally, with growth of 4% and 10% y/y, respectively. In terms of profitability, Q2 non-GAAP EPS came in at $1.73, which beat analysts’ estimates by 20 cents. Non-GAAP operating margin was 30%, up 1 percentage point y/y, and adjusted EBITDA came in at $444m, up 9% y/y. Onto the company’s GAAP metrics, EPS came in at $0.71, a decrease of 17% from a year ago. Operating income margin came in at 15%, which was flat compared to last year. We can see that the main drivers of GAAP underperformance were a few line items, like a larger increase in R&D, amortization of acquired intangibles, as well as restructuring charges, which were the lowest in dollar terms. The company maintained its cost discipline in the largest line items, and regarding R&D increases, I view it as a positive, as long as it yields long-term benefits.\n\nAKAM’s cash pile increased considerably since the end of 2024 to $850m, up over 60%, which was offset by a massive decrease in short-term marketable securities. The company seems to have restructured its capital structure in the last quarter. AKAM issued $1.72B of new 2033 convertible notes and used $1.15B to repay maturing senior notes, generating excess liquidity, some of which was deployed into longer-term, higher-yielding marketable securities. A common practice after a major debt issuance is to shift large positions of assets from short-term to long-term marketable securities and to take advantage of better yields that align with the company’s longer-term debt maturity structure. Additionally, the company repurchased $300m in share buybacks and paid off $250m of its revolving credit facility. Interest on the company’s debt is easily covered by AKAM’s operations.\n\nOn top of these results, the management provided some numbers for Q3, as well as raising full-year guidance. Q3 revenue expected to be in the range of $1.035B-$1.05B, non-GAAP operating margin of 28%, and non-GAAP EPS of $1.62-$1.66. For the full year, revenues are expected to be in the range of $4.135B-$4.21B, raised from $4.05B-$4.20B. Non-GAAP operating margin raised to 29% from 28% previously, and adjusted EPS is expected to be in the range of $6.60-$6.80, up from the previous range of $6.10-$6.40. The management cited strong continued momentum in Security and Cloud Infrastructure, AI tailwinds, and record CIS growth as the main drivers of future expectations. There wasn’t much of a reaction from the investing community regarding these results at first. Since the report, the company’s shares are down around 6%. I think the company’s Q2 performance was a bit of a mixed bag. Non-GAAP metrics continue to head in the right direction, but GAAP metrics are going in the opposite direction, while the company’s debt pile increased substantially. For a company with AI tailwinds, I would expect a much better performance.\n\nWhat’s going to help the company get out of what I think is a subpar performance? We saw from the results that the company’s CDN revenues have been on the weaker end, as they continue to decline. The company is looking to strategically pivot away from its legacy content delivery network business and focus on faster-growing, higher-margin areas like cloud security, infrastructure services, and computing at the edge. At least the management has identified the obvious and is taking initiative to shift the business to what seems to be the most promising. Cloud infrastructure growth targets are around 40%-45% in annual recurring revenue, which is quite impressive; however, I remain slightly skeptical for now. Although the company is taking steps to achieve this with acquisitions within the security and cloud space, like the recent acquisition of Noname Security, which should help with the growth prospects. The products like Akamai Cloud Inference and AI Gateway, designed to make AI inferencing at the edge more secure, provide scale, and solve latency challenges, are a good way of future-proofing the company’s revenues, in my opinion; however, it all hinges on whether the pivot is going to yield the results the company expects. So far, these innovations are quite small in comparison to the company’s main revenue generators, and with one of them declining, I expect single-digit growth to persist going forward, until AI tailwinds help it overcome the weakness. The company’s success hinges on AI initiatives, but it is most certainly not a pure AI play. It is a meaningful and growing element in AKAM’s business and future growth; however, AKAM’s business model remains broader, with a focus on cloud delivery, security, and infrastructure services, which are aided by AI capabilities.\n\nI don’t think there is any rush to start a position after these results. Akamai Technologies, Inc.’s pivot is going to take a while, with further expectation of weakness in the company’s legacy CDN segment, which still makes up a big chunk of the revenues. This means that the company’s top-line performance will remain lackluster until the pivot is much more pronounced in the business operations, with further AI integration to boost the mentioned cloud and at the edge segments. An increased spend on R&D should help the company transition, but only time will tell if this yields the results the management expects. I maintain a hold rating for now.

Akamai Q2 Review: A Bit Of A Mixed Bag, No Rush To Start A Position (NASDAQ:AKAM)

Akamai Technologies reported mixed Q2 results, with non-GAAP metrics improving due to stronger security and cloud computing growth, while GAAP metrics declined amid a significant increase in debt and a drop in legacy CDN revenues. The company is strategically pivoting from its traditional content delivery network (CDN) business to higher-growth areas such as cloud security, edge computing, and AI-driven infrastructure. Management raised full-year guidance, citing momentum in security and cloud services, AI tailwinds, and record growth in cloud infrastructure services. Despite positive non-GAAP performance and increased R&D investment, the company's shares declined by around 6% post-announcement, and analysts remain skeptical about the pace and scale of the business transition.