Bear of the Day: Akamai Technologies (AKAM)

I recently profiled Akamai Technologies (AKAM) as the Bear of the Day on June 2 after their March quarter earnings report seemed to overcome several years of pessimism below $120 and make new highs above $160. In my "bottom line" I wrote..."If you took a shot at AKAM shares under $80 last year when it was priced for failure, maybe it's a good time to take some profits now that they're priced for perfection."That turned out to be good advice.Because since then not only has the stock fallen back to $130, but analysts have been adjusting estimates lower with the most recent Zacks EPS Consensus coming down to $6.65, near the lower end of the company's guidance of $6.40 to $7.15.Akamai is a $19 billion global provider of content delivery networks (CDN), cybersecurity and cloud infrastructure services.The company’s solutions accelerate and improve the delivery of content over the Internet, enabling faster response to requests for web pages, streaming of video & audio, and business applications.Its offerings are intended to reduce the impact of traffic congestion, bandwidth constraints and capacity limitations on customers, with the data-hog of high-definition video a particular specialty.For more background on the company's troubled efforts to compete in the AI economy, see my June 2 report: AKAM Bear of the Day. $1.8 Billion AI Infrastructure DealAfter AKAM's Q1 report, Bank of America analyst Tal Liani upgraded the stock to Buy from Neutral and raised his price target to $175 from $130. Liani noted...“The story has shifted from a legacy delivery network to a credible AI infrastructure platform. Large cloud infrastructure wins, including a $1.8 billion, 7-year deal, signal real demand for distributed AI, not just narrative.”In their Q1 presentation, Akamai announced that a "leading frontier model provider" had committed $1.8 billion for its cloud infrastructure services over seven years.Bloomberg later reported that the customer was AI startup Anthropic, though neither company publicly confirmed the report.Liani estimates the agreement will contribute between $20 million and $25 million in quarterly revenue beginning in the fourth quarter.The Bank of America team acknowledged that Akamai’s AI expansion will require substantial investment, citing that capital expenditures could rise to as much as $825 million over the next year as the company expands infrastructure capacity.Consequently, free cash flow is projected to decline nearly 48% in 2026 before recovering in subsequent years.Analysts and Investors Remain OptimisticIn late May, Akamai was able to raise $3.5 billion through a convertible bond offering. And the company also announced a $350 million share buyback.With the stock holding up well above $150, it appears investors still like the resurgent Akamai story.And at least four investment banks agree with Guggenheim Securities raising their price target to $181 from $133 and Craig-Hallum jumping from $100 to a $190 objective.Morgan Stanley and Susquehanna raised their price targets to $165 and $175, respectively.But some pessimism persists as Goldman Sachs reiterated their Strong Sell rating while raising their target from $76 to $87 after the Q1 report.The optimists are probably focused on Akamai's strong footprint in monitoring, preventing, and mitigating cyber attacks. The company recently cited their research data identifying these threat metrics for financial services: 738% longer DDoS durations since 2024147% rise in advanced bots96% of banks faced API incidents60–83% of web/API attacks hit bankingBottom line: While the growth story is turning around amid new datacenter opportunities and initiatives in cybersecurity, it's a slow grind from here as the Goldman team believes. Until the growth estimates stabilize and start heading higher -- the Zacks Rank will let you know -- we could still see a gap fill back to $120 support. Beyond Nvidia: AI's Second Wave Is HereThe AI revolution has already minted millionaires. But the stocks everyone knows about aren't likely to keep delivering the biggest profits. AI’s second wave is moving from infrastructure to implementation and these companies are at the forefront of this transition, positioned to become what Amazon and Google were to the internet era.See Stocks Now >>This article originally published on Zacks Investment Research (zacks.com).Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks