Key Takeaways:
Akamai Technologies Inc. (AKAM) surged more than 7% toward its highest close in 26 years after Bank of America upgraded the stock to Buy from Neutral, citing a major new artificial intelligence contract that repositions the company as a credible AI infrastructure platform.
"The story has shifted from a legacy delivery network to a credible AI infrastructure platform," Tal Liani, an analyst at Bank of America, said in the report. "Large cloud infrastructure wins, including a $1.8 billion, 7-year deal, signal real demand for distributed AI, not just narrative.”
Liani raised the firm's price target on Akamai to $175 from $130, implying about 18% upside from the previous day's close of $149.56. The stock rose 7.3% to $160.41 in Wednesday trading. The upgrade follows last week’s disclosure of a seven-year, $1.8 billion agreement with a “leading frontier model provider,” which Bloomberg later reported was the AI startup Anthropic.
Bank of America expects the deal to contribute $20 million to $25 million in revenue per quarter beginning in the fourth quarter. The analyst noted that Akamai’s cloud infrastructure services (CIS) segment is at an inflection point, with growth accelerating to 40% year-over-year, supported by increasing demand for AI workloads and edge inference use cases. This growth helps offset declines in Akamai’s legacy content-delivery business, where revenue fell 7% from a year earlier.
The transition to an AI-focused model requires significant investment. Bank of America estimates Akamai’s capital expenditures will climb to as much as $825 million over the next 12 months as it builds out the necessary infrastructure. This spending is expected to pressure near-term margins and cause free cash flow to decline nearly 48% in 2026 before rebounding in subsequent years.
Despite the costs, the firm lifted its valuation multiple on the stock to 22.5 times projected 2027 earnings, up from 17 times previously. Analysts at Morgan Stanley, who rate the stock Overweight, noted that the $1.8 billion deal, the largest in Akamai's history, was more significant than the company's recent earnings report because it firmly entrenches the company in the AI narrative.
The upgrade shows Akamai is successfully evolving beyond its roots in content delivery into a hybrid edge-and-core compute platform. Investors will watch the company's next earnings report for further details on cloud infrastructure growth and the margin impact of its AI buildout.
This article is for informational purposes only and does not constitute investment advice.
