阿卡邁科技 (AKAM) 2025 Q4 法說會逐字稿

Good day, and welcome to the Q4 2025 Akamai Technologies Inc earnings conference call. (Operator Instructions) Please note that today's event is being recorded.

I would now like to turn the conference over to Mark Stoutenberg, Head of Investor Relations. Please go ahead, sir.

Good afternoon, everyone, and thank you for joining Akamai's fourth quarter 2025 earnings call. Speaking today will be Tom Leighton, Akamai's Chief Executive Officer; and Ed McGowan, Akamai's Chief Financial Officer.

Please note that today's comments include forward-looking statements, including those regarding revenue and earnings guidance. These forward-looking statements are based on current expectations and assumptions that are subject to certain risks and uncertainties and involve a number of factors that could cause actual results to differ materially from those expressed or implied.

The factors include, but are not limited to, any impact from macroeconomic trends, the integration of any acquisition, geopolitical developments and other risk factors identified in our filings with the SEC. The statements included on today's call represent the company's views on February 19, 2026, and we assume no obligation to update any forward-looking statements.

As a reminder, we will be referring to certain non-GAAP financial metrics during today's call. A detailed reconciliation of GAAP to non-GAAP metrics can be found under the financial portion of the Investor Relations section of akamai.com.

With that, I'll now hand the call off to our CEO, Dr. Tom Leighton.

Thanks, Mark. I'm pleased to report that Akamai delivered strong fourth quarter results as we continue to make major progress in positioning Akamai for the future. Revenue grew to $1.095 billion, up 7% year over year as reported and up 6% in constant currency. Non-GAAP operating margin was 29% and non-GAAP earnings per share was $1.84, up 11% year over year as reported and in constant currency.

Q4 revenue for Cloud Infrastructure Services, or CIS, was $94 million, up 45% year over year as reported and up 44% in constant currency. That's an acceleration from the 39% growth rate we achieved in Q3. The rapid growth was broad-based within CIS, driven by our ISV solutions, by Infrastructure as a Service and storage customers and by customers leveraging EdgeWorkers and WebAssembly, which offer improved performance and lower cost for edge native applications.

In each of these areas, we're starting to benefit from AI-related tailwinds as customers make greater use of AI applications and agents across their businesses. Last quarter, Akamai took a major step towards the future with the launch of Akamai Inference Cloud, our platform to support the growing demand to scale AI inference on the Internet.

Akamai's architecture uniquely positions us to power and protect AI the way we power and protect the web by bringing AI physically close to users enabling the faster performance and global scale needed to unlock AI's full potential. We believe the AI market is entering a critical transition point, the first inning of a long game to come, where inference or the execution of queries against a trained model is the new frontier. This requires purpose-built infrastructure to enable distributed low-latency, globally scalable AI at the edge with response times measured in a few tens of milliseconds.

Akamai Inference Cloud does just that by incorporating NVIDIA Blackwell GPUs into Akamai's distributed cloud infrastructure with its unparalleled global reach and security at the edge. This enables intelligence to run instantly, securely and exactly where it's needed, right next to the user, agent or device. As evidence of our strong momentum, we're delighted to announce that we recently signed a four year $200 million commitment for our Cloud Infrastructure Services with a major US tech company at the forefront of the AI revolution. I've had the privilege to work at Akamai for many years, and I have to say that it's really exciting to see such a pivotal player in the AI ecosystem choosing Akamai Inference Cloud for such a large AI use case.

We also signed many other new and expanded contracts for our Cloud Infrastructure Services in Q4. An AI chatbot platform based in India signed a three year contract for our IaaS and Enhanced Compute Support solutions and save 45% on compute costs they would have paid to a hyperscaler. A very well-known antivirus software company chose Akamai's cloud for their VPN service, telling us they liked our performance and support better than what they previously got from two of our cloud competitors.

A leading social networking platform that was using us on a pay-as-you-go basis committed to consolidate their multi-vendor stack on to Akamai's cloud platform, providing us with another takeaway from a hyperscaler. Two adtech companies in China chose us for our significantly lower latency and dramatically reduced egress costs. And one of the world's largest retail companies expanded their use of our edge compute platform to improve their digital shopping experience and increase conversion rates.

As a result of the strong customer demand that we're seeing and the strong AI tailwinds across the marketplace, we anticipate that the very rapid growth rate for our Cloud Infrastructure Services will accelerate further in 2026. Our security solutions also performed well in Q4, led by continued strong demand for our market-leading API security and Guardicore Segmentation solutions. Revenue from these high-growth security products grew 36% year over year as reported and 34% in constant currency.

Last month, Akamai was recognized as a customer's choice for Network Security Microsegmentation in the Gartner Peer Insights report for 2026. Akamai earned a 99% recommendation rate, scoring above market norms for both user adoption and overall experience.

Last quarter, we saw continued strong demand for our Guardicore Segmentation platform with both new and existing customers. One of North America's largest financial institutions purchased our segmentation solution to gain visibility and protection across all of their network assets as part of a four year $40 million contract.

South Korea's largest mobile operator selected Akamai following the well-publicized BPFDoor security incident, which exposed gaps in East West Security and Zero Trust maturity. The customer chose our solution for workload level segmentation, deep visibility and resilient enforcement across hybrid environments. We also signed deals for segmentation in Q4 with one of the largest carriers in the UK, a major branch of the US armed services and multinational banks in North and South America and Scandinavia.

In Q4, we also saw increased demand for our API Security solution, signing new customers across multiple verticals including financial services, technology, health care, real estate, retail and travel. Customers who chose Akamai API Security in Q4 included a major European automaker, a telco in the Middle East as well as airlines serving Asia Pacific and Latin America.

We also signed a five year $47 million commitment from one of the largest hardware companies in the world, in a contract that included API Security and Cloud Infrastructure Services Along with other Akamai offerings. We had many other customers in Q4 who purchased multiple security products across our portfolio including one of Asia's largest airlines, which signed a $10 million contract for multilayer protection over five years and a three year $45 million renewal with one of the world's largest financial institutions, to migrate nearly 100 critical applications away from hyperscaler security and onto the Akamai platform to ensure best-in-class DDoS and web application protection, high availability, and robust security support from Akamai Security Operations Command Center.

Earning the trust of customers is imperative for Akamai. The world's biggest brands trust us to keep their apps performing well even under peak traffic conditions. They trust us to protect them from myriad attacks and to keep their data safe. And they trust us for our reliability. We saw how much this trust matter to customers who relied on us during the recent holiday season, a time when one of our competitors took down their customers with multiple multi-hour outages. Major enterprises know who they can trust, and we're grateful for the trust that our customers place in Akamai.

Last quarter, we were honored to be named by Forbes in their list of America's Most Trusted Companies and in their list of America's Best Companies for 2026. Forbes analyzed thousands of the largest public and private companies in the US across 11 dimensions, including financial performance, customer sentiment, employee ratings, reputation for innovation, executive leadership, cybersecurity and sustainability. We were also honored by The Wall Street Journal, naming Akamai to its list of America's best managed companies, The Management Top 250. This ranking by the Drucker Institute analyzed publicly traded companies based on customer satisfaction, innovation, financial strength, social responsibility and employee engagement and development.

Before I hand off to Ed, I want to thank our employees and our management team for their achievements in 2025. Together, we're successfully executing on our ongoing transformation of Akamai into the cybersecurity and cloud company that powers and protects business online. We believe that the investments we're making today are enabling Akamai to do for cloud and AI, what we've done for security and CDN and enabling Akamai to grow even faster as a result.

Now I'll turn the call over to Ed to say more about our results and our outlook for Q1 and the year. Ed?

Thank you, Tom. I'm pleased to report that we delivered excellent fourth quarter results with total revenue of $1.095 billion, up 7% year over year as reported and up 6% in constant currency. We also delivered strong bottom line results with non-GAAP EPS of $1.84, up 11% year over year as reported and in constant currency.

Moving now to revenue. Compute revenue, which is comprised of the high-growth Cloud Infrastructure Services or CIS solutions and our Other Cloud Applications, or OCA, was $191 million, up 14% year over year as reported and in constant currency. For Q4, CIS revenue was $94 million, accelerating to 45% growth year over year as reported and 44% in constant currency, a nice jump from 39% growth last quarter. CIS now represents approximately 50% of total compute revenue.

Moving to security. Revenue was $592 million, up 11% year over year as reported and 9% in constant currency. Revenue from API Security and Zero Trust Enterprise Security combined was $90 million, an increase of 36% year over year and 34% in constant currency. Notably, API Security grew by more than 100% year over year, exiting the year with a revenue run rate exceeding $100 million. Security revenue was driven by strength of our high-growth product suites and a favorable tailwind from term license revenue.

For the fourth quarter, license revenue rose to $18 million, up from $12 million in the same period last year. As a reminder, our term license agreements are generally for one to three years and we continue to maintain exceptionally high renewal rates in our term license business.

Moving to delivery. Revenue was $311 million, down 2% year over year as reported and down 3% in constant currency. These results highlight the continued steadying trends we have seen in our delivery business throughout 2025. International revenue was $542 million, up 11% year over year or up 8% in constant currency, representing 50% of total revenue in Q4. US foreign exchange fluctuations had a negative impact on revenue of $5 million on a sequential basis and a $12 million positive impact on a year over year basis.

Moving to profitability. In Q4, we generated non-GAAP net income of $270 million or $1.84 of earnings per diluted share, up 11% year over year as reported and in constant currency. This better-than-expected performance was primarily driven by higher-than-expected top line revenue in the fourth quarter. Finally, our Q4 CapEx was $154 million or 14% of revenue.

Moving to cash in our capital allocation strategy. As of December 31, our cash, cash equivalents and marketable securities totaled approximately $1.9 billion. During the fourth quarter, we did not repurchase any shares. For the full year 2025, we spent $800 million to buy back approximately 10 million shares, marking the largest annual buyback in our history. As it relates to the use of capital, our intentions remain the same, to continue buying back shares over time, to offset dilution from employee equity programs and to be opportunistic in both M&A and share repurchases.

Now before I provide Q1 and full year 2026 guidance, I want to touch on some housekeeping items. First, as Tom pointed out, we recently signed our largest compute customer contract. We're very excited that this technology company has committed to a minimum four uyear spend of approximately $200 million on our Cloud Infrastructure Services with a large majority of that spend for our AI Inference Cloud. We expect to start recognizing revenue from this contract in the fourth quarter of 2026. Second, to capitalize on this transaction and with growing AI Inference Cloud pipeline, we intend to invest approximately $250 million of CapEx this year to augment our AI Inference Cloud.

Third, we have recently observed significant inflationary pressure within the computer hardware market due to unprecedented industry investment in AI, specifically, we're seeing a dramatic increase in the price of memory chips, which is driving up the cost of servers. This supply constraint has necessitated an upward adjustment to our CapEx forecast of approximately $200 million for 2026.

Next, I want to remind you some typical seasonality we experienced in operating expenses throughout the year. First, we recently completed a targeted reduction in our workforce to better align our talent with our long-term growth priorities. While this action streamlined certain areas and reduced our OpEx, we do not anticipate generating net savings for the full year. Instead, we are reinvesting those savings directly back into the business, specifically to scale our go-to-market efforts and to support our colocation and CIS infrastructure requirements to maximize our growth opportunities. In Q4, we took a $55 million restructuring charge that was primarily comprised of severance costs and impairments of certain intangible assets.

Second, looking at the first quarter, we typically see a seasonal increase in expense. This is driven by higher payroll costs resulting from the reset of social security taxes for employees who maxed out in 2025 and stock vesting from employee equity programs, which tend to be more heavily concentrated in the first quarter.

Third, as we look to the second quarter, we expect operating expenses to remain relatively flat on a sequential basis. The savings realized from our restructuring and the roll off of the higher Q1 payroll taxes will be offset by our annual merit cycle, which takes effect on April 1.

Moving to FX. Foreign currency markets are expected to remain volatile throughout 2026. As a reminder, we have approximately $1.3 billion in revenue that is denominated in foreign currency. Largest currency exposure on revenue includes the euro, the yen and the Great British pound.

Finally, as previously noted, Cloud Infrastructure Services now accounts for approximately 50% of our total compute revenue and is growing rapidly. Recognizing CIS is the primary growth engine and a significant focus of our investments. For the compute business, we will begin reporting it as a stand-alone revenue category effective in the first quarter of 2026. For simplicity, we will consolidate delivery and other cloud apps into a single reporting category starting in Q1.

To assist with your year over year analysis and financial modeling, we have published eight quarters of revenue history, for these revenue categories and supplemental schedules as part of today's reporting package on our Investor Relations website. In addition, for added transparency, we will disclose quarterly revenue for OCA independently for the remainder of 2026.

Now moving on to guidance. For the first quarter of 2026, we are projecting revenue in the range of $1.06 billion to $1.085 billion, up 4% to 7% as reported or 2% to 5% in constant currency over Q1 2025. We expect Q1 revenue to be lower sequentially from Q4, driven by the following factors. First, reduced onetime license revenue in Q1 from Q4 levels; second, two fewer calendar days in Q1 compared to Q4, plus two less days of usage revenue; and finally, less seasonal traffic in Q1 compared to Q4.

The current spot rates, foreign exchange fluctuations are expected to have a positive $4 million impact on Q1 revenue compared to Q4 levels and a positive $22 million impact year over year. At these revenue levels, we expect cash gross margins of approximately 71% to 72%. Q1 non-GAAP operating expenses are projected to be $339 million to $348 million. We anticipate Q1 EBITDA margin of approximately 39% to 41%.

We expect non-GAAP depreciation expense of $145 million to $147 million and we expect non-GAAP operating margin of approximately 26% to 27%. With the overall revenue and spend configuration I just outlined, we expect Q1 non-GAAP EPS in the range of $1.50 to $1.67. This EPS guidance assumes taxes of $57 million to $60 million based on an estimated quarterly non-GAAP tax rate of approximately 19%. It also reflects a fully diluted share count of approximately 148 million shares.

Moving on to CapEx. The reason I highlighted earlier, we expect to spend approximately $254 million to $264 million in the first quarter. This represents approximately 23% to 25% of revenue. Looking ahead to the full year for 2026, we expect revenue of $4.4 billion to $4.55 billion, which is up 5% to 8% as reported and 4% to 7% in constant currency.

Moving on to Security. We expect Security revenue to grow in the high single digits on a constant currency basis in 2026. The Cloud Infrastructure Services or CIS, we project revenue growth to accelerate to 45% to 50% year over year. We expect this momentum to build throughout the second half of 2026 driven mainly by the scaling of our AI Inference Cloud business. For delivery and other cloud apps, we expect both will decline in the mid-single digits year over year. Specific to delivery, we expect the revenue to decline in mid-single digits for the year, with Q1 being slightly higher due to the wraparound impact of the Edgio transaction from last year.

By way of comparison and for consistency with 2025, using our former compute reporting methodology, we expect the combined growth of CIS and OCA to be at least 20% year over year. At current spot rates, our guidance assumes foreign exchange will have a positive $36 million impact on revenue in '26 on a year over year basis.

Moving on to operating margins for 2026. We are estimating non-GAAP operating margin of approximately 26% to 28% as measured in today's FX rates. The decline in operating margin for the full year 2026 is due mainly to increased colocation and depreciation expense associated with the continued buildup of our CIS business. We anticipate that full year capital expenditures will be approximately 23% to 26% of total revenue, driven by the investments and costs that I mentioned earlier.

As a percentage of total revenue, our 2026 CapEx is expected to be roughly broken down as follows: for network-related CapEx, we expect approximately 4% for our delivery & security business, approximately 10% to 13% for compute, and for other CapEx, we expect approximately 8% for capitalized software with the remainder being for IT and facilities related spending. Excluding the impact of the increased hardware pricing, 2026 CapEx would have trended within the 18% to 22% range. The impact of increased server costs is mainly included in the compute line item above.

Moving to EPS. For the full year 2026, we expect non-GAAP earnings per diluted share in the range of $6.20 to $7.20. This non-GAAP earnings guidance is based on a non-GAAP effective tax rate of approximately 19% and a fully diluted share count of approximately 147 million shares.

With that, I'll wrap things up. Tom and I are happy to take your questions. Operator?

(Operator Instructions)

Sanjit Singh, Morgan Stanley.

Congrats on a very strong Q4 results. Ed, you provided a lot of great detail on the dynamics around CapEx as well as the momentum you're seeing within -- with the CIS business. When I look at the increase in CapEx, I mean, it's roughly coming up by, I think, $270 million. Going back to like the discussion that we've had in prior quarters, that roughly $1 of CapEx equals to $1 of revenue. Does that still hold? And as we think about this increase in CapEx, how should we think about that translating into revenue from a timing perspective, both this year and then maybe going beyond 2026?

Sanjit, thanks for the question. So obviously, I talked about having some inflation in memory chips, hopefully, that is something that doesn't last for a long time. So that obviously skews your CapEx a bit. And as I talked about, most of that is affecting your compute because there's a lot more memory in those servers.

So the $1 CapEx for $1 of revenue would not hold true for this particular buying CapEx, but it's not that far off. Generally speaking, we're seeing something roughly like that. Obviously, for larger deals with longer commitments, we will offer volume discounts. But even for some stuff, you might get a slightly better return like, for example, we'll be launching a rental service where you can rent GPU by the hour starting sometime later this quarter, where the list price for that's $250 million, so that would work out a little bit higher. But generally speaking, it's a decent number to work with -- modeled it a little bit lower for this year, just given that we've seen higher CapEx costs associated with the memory prices.

Understood. And then just one follow-up on the Akamai Inference Cloud opportunity. Really encouraging to see that 4-year deal with a major tech company. Can you speak a little bit about the pipeline? I know we have some really big customers looking at the opportunity. But just in terms of the breadth of interest pipeline. Any color you can provide there on potential more customers signing up for the service?

Yeah. Pipeline is very strong. In fact, the Inference Cloud offering we announced in the fall where we deployed the GPUs into 20 cities that's already sold out, even though it's not generally available yet, just from the beta customers. And so now we're ramping up the investment there, as Ed mentioned, and very strong pipeline. In fact, with the large customer we talked about already committing to take over a substantial portion of that.

The areas of interest are broad at a high level, obviously, inference applications, also post-model training, but specifically things like transcoding, real-time translation, generative media to generate images and video on the fly and the new Blackwell GPUs, very good at doing that with much lower latencies. Vision, processing what is seen, customer support bots, all sorts of gaming applications, streaming, rendering, modifying characters as you go along in the game.

In commerce, virtual fitting room kinds of applications. So it's almost like the buyers looking at themselves in a mirror wearing the clothes, also making sure the close will fit, so you have fewer returns, a lot of robotics and autonomous vehicle kinds of applications, areas that these folks might not traditionally be Akamai customers, now potentially large compute customers. And generally, the field of local LLMs, as people -- companies do more kinds of things themselves, but want to operate their own model.

That's great because that's the kind of thing you'd want to do on Inference Cloud and have it done close to where your employees are. So we're very enthused about what we're seeing so far and a lot of potential for growth for us.

Mike Cikos, Needham & Company.

Congrats on the strong end to '25. The first question I have for you on that major US tech customer, can you help us think about how this came together? It's great to see the duration. We're talking four years and the $200 million minimum commitment. But was this a new logo to Akamai? Or were they a previously existing customer within CIS or another portion of the Akamai portfolio? And then I just have a quick follow-up.

Sure. I'll take this one, Tom. So the good news, it was an existing customer. It wasn't one of our largest customers, though. This was somebody who was using us for CDN and security and then had discussions with them going for several months now on a pretty exciting workload. We're not at liberty to disclose who it is. But the good news is existing customer who has dramatically increased their spend, and we hope there's a lot more business to do with them.

That's excellent. And I appreciate that, Ed. I guess the follow-up, some of the Sanjit's line of questioning. When thinking about the capital intensity here, and I really appreciate the disclosure. It sounds like you guys have been busy on your side, but how do we think about the level of CapEx you guys are deploying here?

Are you changing in any way how you're sourcing servers or going in and buying hardware versus where we've been previously, just given the heightened price components that we're seeing out there in the market and they feel that this is somewhat different as far as the cycle and persistence of these pricing dynamics? Anything that would be incremental as well.

Yeah, sure. No problem. And the capital intensity isn't necessarily increasing for any other reason than we're seeing significant demand for CIS. So that's the major driver. And obviously, making that purchase of $250 million for the Inference Cloud is very well informed.

And as Tom mentioned, we have -- it's great to have one customer who's taking a good chunk of that and having that committed, it's just a great opportunity for us to put that capital to use. So I hope we do more of that. So I'm very happy about that. Now in terms of -- as the complexity of what we're doing or what we're buying, changing, no, not really. We're buying mostly servers and networking equipment and things like that.

We are looking at trying to reduce the impact of the server -- the memory chip increase in costs. So we're looking at sourcing things differently from different sources, et cetera. But generally speaking, there isn't really any significant change. And as far as our co-location posture, we're still using the third-party colo providers. At some point, maybe that changes once we get a lot larger.

But no real significant change. And hopefully, as I broke out the different components, if you want to think about it this way, you take out the $200 million for the price increases. And then if you look at that purchase of the AI Inference Cloud as sort of something that we did that was a little -- a little different than last year. The normalized CapEx is kind of at the lower end of what our range typically would have been. So this is a good kind of capital intensity increase when you have a chance to fuel a business that's growing as fast as CIS is.

Rishi Jaluria, RBC.

Nice to see acceleration in the CIS business at scale. Maybe two questions, if I may. Number one, if I start to think about some of the success that you're having on CIS, it sounds like you're having that with existing Akamai customers that may have used you for delivery or security or combination thereabove. Maybe can you help us understand, as you think about going back to those customers, is the total ACV or whatever sort of metric you want to use, with those customers growing meaningfully as a result of this? In other words, just trying to get a sense that it's not a situation of money that maybe they would have spent for delivery in the past. And as we think about pricing in DIY, it's money that's going elsewhere that this is actually being additive to those customers' total bills, if that makes sense. And then I've got a quick follow-up.

Yeah, yeah, great question. It's certainly, it's additive. We don't -- we're not horsetrading any delivery for compute or anything like that. As a matter of fact, this particular large customer was done out of cycle, so it wasn't even done as part of a renewal. So it's all 100% additive. And I would say, yeah, we're having good success with existing customers, but also with new customers. And Tom talked about the pipeline. What's interesting with that pipeline is we are starting to see verticals. We don't typically are strong in from a legacy perspective as far as CDN goes. And so that's good to see.

We see partners bringing us new business. And there's really a mix in that pipeline of new and existing customers. And we've actually seen total new customer count pick up over the last 1.5 years or so, and I think a lot of that has to do with having CIS as an offering that's more broad.

Got it. That's helpful. And then maybe I'd be a little remiss if I didn't ask about kind of some of the onetime factors going on in calendar year '26. As you think about your guide for the year and obviously appreciate the granularity. Just can you maybe help us understand, I know this isn't the Akamai of 10 years ago when maybe live events were a lot more meaningful.

But I still just want to understand what are kind of your assumptions in terms of the major events are happening between Winter Olympics going on right now between the FIFA World Cup in the summer, got some big AAA gaming releases that may or may not happen, obviously, release dates kept getting pushed out. Maybe just help us understand kind of the puts and takes and how that ties into your numbers?

Yeah, sure. Happy to take that one. So if you think about events, they come in different flavors, you get the small events like a live concert or a Super Bowl, those tend to be very small revenue. Sometimes you might get a capacity reservation fee. So maybe that might be $0.5 million to $1 million or something.

So nothing too dramatic there. Something like the Olympics three weeks long, it's a few million dollars, depends on how many rights holders you have, how many different rights holders you sign, et cetera. So it's not a huge jump. Doing $1 billion-plus a quarter, it's fairly insignificant to the quarter. It's a good business, so we'll take it.

Something like the World Cup, it's a little bit longer. So you'd probably see maybe $3 million to $5 million, $5 million to $6 million, something like that. But again, nothing overly material, although it's nice to have all these events. And then the things like an NFL season much better, you're going to generate a lot more revenue there from a number of different customers. So it really depends on the length of time and the number of people that have rights.

Something like a gaming release depends if it's a really popular release that has a lot of updates to it that can be popular and can drive some extra revenue. It really depends. Something like Fortnite certainly was a big tailwind for us several years ago. If you see a new console refresh cycle, that's a much bigger impact for us because you're talking now about hundreds of millions of consoles getting firmware updates and lots of updates. So that's the way to think about the event. So it's nice to have them, but it's not overly material for the year.

Roger Boyd, UBS.

Congrats on a good end of the year. I wanted to ask about the handful of larger CIS deals that you had noted last year as being delayed out of the back half of the year. Can you just update us on how those are progressing and maybe how those are embedded into the 2026 guide?

And I think you mentioned the $200 million deal you signed this quarter will start to ramp in the fourth quarter. At a high level, can you just talk about the typical ramps you're seeing in compute? Is any part of this result of capacity constraints? And do you expect to see these ramps on the compute deals get shorter over time?

Yeah, it really depends. Some we can get up and running pretty quickly. It really just depends on the size of the transaction and if there's any specific geo where we may need to get some additional colocation. The colocation market is tight. But we've got -- we're a big buyer of colocation, so we're doing pretty well there.

We did see some of the larger workloads ramp up at the end of last year, and we've modeled in what we think those will do. And I talked about this particular really large deal will start ramping in Q4. And part of that is we have to -- we're ordering all the chips, putting them in place, getting some space. So it just takes a bit to ramp that up. It is -- obviously, GPUs are pretty tight supply chain, but we're able to get those out and launched here.

So we've modeled in a variety of different outcomes on that in terms of our guidance range. But if the bigger the deal usually takes a little bit longer to ramp, and in some cases, people can get up and running very shortly.

Fatima Boolani, Citi.

I wanted to focus on the trajectory of the delivery business. I think this has been asked in a couple of different permutations. But I wanted to ask it at more of a higher level with respect to the aggregate environment for internet traffic and traffic volumes. You've had a bunch of your peers sort of talk to accelerating or improving traffic trends. I was hoping you could compare and contrast for us what you're seeing on the Connected Cloud Network?

And then the flip side of that coin is just the pricing dynamic. So to your point, the delivery business has seen a pretty substantive degree of stabilization over calendar '25, and it seems like that is going to persist. So I just kind of wanted to unpack the P and the Q on the delivery equation? And then I have a follow-up as well, please.

Yeah. At a high level, the trends that we're seeing and projecting for this year are pretty comparable to what we saw towards the latter half of last year. Traffic environment seems very reasonable. Obviously, fewer players in the market than a couple of years ago. Pricing environment remains competitive.

We still have folks out there selling, in some cases, at very low prices, which we won't do. We -- in particular, we see some costs rising as we've talked about, especially in memory and in some cases, we'll actually be raising prices to help offset those costs. But I would say at a high level, what we're expecting this year is pretty comparable to what we saw last year, especially in the back half of the year.

I appreciate that. And Tom, you had sort of talked about the rental service that you're going to launch in the upcoming quarter. I wanted to take the opportunity to have you unpack that, what the expected structure is, what the economics look like? And maybe in a more broader sense, the type of utilization that you are expecting on your network as you think about and deploy this $250 million of incremental capital to scale out the inferencing cloud ahead of the capturable opportunity?

Yeah. So in terms of Inference Cloud, there's two models. One is the traditional model where you buy access to the GPU by the VM hour or the token. And that's what we'll be going GA later this quarter. The GPUs we deployed into 20 cities are already pretty much sold out.

So we're adding an order of magnitude, more capacity, and that's what the $250 million investment is for. And in addition to selling by the token or VM hour, we will be selling clusters so that you might decide to buy hundreds or thousands of GPUs in certain locations. So that will be a new model that we're introducing this year and have some very large customers buying CIS in that way.

Yeah. The one thing I would add, Fatima, is in terms of the early pipeline, we are seeing a bit more skewed to the customers who want to guarantee the capacity. So they're asking for whether it's several hundred or thousand or whatever GPU for a period of time, multiyear time kind of deals, which is obviously a better model. I'd like to see that. In terms of the usage, we haven't done that yet. So we don't know exactly how that's going to play out. So we've got a range of various outcomes there. But certainly, there's a lot of early excitement and demand in the pipeline that we're seeing for what we're buying.

Frank Louthan, Raymond James.

This is Rob on for Frank. Congratulations on the strong 4Q. So my question is, what sort of revenue commitments are you guys able to get from customers today relative to before? How prevalent are those now versus previously what percentage of revenue on the delivery side is under those commitments? And what's your outlook for delivery growth this year, specifically with AI-based traffic, if you can give us a better sense of that?

Yeah. We are seeing longer commits for -- really for all of our services, partly that's by design. And I think customers also interested in having that take place. And with the delivery growth, we're looking at about the same rate, so mid-single digits this year. And Ed, do you want to add to that?

No. I would just say you'll see like the RPO is growing for the total company quite a bit. That's just a function of what Tom is talking about in terms of folks making longer-term commitments. And we've incentivized our sales force to get longer commitments. As far as the delivery market itself, not a huge change there in terms of commitments.

There are some customers that might commit a percentage. Some might give you some type of exclusive or either a part of their business or geographic area, et cetera. So there's really no dynamic change in the delivery business. It's roughly the same in terms of committed versus uncommitted. But since the other parts of the business are growing much faster, security and compute, we're seeing a lot longer and bigger commitments.

John DiFucci, Guggenheim.

A lot of interesting things happening here, Tom and Ed, and especially around the CIS business. And thanks again -- thanks for breaking that out historically, too. Last year, you announced a very large contract with a social media customer. And I think this is sort of a follow-up to Roger's question. And that company had a lot going on internally, right, and externally, too.

And it required the additional build-out of capacity by you. I think we're a year into that, and we believe -- I believe the buildout is complete by you, but I still think there's a lot going on with that company. I guess could you -- because a lot of this stuff could come on lumpy. And I'm just trying to figure out how to think about this going forward? And this is like the first deal like this, and it was great to hear about that $200 million four year deal, too.

But with this deal, have you started recognizing revenue yet from that customer? And if not, can you share a little bit about what you expect to recognize revenue? And then I guess one other part related to this is that social networking deal you talked about that's going to consolidate on Akamai and take away from a hyperscaler that I think Tom mentioned in his prepared remarks, is that the same customer? Or is that another customer? Sorry for the long-winded question.

No worries, John. I hope by interesting you mean good interesting. So I'll take that. It's not the same customer. It's a different customer.

In terms of the lumpiness you talked about, generally speaking, we don't see lumpiness per se. As I talked about with the new deal we just signed, the $200 million four year deal, I expect that to be fairly even, maybe there's some upside as usage ramps. But there's not like say, a big chunk of revenue and then it goes away or whatnot. But we do expect that to start ramping in Q4 just as we start deploying, make the purchase, get the GPUs, get them up, customer has to do their testing and then they go into a full launch. So that just takes some time.

So starting in Q4, we expect that to ramp up and then continue into next year. And then in terms of the large customer we signed last year a $100 million deal, we did start taking a little bit of revenue in Q4. We expect that to continue to ramp up throughout the year. I will say there is some seasonality. We do have a little bit of work in the compute business that might be tied to, say, like a season or something like that, say, a sports season.

So you may see a little bit of extra revenue in, say, Q4, and it dips a little bit in Q1. But generally speaking, you don't see big lumpiness, as you said, in the compute business.

Okay. And that makes sense. That makes sense. I was thinking sort of like Oracle, but they're bringing on these huge AI training data centers, which are just come all online, but that's not how your business is. And I guess just one follow-up, not a little bit unrelated here, added to an accounting question. How much of that fourth quarter restructuring charge of $55 million, was any of that in cash for this quarter? Or was the -- because the cash flow was a little weaker than I think people expected. And CapEx is higher so I get that. But was that...

Yeah, good question. So most of the cash flow is a timing issue just in terms of timing of cash receipts and payments and we made some pretty big tax payments before the end of the year. So that skews the cash flow. But if you look at last year, I think it's relatively in line with last year. But in terms of the restructuring, that cash will go out in Q1. So the majority, a little over half was intangible assets, so there's no cash associated with that. Severance was a little less than half that will hit in Q1.

Okay. Great. And a lot going on here, but -- and I actually -- I definitely meant good when I said interesting.

Will Power, Baird.

Okay. Great. Maybe just to switch gears to security. Great to see the continued Guardicore Segmentation API Security strength and API, I guess, topping up $100 million. It'd be great just to get a better kind of outlook since for growth expectations on those two pieces in 2026, how that folds in?

And then probably for you, Tom, it would be great to get your perspective just on how you're thinking about any potential AI risk kind of across your security portfolio, just given some of the market concerns out there? It seems like the businesses have been pretty resilient. But maybe you can just comments on what you're maybe seeing competitively from any other AI entrants or technologies in the marketplace.

Ed, why don't you take the first then I'll do the second.

Sure. Happy to. So yeah, very happy with what we're seeing with Guardicore and API Security. We had a really good, strong fourth quarter finish in terms of bookings. And the nice thing with both of these businesses is we're seeing a nice mix of new customers versus existing, especially with Guardicore.

As a matter of fact, the majority of revenue is coming from new customers associated with Guardicore, which is great. And then with API, both actually are very low on a penetration rate within API Security, less than 10% of our existing customers have purchased that. So there's an enormous amount of runway there. We're seeing a lot of -- big adoption across many, many different verticals, too. So it's not just a one vertical like financial services.

It's really across everything. So we expect, as we go into next year, very similar to last year. In terms of API and Guardicore now a little bit more scale, driving the majority of the growth. The other product lines, whether it's bot management and WAF continuing to grow, albeit slower and then service is continuing to grow as well. So we expect growth in most of those categories, maybe Prolexic tends to be a little bit more ventured but maybe that's not, I guess, more flattish.

But we do expect growth across the board and this year to look pretty similar to last year with the majority coming from API and Guardicore.

Yeah. And to your second question, that's a great question. We are not seeing risk from AI and do SaaS do-it-yourself kinds of things. One of the key reasons for that is for our services, security services, you really need to run it on the large distributed platform by and large. And one reason for that is if you try to sort of do it yourself and your data center in a few locations, you just get overwhelmed with the volume of the traffic.

And you don't have any chance to really apply the security because you're flooded. And that's where Akamai's distributed platform makes the critical difference as we intercept all that traffic, the bad traffic, out where it starts, and we can do that at great scale. And so we're not -- I don't think -- we don't have that kind of exposure.

Now the good news is if the AI induced risk to SaaS as that materializes, that's a big tailwind for us on the compute side because these enterprises are going to need to run their models that are doing these SaaS tasks and generally, they're going to probably want to run them close to where their employees are, and that's a perfect application for our inference cloud. So on balance, if that really materializes, that's a tailwind for Akamai, I think, not a headwind.

Jackson Ader, KeyBanc Capital Markets.

This is Aidan Daniels on for Jackson Ader. Just curious on the compute side. What are you guys seeing as some of the main reasons for customers choosing Akamai over whether it's other hyperscalers or other competitors for compute workloads at the edge? And I know cost has been a key element you guys have called out in the past, but was just looking for some added color on how Akamai can continue to win some of these deals?

Yeah. Great question. It's performance. It's scale. And yeah, cost is generally lower. But just as an example, we talked about on the last call, the three big hyperscalers in the US are all using our compute. And for them, it's not a cost issue because they have their own clouds, obviously, for them, it's performance issue because we can run their logic in a lot more locations than they can do themselves with their clouds.

And so that results in better performance for them, they're closer to the users and better scale, especially if you're doing things around video that are a bit intensive. You need to do that in a much more distributed fashion. And then for other customers, cost does come into play. As we talked about some of our customers getting really substantial savings as they move out of the major cloud providers, the hyperscalers to Akamai. In fact, Akamai achieve major savings as we moved out of the hyperscalers, a lot of our applications onto our own cloud. So better performance, better scalability and better cost in many cases.

Patrick Colville, Scotiabank.

Just one for Dr. Tom, please. I guess I just want to go back to the Inference Cloud. I mean you talked earlier about some nice use cases for accelerated compute at the edge. And it seems like the comment spread is that latency is important for those use cases. But I guess my question is this. I mean, in the CPU world, edge compute was a good market, but it wasn't enormous. Most compute happened locally on device or at the hyperscaler core. Why would accelerate compute be different that you're going to have this large and very exciting markets at the edge?

Yeah, good question. And it's not just latency. Latency of course, matters, but it's scale. When you think about some of the AI applications, generative media, you're generating video, processing video. And just -- you don't have the capacity, the bandwidth at a core data center to be generating or processing millions of personalized videos concurrently.

You got to do that in a distributed fashion. Just like anything with live sports or anything like that, it's got to be distributed. So it's not just latency. And increasingly, as we're seeing these applications, they are bandwidth intensive. Also, when you talk about doing speech, when you're conversing with your avatar, it does need to be real time.

You can't be going far away to a data center or it's not the same experience. Now in the past, the GPUs weren't fast enough to make that work. But now they are getting to that point where it is a few tens of milliseconds. And so the latency does matter more now.

And can I just ask a quick follow-up there on the Inference Cloud, again, actually. I mean, two parts. First one is, do you need to do any software updates in terms of the software that Akamai has for customers to run Inference Cloud? And then, I guess, the kind of -- the second part is in terms of Akamai's target customers here, it seems like the customer profile is slightly different to the existing customers. Am I interpreting that right that you will be able to sell this to existing customers, but also a new cohort and maybe even AI natives?

It's a broader customer pool. So our existing customer base, yeah, they are good targets for us. But there's also, as we talked about, Ed mentioned, there's a lot of customers who are signing that weren't using Akamai before because maybe they didn't really have delivery needs or even web app firewall at any kind of scale. And so they're new to Akamai. And in terms of software updates, we're always upgrading the software in our cloud platform, but it's nothing special per se with the GPUs.

It works very much in the way that Akamai Cloud has worked, Linode has worked. We are selling an additional model, as Ed talked about, with clusters with a long-term contract in addition to the traditional model, which by the VM hour or by the token.

Jonathan Ho, William Blair.

Congratulations on the large AI inferencing deal. I was wondering if you could give us a little bit more color in terms of what was unique about Akamai to cause the customer to maybe choose your solution over competitors? And if you could maybe give us a sense of philosophically, whether you're building out capacity to meet that demand? Or are you comfortable investing even above that demand as you're adding capacity?

Yeah. It's what we've been talking about, it's really good performance, very reasonable cost. And I'd add for something that's this critical an application, trust matters. And we talked a little bit about that a few minutes ago. Akamai customers do trust us.

We've really earned that with our delivery and security services, our reliability, our customer support. And for something this big and critical, I think that makes a big difference. So -- and we are needing to build out in this case. And that's part of the large investment that Ed talked about, we're greatly increasing the capacity of Inference Cloud. As I mentioned, we pretty much sold out the 20 locations with the GPUs that we have deployed starting in the fall. And now we're going to increase that by about an order of magnitude and part of that will be used by this large customer that we talked about.

Rudy Kessinger, D.A. Davidson.

Jonathan actually took the main one that I had. But on the $250 million, you're spending to augment the AI Inference Cloud build-out. I guess by year-end this year, I mean, how many locations do you intend to have GPU capacity? And I believe that the initial announcement last quarter, it was like 17 or 19 locations or something. But how many do you intend to have that GPUs in by the end of this year?

Yeah. I -- we're in about 20 now, and I don't expect that number to be a lot larger, but the locations we're in, themselves will be a lot larger, which enables us to add the model where we can sell clusters of GPUs.

Mark Murphy, JPMorgan.

This is Arti Vula on for Mark Murphy. Ed, I believe you mentioned that you're seeing deals in the pipeline coming from verticals that maybe weren't as prevalent before. Can you help us understand what those newer verticals are? And then are those coming more from the direct sell motion or from the channel?

Yeah. So it's a little of both. We're getting some from the partners that we work with. We announced a relationship with NVIDIA. They refer customers over to us as an example. And in terms of the verticals, think of things like life sciences, manufacturing, health care, different types of industrials. Typically, generally don't have really big websites, but do spend an awful lot on compute and they're also good security customers as well.

So direct motion is part of it. The direct is doing a good job of introducing this to all of our existing customers. I've gone on a couple of calls. And certainly, it's really going to have a lot of interest and customer feedback is that they believe we have a right to win here. It makes a lot of sense for us going here. There's an enormous amount of curiosity and we're doing a lot of proof of concepts. So good to see that the demand is coming from a variety of different sources.

And then (inaudible) at least three named wins versus hyperscalers now it's across CIS and security. You guys have always found success there, but do you see any changes in the competitive dynamics there? Is that improving for you guys versus the hyperscalers?

You cut out on the first part of the question, the competitive dynamic in what area?

Against the hyperscalers.

So what we've competed with the hyperscalers in delivery and security for over a decade, I don't see any fundamental change there. We compete very successfully against them. In fact, two of the three big hyperscalers are large Akamai customers for delivery and security. And of course, now we're adding compute into the mix and already all three are using us for our compute capabilities. And again, there, it's not an issue of cost for them. It's an issue of better performance, at least in part because of our distributed nature. We can get their compute logic closer to their users where they want it.

Yeah. One thing I'd add, it's not just -- just would add, it's not necessarily that the only way we win is by taking business away from them. In a lot of cases, we're seeing new workloads, especially as inference becomes a much bigger part of the equation in AI, a very good spot to go to, and customers have challenges where either latency needs to be very, very low and you need to be super close. We've seen some customers tell us that even being in a different state in the US gives them too much latency. They need to be within couple of hundred miles, which is different than what you've typically seen in even the CDN world.

So it's not a question of a zero-sum game where we win they lose, it's we do some from time to time, take some workloads. We do go head-to-head in competition where we would go in a bake-off and sometimes we'll perform better, et cetera. So the market is just growing so fast that there's plenty of room here for us. I think we're starting to demonstrate that we're becoming a real player here.

Jeff Van Rhee, Craig-Hallum.

This is Vijay Homan on for Jeff. Just one for me. I know you mentioned the impact of AI on the cloud segment. I was hoping you could just expand on the impacts of AI on security and delivery revenue maybe to the extent that that's driving traffic and how it's changing the demand of your customers for your services?

Yeah. So there's a variety of impacts with AI on security. One of them is that AI really helps enable the attacker. And so we're seeing much larger bot nets out there because the attacker can use AI to take over a lot more devices, they can use the AI to train malware to get around known defenses, and so you see more penetrations. You've seen the AI with deep fakes you couldn't possibly know are fake.

So in a lot of ways, it's making the attack environment much harder to defend against. Also, as enterprises adopt a lot of AI apps and agents, that's a whole new attack surface. And you need special defenses, like, for example, our new firewall for AI. Also today, enterprises are in a tough shape. They don't even know all the shadow AI they have.

And so we have new capabilities there with our API security to extend it, to identify the AI applications they have exposed. So you need to know what AI you've got out there and you need to defend it with special firewall capabilities, which we do. So I think AI is having and will continue to have a positive impact for our security business in terms of our revenue even though the attack landscape is nastier, in some ways, it's more need for Akamai services.

In terms of delivery, we are, of course, seeing a rise in the scraper bots. And so if left undefended, that would create a need for more traffic. Now for our customers through our bot management solutions, we actually help them to deflect a lot of the scraper bots, give them visibility into what the various bots are, what they're doing. And then our customers decide, okay, which ones do they want to block, which ones do they want to do special things for.

So I'd say on balance, yeah, probably a traffic increase to an extent. But again, there, it's more -- creating more of a need for our bot management so that our customers can handle the various scraper bots in the way that makes sense for their business.

And this does conclude today's question-and-answer session as well as today's conference. Thank you for attending today's presentation. You may now disconnect your lines.