Akamai: AI Tailwinds Drive Edge Computing and Security Growth

Key Points

• Akamai has the world’s largest distributed cloud computing platform and has major clients, including the top 10 streaming services, video game companies, brokerages, software companies, and banks.
• Akamai has grown its Compute and Security segment to 66% of total revenues, surpassing its legacy content delivery network (CDN) segment.
• Akamai beat Q2 2024 and raised EPS estimates as stabilization takes shape.

Akamai Technologies Inc. NASDAQ: AKAM is a leading content delivery network (CDN) that provides cloud security and edge computing solutions. It is the largest distributed cloud computing platform in the world. Its backbone network consists of more than 4,100 edge point-of-presences (PoPs) and over 365,000 servers in over 135 countries. Edge PoPs cache content close to end-users, reducing latency, accelerating load times, and enhancing application speed. Akamai launched the first generation of CDNs in 1988 and pioneered edge computing in the 1990s.

Akamai operates in the computer and technology sector, competing with CDNs like Cloudflare Inc. NYSE: NET, Amazon.com Inc. NASDAQ: AMZN, and Fastly Inc. NYSE: FSLY.

Akamai’s Dominance Continues to Grow

Akamai is one of the oldest CDNs and has amassed a client list that exceeds 101,000 worldwide including the top 10 video streaming services like Netflix.com NASDAQ: NFLX, The Walt Disney Co. NYSE: DIS Disney+ and Hulu, Comcast Co. NASDAQ: CMCSA Peacock Network, Warner Bros. Discovery Inc. NASDAQ: WBD Max and Paramount Global NASDAQ: PARA.

Up to 30% of all internet traffic is carried through Akamai’s CDN servers. Some of its well-known technology customers include Advanced Micro Devices Inc. NASDAQ: AMD, International Business Machines Co. NYSE: IBM, and Salesforce Inc. NYSE: CRM.

Akamai is employed by the leading entities across various industries: all top 10 video game companies, banks, brokerages, and software companies; the top nine telecoms, healthcare providers, and retail companies; the top eight automotive companies; and all six branches of the United States military.

Akamai’s Growth in Compute and Security Segments

Akamai’s intelligent CDN platform is its core product, which enables accelerated content delivery, security, and application solutions. Moving away from core CDN, Akamai continues to grow its Compute and Security segments. Security includes zero trust access and granular access controls for applications and traffic. Its cybersecurity firewall solutions include bot managers and protect from DDoS attacks, SQL injection, and cross-site scripting. Security and Compute revenues, which include edge computing and artificial intelligence (AI) services, climbed to 66% of total revenue in the second quarter of 2024.

Akamai has interwoven AI across multiple segments to optimize performance, including anomaly and adaptive threat protection, predictive pre-connect and media optimization, and the acceleration of deep learning AI workloads to deploy Edge AI for customers. The AI boom is driving the demand for its diversified services.

AKAM Stock Forms an Inverted Head and Shoulders Breakout

The daily candlestick chart for AKAM triggered a bullish breakout pattern known as the inverse head and shoulders. This pattern is comprised of three valleys or bottoms. The left shoulder formed on the $90.56 low before bouncing to form the neckline. The head bottom formed at $87.83 before bouncing to the $98.98 neckline. The right shoulder bottom formed at $90.56 before bouncing back up through the $99.65 neckline on its strong earnings results. This breakout through the neckline closed the upside gap fill above $101.54. The daily relative strength index (RSI) is moving sideways along the 63-band despite higher highs, which could indicate a potential divergence top. Pullback support levels are at $99.65 neckline, $97.78 upper gap fill, $94.82, and $93.32 lower gap fill.

Signs of Stabilization Materialize

Akamai reported Q2 2024 EPS of $1.58, beating consensus estimates by 5 cents. GAAP net income rose 2% YoY, and non-GAAP income rose 6% YoY. Revenues grew 5% YoY to $980 million, beating $977.67 million consensus estimates. Akamai's Security revenue climbed 15% YoY to $499 million. The Compute segment revenue grew 23% YoY to $151 million. Its Delivery (CDN) revenue fell 13% YoY to $329 million. United States revenue rose 6% YoY to $509 million, while international revenue rose 3% YoY to $471 million. Akamai repurchased 1.4 million shares for $128 million at an average price of $94.29 per share. Akamai closed the quarter with $1.9 billion in cash and cash equivalents and 152 million shares outstanding.

Akamai Raises Guidance

Akamai issued upside Q3 EPS guidance of $1.56 to $1.62 versus $1.54 consensus estimates. Revenues are expected to be between $988 million and $1.008 billion versus $996.73 million. Akamai raised full-year 2024 EPS guidance to $6.34 to $6.47, up from previous guidance of $6.20 to $6.40, versus the $6.41 consensus. Full-year 2024 revenues are expected between $3.97 billion to $4.01 billion versus $3.99 billion.

Akamai CEO Dr. Tom Leighton commented, “In addition to satisfying customer demand, we can reap the advantages from offering customers delivery, security and compute on the same platform.”

Leighton elaborated, “The synergies include improved performance, seamless integration and other operational efficiencies, bundling for cross-selling and strong customer retention, increased margins for all of our services, deepening relationships with carrier networks, capacity to quickly detect and stop massive cyberattacks at the edge, unmatched visibility into enormous volumes of traffic and the security insights and threat intelligence that we gain as a result.”

Akamai analyst ratings and price targets are at MarketBeat. There are 19 Wall Street analyst ratings on AKAM stock, comprised of one Strong Buy, 11 Buys, six Holds, and one Sell. Consensus analyst price targets point to $116.00.