Akamai Aktie

Good morning, and welcome to the Q1 2026 Akamai Technologies, Inc. Earnings Conference Call. [Operator Instructions]. Please note that this event is being recorded. I would now like to turn the conference over to Mark Stoutenberg, thank you, and work to you.

Good afternoon, everyone, and thank you for joining Akamai's First Quarter 2026 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 that include 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 May 7, 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 GAAP to non-GAAP reconciliation is available in the Investor Relations section of akamai.com under financials. With that, I'll now hand the call off to our CEO, Dr. Tom Leighton.

Thanks, Mark. I'm pleased to report that Akamai is off to a strong start to the year. In just a few months, we've achieved major milestones for our cloud computing strategy, marking a definitive point in the growth and evolution of our business. Akamai has long been known for operating the world's largest distributed platform for delivery and security solutions at global scale and with a reputation for reliability, quality and trust. .

Now we're leveraging our global footprint and years of experience supporting the world's largest enterprises to become an indispensable infrastructure provider for the AI-driven economy. At GTC in March, we unveiled the industry's first global scale implementation of NVIDIA's AI grid, and we announced the rollout of thousands of NVIDIA RTX Pro 6000 GPUs. By integrating NVIDIA AI infrastructure into Akamai's massive distributed platform and by leveraging intelligent workload orchestration across our network we intend to move the market for AI beyond isolated AI factories toward a unified distributed grid for AI inference.

By pushing AI inference to the edge, and combining it with our massive deployment of CPUs for delivery, security and functions as a service, we're enabling customers to run complex models within milliseconds of their end users. With the responsiveness of local compute and the scale of the global web, optimizing performance while reducing latency and cost. Those who attended GCC heard NVIDIA reference Akamai as a vital player in the industry's ecosystem for AI infrastructure, and we've seen very positive market reaction to our rapidly expanding capabilities for a wide spectrum of enterprises.

Today, we're very excited to announce another major milestone for our cloud computing strategy and the evolution of Akamai. The signing of a landmark 7-year $1.8 billion commitment for our cloud infrastructure services by a leading frontier model company. This is the largest customer deal in Akamai history, and it comes on the heels of the $200 million CIS deal we announced in February, with a major U.S. tech company, also at the forefront of the AI revolution. These leaders in AI have chosen Akamai because their AI workloads need to scale, performance and reliability that our cloud platform provides. Many other enterprises have chosen Akamai for similar reasons. For example, since the start of the year, a leading cloud and digital infrastructure provider in Asia chose our VPU to support their low-latency live streaming media service.

An AI company in the U.S. chose our GPU platform to power their voice first solution to optimize business operations. An AI-powered video intelligence platform in India chose our GPU platform to scale video analytics and computer vision workloads for retailers. A consumer AI platform in the U.S. chose Akamai cloud to run and scale live personalized agents. An AI commerce company in India chose our distributed inference platform to power their ad personalization engine. And 2 premier global retail brands chose our distributed data capabilities to improve the performance and resilience of their online retail applications. But all this is just the beginning. We have a large and rapidly expanding pipeline of prospects who are looking to Akamai for cloud solutions, including some with very large needs.

To satisfy this strong and growing demand for our cloud infrastructure services, we expect to continue to build out both our physical infrastructure and our cloud sales and support teams. And as Ed will talk about in a few minutes, we now anticipate significant acceleration of our overall revenue growth heading into 2027 and beyond.

Turning to security. I'm pleased to report that Q1 was also strong for our security portfolio, where revenue grew 11% year-over-year as reported and 9% in constant currency. Our security growth was led by strong demand for our market-leading web app firewall, API security and Gardacore segmentation solutions. Our WAF in particular, is seeing growing interest from customers eager to deploy the latest defenses for vulnerabilities that could be exposed by the ever-strengthening frontier models and AI-powered attacks.

Frontier models are changing vulnerability management, and we're proud to be one of the industry's must-have security providers partnering with the Frontier model companies to help ensure the safe and rapid deployment of AI-enhanced defenses. With our early access to their vulnerability detection programs we're applying our expertise to help keep major enterprises and critical infrastructure safe. Of course, and this is important to understand, attackers will also be using more advanced AI technology to develop even more potent ways to cause harm. This means that major enterprises will need Akamai security solutions even more than before. For example, there are many legacy systems and billions of deployed devices that can't be patched. They'll become a lot more vulnerable with the advances in AI and they'll need our security solutions to keep them safe.

For the devices and systems that can be patched, the patching process still takes time, often days or weeks, and they'll need out protection until that's done. We've seen this happen before when zero-day attacks emerged. And with the advances in AI, we can expect zero-day attacks to occur much more frequently. There's also an increasing challenge with scale because AI is enabling attackers to take over more devices and create enormous bot armies, we're now seeing attacks with unprecedented volumes. Just in the last few weeks, we neutralized a series of app layer attacks with millions of malicious requests per second from millions of widely distributed IPs. Akamai can defend against such attacks because of our widely distributed platform. Our WAF runs in 4,300 locations across 700 cities to intercept the attack traffic right where it enters the Internet and well before it can coalesce onto the target.

Having a great WAF with the needed defenses for the latest attacks is obviously important, but that alone isn't enough in the coming age of AI. The WAF need to be deployed across a vast distributed platform. And this need provides a unique advantage for Akamai when compared to the competition. In summary, we believe that Akamai's security portfolio will be needed more than ever before as attackers take advantage of the advances in AI. That's because of our massive platform scale to absorb attacks our unparalleled access to real-time attack data, our tight integration with the early warning ecosystem to provide up-to-the-minute defenses for the latest zero-day attacks, our large and very experienced human security operations team that's equipped with the latest AI tools to enhance visibility and minimize response times.

And our innovative, rapidly evolving and AI-enabled product suite to help prevent penetrations and to limit the damage when penetrations do occur. Customers who selected Akamai in Q1 for that kind of protection for their APIs included one of the largest telecom groups in Africa, a major investment management company in South America, one of the premier investment banks in the Middle East and one of the world's leading fintech companies in the U.S.

Customers who added or expanded their use of our GardaCore segmentation solution in Q1 and included the leading telecom carrier and media company in South Korea, one of the largest banking groups in Europe and a leading health care company in the U.S. Many of the large renewals we signed in Q1 also included expansions of our security services. For example, after we protected one of America's leading retailers from unwanted bots during the holiday shopping season, they increased the use of our services in a contract worth $24 million. We signed an expansion contract worth $80 million over 2 years with one of the world's largest video game companies. We signed an expansion contract worth more than $20 million with a global consumer electronics company in Korea. And one of the largest global professional services companies in the world expanded their use of our ZTNA solution to secure large-scale remote access as they move critical applications to a 0 trust model.

Our security solutions continue to receive top recognitions from the major analyst firms for their effectiveness. For example, last quarter, Akamai achieved a 99% recommendation rating as customers' choice at Gartner's Peer Insights report on micro segmentation. And last month, Akamai was the only provider to be named customers choice at Gartner's Peer Insights report on API protection. In closing, we're thrilled by the way our growth strategy has taken hold and is generating transformative opportunities for our business. We believe that Akamai is uniquely positioned to enable and benefit from the development of the AI-driven economy.

By bringing powerful compute directly to the data and the users at the edge Akamai is enabling and securing the next generation of Agenic AI. With each quarter, the massive opportunity we see ahead becomes more evident, and we're making bold investments to capitalize on that opportunity and enable Akamai to do for cloud and AI, what we've done for security and CDN to generate significant future growth for our business. Now I'll turn the call over to Ed for more on our results and our outlook for Q2 and the year. Ed?

Thank you, Tom. Before I get started and to build on Tom's remarks, I want to personally underscore my excitement regarding the $1.8 billion new customer win announced today. This is a powerful validation of the Akamai value proposition in the age of AI and a clear indicator of the scale at which we can operate. To fully capitalize on this momentum and support the accelerated growth we anticipate, we will be investing slightly ahead of revenue, you will see this reflected in the updated capital expenditure and operating margin outlook I will discuss during the guidance portion of my remarks. We view these investments in our CIS portfolio as critical to ensure we have the foundation to meet the significant demand we see on the horizon.

Also, driven by today's announced $1.8 billion win, the $200 million 4-year CIS deal we announced last quarter in our rapidly accelerating pipeline, we now expect total company annual top line revenue growth to reach double digits in 2027. We look forward to sharing more details in the coming quarters. Clearly, this is an incredibly exciting time for Akamai. With that, let's dive into the Q1 results. We delivered strong first quarter results with total revenue of $1.074 billion, which was up 6% year-over-year as reported and 4% in constant currency. Cloud Infrastructure Services or CIS revenue got off to a robust start to the year with revenue of $95 million, up 40% year-over-year as reported and 39% in constant currency.

As Tom noted, we are seeing CIS wins across a wide spectrum of industries, geographies and use cases. Even more encouraging, the pipeline for AI-specific use cases is building rapidly. We also maintained very strong momentum in security with revenue of $590 million, up 11% year-over-year as reported and 9% in constant currency. The strength in the first quarter continued to be driven by our fast-growing API security and Gardacor segmentation solutions along with strong growth from our largest product, Web Application Firewall.

Moving to delivery and other cloud applications. Revenue was $389 million, down 7% year-over-year as reported and down 8% in constant currency. These results were in line with expectations, driven by the wraparound impact of the EGO transaction in 2025. We expect this effect in the rate of decline to moderate throughout the remainder of the year. International revenue was $530 million, up 9% year-over-year or up 5% in constant currency, representing 49% of total revenue in Q1. We Foreign exchange fluctuations had a positive impact on revenue of $2 million on a sequential basis and a positive $19 million on a year-over-year basis.

Moving to profitability. In Q1, we generated non-GAAP net income of $239 million or $1.61 of earnings per diluted share, down 5% year-over-year as reported and in constant currency. These results include our expanded colocation investments, higher depreciation and increased head count costs, all tied to our strategic investment in cloud infrastructure services during the first quarter. Our non-GAAP operating margin for Q1 was 26%, in line with our expectations. We expect operating margin to remain in this range for the remainder of this year as we ramp up our investment to capture the exciting growth opportunities ahead of us.

Our Q1 CapEx was $206 million or 19% of revenue. First quarter CapEx was slightly below our guidance, primarily driven by timing and favorable pricing. Specifically, some expenditures shifted from Q1 into Q2, and we benefited from some lower-than-expected component costs.

Moving to cash in our capital allocation strategy. During the first quarter, we spent approximately $206 million to buy back approximately 2 million shares. We ended the first quarter with approximately $975 million remaining on our current repurchase authorization. Our intention with capital allocation remains the same to continue buying back shares to offset dilution from employee equity programs over time and to be opportunistic in both M&A and share repurchases. As of March 31, we had approximately $1.7 billion of cash, cash equivalents and marketable securities.

Now before I provide Q2 and full year 2026 guidance, I want to touch on a few housekeeping items. First, for Q2, CapEx is expected to jump significantly as we start to take delivery of the NVIDIA GPUs we discussed on our last quarterly earnings call, and we catch up on some of the CapEx that pushed from Q1 into Q2. Second, we expect to see an increase in operating expenses in the second quarter due primarily to continued investments in go-to-market and the impact of our annual employee merit cycle that went into effect on April 1.

Third, we anticipate revenue from the $1.8 billion customer win to start to ramp in Q4 and we expect to generate approximately $20 million to $25 million of revenue in the fourth quarter. Finally, regarding CapEx for this win. We expect to spend a total of approximately $800 million to $825 million over the next 12 months to support this customer. We expect to deploy roughly $700 million of that total in the second half of 2026, with the remaining balance falling into the first half of 2020.

Moving now to guidance. For the second quarter, we are projecting revenue in the range of $1.075 billion to $1.1 billion, up 3% to 5% as reported and in constant currency over Q2 2025. At current spot rates, foreign exchange fluctuations are expected to have no material impact on Q2 revenue compared to Q1 levels and a positive $2 million impact year-over-year. At these revenue levels, we expect cash gross margins of approximately 70% to 71%. Gross margin is impacted by the significant increase in colocation as we accelerate the growth in our CIS business. Q2 non-GAAP operating expenses are projected to be $346 million to $357 million.

We anticipate Q2 EBITDA margin of approximately 38% to 39%. We expect non-GAAP depreciation expense of $144 million to $146 million. We expect non-GAAP operating margin of approximately 25% to 26% and with the overall revenue and spend configuration I just outlined, we expect Q2 non-GAAP EPS in the range of $1.45 to $1.65. This EPS guidance assumes taxes of $47 million to $54 million based on an estimated quarterly non-GAAP tax rate of approximately 18.5%, it also reflects a fully diluted share count of approximately 146 million shares.

Moving to CapEx. For the reasons I highlighted earlier, we expect to spend approximately $433 million to $453 million in the second quarter. This represents approximately 40% to 41% of total revenue. Looking ahead to the full year 2026, we expect revenue of $4.445 billion to $4.55 billion, which is up 6% to 8% as reported and up 5% to 8% in constant currency. For cloud infrastructure services, we are raising our outlook to at least 50% year-over-year growth in constant currency. We expect momentum in DAS to continue to build throughout the second half of 2026 driven mainly by the scaling of our AI opportunities and the impact of the 2 very large transactions we announced in Q4 and today. Also, we continue to expect security revenue growth in the high single digits on a constant currency basis in 2026.

And for delivery and other cloud apps, we continue to expect a decline in the mid-single digits year-over-year on a constant currency basis. At current spot rates, our guidance assumes foreign exchange will have a positive $20 million impact on revenue in 2026 on a year-over-year basis.

Moving to operating margin. For 2026, we are estimating a non-GAAP operating margin of approximately 26% as measured in today's FX rates. Turning to CapEx. At this time, we anticipate our full year capital expenditures will be approximately 40% to 42% of total revenue, including the $700 million impact from the $1.8 billion contract we mentioned earlier. Before I move on, I want to provide some additional color on our CapEx outlook.

As Tom noted, the demand we are seeing for CIS, including our GPU deployments is exceptional. Our current pipeline for GPUs significantly exceeds our existing and projected inventory, meaning we may place additional GPU orders in the second half of the year to meet this demand. This is not factored into our current annual CapEx guide. We will update CapEx guidance on a subsequent earnings call if we place another GPU order before year-end.

Moving to EPS. For full year 2026, we expect non-GAAP earnings per diluted share in the range of $6.40 to $7.15. This EPS guidance includes the impact from the very large win. This non-GAAP earnings guidance is based on a non-GAAP effective tax rate of approximately 18.5% and a fully diluted share count of approximately 147 million shares.

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

[Operator Instructions] We have the first question from the line of Roger Boyd from UBS.

Question and congrats on the landmark deal there. Maybe if you can, Tom, just broad strokes about kind of the competitive set to win that deal. Are you going toe-to-toe with our hyperscalers or neo clouds? And anything you can provide on kind of the use case? Is this inference? Is it agenetic workloads? And -- when you think about your compute-enabled POPs, just how is this customer leveraging the Akamai network as a whole? .

Yes. I can't give any more details about this specific deal. But in general, yes, we do compete with the hyperscalers and the neo clouds with our cloud infrastructure services. That's the primary competition. They select Akamai because of our proven ability to manage and scale complex distributed systems, our ability to get the necessary data center space and locations around the globe to interconnect that with the world's largest and best-performing delivery network and leading security solutions. We offer the best in terms of latency, scalability.

We probably deal with more data center companies than anybody with being in 4,300 locations across 700 cities and 130 countries. So yes, we have significant competition. Every deal is competitive. But we also have unique capabilities, which is, I think, why our pipeline is so strong and why we're winning some very large deals. .

Excellent. And then just on security, I wonder if you could unpack what you're seeing from a demand perspective there. A nice result in the first quarter. Just what are you seeing around conversion rates, sales cycles? Are you seeing more urgency from organizations that are thinking about ways to limit the blast radius and defend against kind of an AI fueled attack landscape. .

Yes. I don't think I've ever seen the CISOs more agitated and feeling more of a sense of urgency than they are now. Over the last several weeks, couple of months, I've had the chance to meet with a lot of the world's biggest company CSOs. In many cases, the CEOs and senior executives, and they are very concerned about what happens when the attackers get access to advanced AI with the latest AI frontier models, which it seems that they will. This is going to uncover a lot more vulnerabilities. We're going to see the equivalent of a lot more 0 days, and they are literally scrambling now in many cases to make sure all their applications, their agents, their APIs are protected by Akamai. .

And you can imagine, most of the world's major banks rely on us for security, and they're looking at a pretty big wave of new attacks coming their way. So this is -- I don't know of a comparable time where there's this much concern about what's going to happen with security and also this much appreciation for what Akamai provides with our security platform.

We have the next question from the line of Patrick Goel from Scotia Bank.

I mean this one is for Dr. Tom. I mean when I think about Akamai, the value prop for the last 30-plus years has been the distributed architecture 70 cities, 130 countries. When I think about this mega deal, is that a kind of highly distributed use case or should we think about it as being served from a few like sub-10 type data centers? .

Well, I'm not at liberty to talk about the recent deal. However, I think when you're thinking about Akamai's value proposition, you hit a very key point with our really unparalleled distributed architecture. And I did reference a bunch of use cases in the prepared remarks. And yes, they very much rely on our distributed platform where you want to get the agents and the applications, the business logic close to users, close to the data, so you get low latency, you get stability particularly anything to do with video processing or video generation, even takes a -- needs a lot of scale. And Akamai is unique there. And so I think absolutely, what we're able to offer is very compelling. .

Yes. And look, congestion I guess a follow-up, please. Ed, you made this kind of suffer point that there's a CapEx guide that might have to increase .

Sorry to interrupt you, Patrick, your voice is breaking. If you could probably go off the speaker phone, we would be able to hear you better. .

Thanks for that. I guess this follow-up is for Ed. I mean, you gave us the CapEx guide -- but then you kind of gave us this kind of subtle point that might have to increase CapEx further. Can you just help us understand the nuances of why there might be an increase in the CapEx midyear? And I guess what that might mean .

Yes. So thanks for the question, Patrick. So what I had mentioned was we have a very, very strong pipeline for the platform. And we're just starting to get the bulk of those chips up and running now, and we've got a very large pipeline. It exceeds what we have in inventory. So obviously, we want to prosecute that pipeline, start winning all those deals, converting that into contracts, et cetera. And then the reason I sort of hedged a little bit is, one, we don't obviously fulfill that pipeline. But two, there is some time that it takes to get the chip. So even if we were to place an order, it may slip into next year. So what I want to do is just give it another quarter and if, in fact, we're in a position to place an order and receive that by year-end. We'll certainly do that and let you guys know.

I see that as a very bullish comment. And again, I just didn't want to come up and surprise you with another whatever it is a couple of hundred million or whatever the order may be without at least giving you some color behind that.

We have the next question from the line of John DiFucci from Guggenheim Securities.

My first question is for Ed and I have a quick follow-up for Tom. Thanks for all the detail on CapEx. But when I think about the CapEx for this mega deal, and I think Patrick was kind of going here. I mean this is over a long time, right, 7 years. Are you accountable, for example, like right now, we're seeing higher memory costs than we would have thought of maybe a year ago. Are you -- like when you've locked in this deal, do you also have the supply locked in? Or are you exposed to that, if that were to happen, I don't know, 2 years from now, higher prices again on that? .

Yes. Great question. So that I was fortunate enough to work very closely with the team on both sides of this transaction. So yes, we've been able to get the supply chain ready. We anticipate receiving all the goods that we need just to deliver this service over the 7 years within the next 12 months, with obviously, you saw the way the CapEx was broken out with the majority of it this year. So we anticipate receiving a significant portion. Now there's always the potential for some slippage in delays. But we have mechanisms in our contracts to deal with if, in fact, say, 6 months from now, prices were to go up.

So we've taken that into consideration. We've got that taken area. In the way this -- from a revenue perspective, the way to think about this deal is it's a set amount of capacity that we're deploying and there's no usage to it. It's a straight usage -- sorry, committed deal over 7 years. So as soon as we ramp all the capacity up, we'll start taking the revenue for full year. I expect, as I said, a little bit this year. And then next year, we'll get a partial year as we receive the remainder of what's to be deployed. And then from there, it will go on for the remaining 6-plus years.

Okay. So that will kind of look -- even though it's a consumption, it will kind of look like a subscription. Is that accurate? .

Exactly. Yes, that's exactly the way I think about it. .

Awesome. Okay, great. And Dr. Tom, a component of your delivery business is video streaming. And in March, we saw open AI they confirmed they shut down their AI video generation system, Sara. I'm just curious, do you expect that to have any effect on your delivery or compute business forecast?

No. We partner with OpenAI on security vulnerabilities, helping to find them and protecting our customers for the associated attacks. But open AI is not and has not been a customer of Akamai. So yes, no impact on us at all. .

We have the next question of the line of Jack Saner from KeyBanc Capital Markets. .

This is Aidan Daniels on for Jack Snider. With this big deal, as you allocate capacity going forward. How can we kind of think about the impact on any amount of on-demand GPU capacity you're able to offer going forward? Like how are you kind of balancing what you have committed from this deal with maintaining flexibility for newer incremental demand going forward? .

No. We support both on demand per token or per VM our access to our platform. And also, we support large tranche deals. And so it's not really a matter at this point of trading off. And as we need more GPUs, as Ed said, and that may well be the case that we would purchase more. .

Awesome. And then just one quick follow-up. I know you can't really talk too much about the deal. But I guess like how can we kind of think about the proportion of whether it's CPU or more of the GPU inference cloud going forward? Is there kind of like a framework we can think about with this deal? .

With this deal, we can't comment on this deal. However, in general, with inference and AI, you need both really. And part of the value we provide is that we can help provide the computational resource that's most appropriate for the workload that you have, which might be CPU, might be because you want to be as efficient as possible. And also you want to have it be as close as possible to the user, so you get the best performance. So it's a mix, and every application is different in the mix of CPU versus GPU that it needs. .

We have the next question from the line of Fatema Bolani from Citi. .

Just a higher level strategic question. you have opted to take more of a dedicated capacity approach in terms of satisfying demand and some of the supply constraints out there. I wanted to sort of dig deeper into why simply because the stock rates and the market rates for what otherwise could be almost entirely a rental or GPU as a service business are significantly more attractive.

So I just kind of wanted to get the division and the thought process and the decision-making calculus around steering the network and the platform more towards larger customers, longer commits and more dedicated capacity? And then I had a follow-up as well, please. .

Well, we do both. And the larger, bigger deals with long-term commits are more attractive in many ways. You have the commit. And the big deals, yes, the pricing would be lower, but we also support the on-demand where you can buy it by the token or the hour and you get a little bit higher pricing, but there can be more expense associated with that, getting the customer on if you have a rep engaged in the account. But both are attractive and we support both. So it's not a matter of us doing one or the other.

The one thing I would add there is this time, just to jump in here for a second. The customers are really driving that. If I look at our pipeline, a lot of our customers want to have dedicated capacity, say a dedicated number of GPUs or whatnot because there is a scarcity in the marketplace. So rather than going on a consumption basis, they can get slightly better pricing and lock in that capacity for themselves. So it's really a market-driven thing more than anything.

I appreciate that. And Ed, since I have you, you telegraphed for us pretty nicely that should the pipeline continue to grow and morph in the way and positively morph than the way you are seeing you will be very open to continuing to throw down CapEx and bringing and lighting up by the lots online. But wondering sources of funds and capital to fund these investments. Is that something you feel you can intrinsically do from running the business? Or should we expect maybe other of the capital to be tapped as you build out with a bigger CapEx profile for some of these larger customers under demand? .

Yes. So so far, no issues as far as financing these build-outs from our own capital today. We are obviously a company that's very profitable, produce a lot of cash. Obviously, in the years when we're investing big cash flow will be a bit lower. But these things have phenomenal free cash flow after you do the actual deployment. So that's one attractive things. We -- from a cash and equivalents, we have $1.7 billion on the books today. We also have a line of credit of $1 billion if we need to tap it. And then obviously, we've got excellent credit and have no problem raising money in the capital markets if we need to. Right now, we haven't announced anything there. And if we continue to get large deals and need to get capital, we'll certainly go to look to do that. But so far, we've been able to use our own funds. .

We have the next question from the line of Mark Murphy from JPMorgan. .

This is already Vila from JPMorgan on for Mark Murphy. Great to see the momentum you're having with the large deals with companies on the AI technology frontier. -- had a large deal last quarter, another 1 this quarter that dwarf the 1 before it. So just at a high level, can you help us understand from your perspective, like it seems like all of a sudden, you're getting some of these large deals. Has this been brewing for a while in the pipeline? Or have these been a little bit faster? What's changed that's brought a lot of this business here at doorstep seemingly pretty quickly from our point of view. And then as a quick follow-up to that, as you're dedicating the financial and operational resources to the CIS and the large deals, does it change how you're thinking about other business segments? .

Well, this has been the strategy all along. So -- and we're very pleased to be executing against it. The goal has been to be deploying a distributed inference platform distributed compute platform that would be desired by enterprises really across the spectrum and with many large customers. And of course, Akamai's customer base does feature many of the world's largest enterprises. And as we've talked about before, they spend 10x or more on compute than they do on our traditional services, delivery and security. So this is exactly what we said we were going to do. And now we're delivering those results. The platform is to a point where we can do that. And I think you'll see more of this going forward.

We have the next question from in Loaning from Morgan Stanley. .

Congrats on the big steel and company history. On that point, this might be a trivial question, but in terms of this $1.8 billion contract, is that more of a public cloud opportunity? Because I know part of the public cloud business also has a GPU component? Or is this -- was it specifically for Akamai Inference cloud? That was the first question, and then I had a follow-up. .

Yes, we really can't talk more about this particular deal. But obviously, there are a lot of companies where we've signed contracts that we did talk about across the spectrum. And those deals for our inference cloud and our cloud capabilities for our GPUs and our CPUs. And it really is our ability to bring the right hardware for the particular application and have it located where you get the best benefit for the use of that application. .

No, that's fair enough, Tom. My follow-up question is it actually goes to the delivery business. And there's a lot of people in the market kind of debating about a potential new lever for growth in CDN and delivery in a world where you have millions, potentially billions of agents running around calling tools, executing tasks doing web searches, has the team internally sort of revisited the thesis around the secular growth prospects in delivery? Or is it still a business that you're mostly looking to harvest for profitability and gross profit dollars to fund the compelling opportunities in security and compute.

Yes, great question. When you look at what is the proliferation of agents and what's coming, the biggest driver for growth is going to be the compute platform. the cloud platform that supports that. And we're really well set up to do that. Next, you have a big security issue because AI and the agents are a whole new vulnerability surface that not only do you need your web at firewall, your API security, you need special security for AI. And so we get a real tailwind from STG for our security technology group there.

Also, the agents are -- you have to interpret what an agent is, who's behind it and what they want to do when you're delivering or protecting an application or a site or another agent. And the response you give is really tailored to what the customer wants you to do when an agent of this flavor comes and interact with you. And so we developed a lot of capabilities there. And they fall generally within our security capabilities.

Now in terms of delivery, yes, there'll be some traffic that used to be human generated, now agent generated, okay. That doesn't make a huge swing in the amount of bits you're delivering. That starts to change if you have agents dealing with video, generating video like you go to a commerce site and the user wants to see what do they look like in that sweater they're thinking of buying and if you generate a video showing them wearing the sweater, that will improve the return for the site, and that generates a lot of traffic.

And so we're just at the very early days of seeing things like that, they're being experimented with now that could generate more traffic for delivery but the biggest impact for us is in the cloud business and then next in the security business. Delivery really important, very synergistic with our whole platform approach does generate a lot of cash for us, and we're plowing a lot of that cash into the growth of the cloud business.

We have the next question from the line of Mike Cikos from Needham .

Congratulations on the strong quarter and the customer win. I just wanted to make sure I'm understanding at least the mechanics of this deal. So you signed a 7-year $1.8 billion commitment. Can we expect the full $1.8 billion to show up in RPO? Or does that include anything as far as potential renewals? Is that all take or pay? Just anything to make sure we're understanding the mechanics of the deal. .

Yes, sure. So I touched on this a little bit earlier that -- and there was a follow-up question around this notion of capacity, dedicated capacity versus pay by the hour. This is more of the dedicated capacity. So as soon as we get the capacity set up, we will take the revenue ratably over the contract. As I said, we'll get some revenue this year and a little -- not a full year next year, but a partial year next year is we're still going up and getting the capacity up and live. In terms of the way you account for RPO there's -- we will see most of that in the next quarter. And then by the time we get everything delivered, it will be all in RPO eventually. There's just some odd mechanics with the first 12 months and how we're dealing with how we're receiving the goods, and we talked about a pricing mechanism to handle it prices would go up or down, that sort of thing.

So there's a little bit of nuance in there. But once we get this fully up and running, you'll see it in our RPO. There'll be some amount next quarter and then it will build there. .

I appreciate you spelling out the mechanics there. And then for Dr. Lee, just to make sure I'm clear as well, and it's great to hear that your largest security product here with WAF is seeing some stronger growth, which I wouldn't have expected. Can you just tap into that one more time as far as what's driving that? Is it really this heightened environment that we're in? Or is there something else behind there?

Yes. There's -- as you know, real advances in AI and it's getting much better at finding vulnerabilities and helping the attacker take over devices and penetrate enterprises. And you need our defenses now more than ever before. There's billions of devices out there that you can't patch. And now the adversary can find ways into those devices and take them over. And so as a result, we're seeing attacks much bigger than we've seen before.

Literally, application layer attacks for millions of distributed IPs with millions of attacks on a target per second. And you can't defend against that with just a WAF in a data center or anything close. You need the vast platform that we have to be able to intercept all that traffic and deal with it because you got to separate the bad stuff from the good stuff, and there's a huge amount of the bad stuff now.

So our platform, the physical infrastructure is needed more than ever before for our security services. And our customers know that. And there is a heightened sense of urgency now because they know the attacks are getting more capable due to AI and larger in size because they can take over all these devices and launch the attacks from many more locations. And so that's why we're seeing things like our web app firewall suddenly a lot more demand. Now AI helps on the defense, but doesn't solve that problem. And so net-net, this is a very challenging time for CISOs, and that's why they're turning to us to make sure everything that they have is protected by Akamai.

It's great to hear about that a little bit. And congratulations again on the strong customer win. .

We have the next question from the line of Frank Louton from Raymond James. .

Yes. Just a follow-up on the question about the $1.8 billion, how that's being booked. Is all of that going to come in as revenue? Will any of that be counted as paid for upfront CapEx? Or or something like that? And then I also wanted to follow up and see how many locations do you have Inference Cloud built out to currently? And what's the plan? .

Sure, I'll take the first part, Tom, you can take the second. Yes, all revenue. There's no offset to CapEx or anything like that, so it's going to be all revenue.

Yes. To the second part of the question, we have -- Inference Cloud covers all of our 4,300 locations. We have functions as a service running in a serverless way in all 4,300 locations. We have our managed container service running in well over 100 cities and conceivably could run in all 700 cities, but active and well over 100 today. We've got full IAS capabilities in several dozen cities and a couple of dozen of those are equipped with the new 6,000 GPUs.

And the goal, of course, is to have all that's orchestrated so that when there's an application or an agent that needs to be run, it's run on the most computationally efficient resource. If you can do it on an edge server with the existing CPU, fabulous, fast, very low cost. If you can do it on a container in the same city in a CPU, great. If you need a group of GPUs in one of those couple of dozen locations, okay.

And again, so you want it to be on the most efficient resource to be close to the user and to already be ready to go. You don't want to have to spin it up in response to a request. And that's what our orchestration layer is designed to make possible. And this is how it fits in with the vision from NVIDIA with the AI grid, you think of AI like you would an electrical grid. And that's what Akamai is building.

We have the next question from the line of Will Power from Baird.

Great. I'll echo my congratulations on this massive deal. Just maybe 2 questions. First, just a clarification, perhaps, Ed, when you talk about needing additional GP, do you need more GPUs to satisfy the new deal? Or is that more related to the building pipeline? And is there -- I know the timing is uncertain as to when the GPUs might be available but is there a real work for what we're talking about in terms of overall cost. And then I have a second question.

Yes, sure. So sort of if you listen to the prepared remarks, we talked about all the CapEx that we need is in the guidance for satisfying the $1.8 billion. So that's separate from the comment I made around the additional GPU purchase. And that was really tied to how we're doing with the pipeline, how quickly we can execute on that. And again, there's always the question of, can you get them delivered in time. So we'll give you more information on that.

It really depends on what we're seeing in terms of demand. We're seeing a pipeline very, very strong, some very large opportunities, some customers that want to start with a couple of hundred GPUs, some that want to start with 1,000 or more. So it's really all over the map in terms of opportunities, and it's growing every day, which is great. So we'll size it up for you. The last one was around $250 million CapEx, I don't have anything to tell you in terms of how big I think it will be. But hopefully, I'm telling you it's a really big number because we've got significant demand for it. .

Yes. Okay. And then any way to kind of frame how you're thinking about gross margin, operating margin impacts? I know 2027 sounds like it's still a partial year. As you look into 2028, how do we kind of think about how this impacts the overall financial model relative to where -- maybe relative to where you are today?

Yes. So let me talk about sort of a high level. So if you think about some -- especially some of these larger deals that are more of that someone who comes to us and say, say, I want 1,000 GPUs are in this case with this big customer, I want a certain amount of capacity over a long period of time. The biggest cost driver there is your depreciation over the period of time. The costs that go into your cash gross margin are much less, right? It's your co-location costs, maybe if there's some bandwidth or networking costs and things like that. And sometimes, there's some people cost. But generally speaking, these scale pretty well.

So what you would expect over time is your cash gross margin could improve. Now obviously, there's some push and pull here between lighting up colo for expected demand, and you have to light that up first and all that kind of stuff. So it will take a bit for this to sort of play out. But you should see your cash gross margin expand a bit. Your EBITDA margin expand a bit. And then from an operating margin perspective, it really depends on the mix.

We're willing to do some of these deals that are a lot larger, potentially margins that might be sub the 30% operating margin. If you look at the -- certainly, the GPU by the service rented GPU, much higher than the company operating margin. You're going to get a lot of scale across the OpEx as we take on certainly larger customers. So we're going to really focus over the next year or two on really capitalizing on this growth. So we won't be in a margin expansion point right now. But at some point, that will happen naturally and your free cash flow margins will improve and things like that. So that's sort of the way we're thinking about it, but we're really excited about going after this growth opportunity. We're going to continue to invest to go get it.

We have the next question from the line of James Fish from Piper Sandler. .

Look, given what you've discussed around Power in the past, with the large site having, I think, Ed, you said 5 to 10 megawatts and smaller sites, a fraction of that, it puts you above 300 megawatts. So now, you don't have enough revenue that online to this. So how much of that power is for noncompute services? And is that why you need to bring on from what I can tell, another roughly 40 megawatts just for this deal alone, as it does seem to kind of mask and you guys should be able to kind of support this if that power is all allocated to compute. So can you just walk us through how you guys are in terms of megawatts and kind of what the plan is by the end of '27 then? .

Yes. So I didn't quite follow all that but let me just start by saying your math isn't right in terms of what would be required to deliver this particular deal. I'll just leave it at that. It's significantly lower than that. In terms of our capacity, we have -- the major -- if you think about what uses the megawatts of power that we have, the CDN and the security business is a small fraction. You think about that as being kilowatts in some cases, maybe a megawatt or 2 in some of the big CDN deployment. So there's not a ton of like massive power required to run the CDN business.

When it comes to the compute business, it's a lot greater, especially when you get customers who want, say, a few thousand GPUs in a particular location or they're in say, 20, 30 locations, and they've got a lot of CPU. So you do tend to see a lot more need for power there. And what I've talked about is our typical deployment for some of our larger locations, we talked about having 40 core compute locations. And those were in the 5 to 10 megawatts expandable to say, 20 to 30 and it really, again, depends. And we can get a little bit bigger than that, but there's plenty of opportunity for us to get additional colo. We expect to light up a lot more going forward here.

So if the concern is that we don't have access to enough power or can't get colo, that is not a concern of ours right now at all. We -- as Tom talked about earlier, we've got great relationships, and we're a very attractive client for some of these data center providers. We've got excellent credit. We're not a do-it-yourselfer like a hyperscaler. We've got much better credit than, say, some of the neo clouds and we do take significant chunks of colo, in some cases and actually help some of our colo partners build out.

So I'm not concerned about that at all. And the power dynamics for each one of the different products is different. So GPUs take up more power than CPUs. And so there's math that goes along with that, and I've shared that math. The CPU math is much lower because you don't need as much power. And then also the type of equipment that you're running can also have a pretty significant impact on power. Certain -- we're seeing a lot of interesting hardware providers coming out with stuff that's incredibly efficient from a power perspective.

So it's really -- it's hard for me to answer that question specifically, but just take it that we're not too concerned at all about getting enough power to run these things and the power requirements are very different. But we factor that in to any deal that we do and ensure that we're not going to take anything on that's not profitable. .

Got it. Makes sense. And just to add on the security side, normally give us an API and Zero Trust versus kind of the core. I guess, how did that trend? And then how did compute in the quarter trend between -- with enterprise .

Yes. So with security, we didn't break out API and Guardio, we did say it was the majority of what's driving growth. And I would just say the growth rates are similar to what we had last quarter. Just remember, last quarter had a fair bit of license revenue. So when you back that out, it's kind of apples-to-apples growing at roughly the same rates when you back out the impact of the license revenue. So still very, very healthy growth rates there. .

And then on compute, you asked about enterprise compute. We don't break it out that way, really, the way to think about enterprise compute as I which is broken out separately, and we do provide what we used to call our application services, which is included inside of the third bucket, the delivery and app services. So that number is broken out for you. So 40% growth was for year-over-year, and we expect that to accelerate.

We have the next question from the line of Jonathan Ho from William Blair & Company. .

Let me echo my congratulations as well. Just one for me. Just given the types of mega customers that you're bringing on to your platform, is there more opportunity to upsell to them once they are on your platform, are there potential additional services? Or could they come back to the well if they continue to expand their growth as well? .

Yes. As you know, the demand for AI is rapidly increasing. We're really early on there. And yes, I would expect there's plenty of room to grow the existing base and, of course, add other customers of that scale.

Thank you. We have time for 1 last question from the line of Jeff Vander from Craig Hallum. .

The question is sneaking me in there. Two quick ones. First, maybe, Tom, just a lot of blowback nationally against AI data centers and the power consumption correlated to them. As you're stepping into deals of this magnitude, how do you think about staying out of the crosshair of some of those community-wide pushback on the broader AI compute environment, if you will. .

Yes, I don't think we're of a profile in the popular press anything like the giant hyper killers are. So I don't think that's really an issue for us. So yes, we're not worried about that yet. Maybe that's even a problem good to have once we're much, much larger than we are today.

Okay. And then second, the -- on the security side, given the comments about AI becoming a tailwind there, would you think this year is likely a floor in terms of growth rate, namely we should be thinking maybe reacceleration as we get into '27 and beyond? .

We'll see. We have -- we gave you guidance for the year. We're obviously very pleased with what we saw in the first quarter. There's -- we do like what we see especially around API security, -- still early days, low penetration rate. GardaCORis growing very, very consistently. So yes, we'll see how it goes, and we'll update you as we go. .

This concludes our question-and-answer session. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

All right. I'm Sanjit Singh. I am doing my last presentation for TMT' 26, and we're going to end it strong with Akamai, we have Ed McGowan, Chief Financial Officer at Akamai. Ed, thank you for joining us at TMT 2026.

Well, thanks for having us. Great to be here.

There's a lot to talk about. The Akamai story has gotten really exciting. And so we're going to dive into all the things that's going on in the company.

Before we get there, for important disclosures, please see the Morgan Stanley research disclosure website at www.morganstanley.com/researchdisclosures.

So I wanted to start the conversation with you, Ed, on the various acts at the company has been good going through, right? The company sort of pioneered the delivery networking market, you're sort of the market share leader there. Then you entered into an act 2, which saw you build a $2-plus billion security business over the last decade. And now in recent years, you're pursuing act 3, which has seen the company enter the public cloud market and more recently, the GPU as a service for Gen AI inferencing with Akamai Inference Cloud. So a lot going on.

For those investors who haven't been close to the story for some time, can you lay out the vision here for Akamai's Act 3 and why the management team is excited about the prospect for growth heading into the AI era?

Yes. Great question. So most folks know us as for our first act, as you call it, with delivery. And we've always had a vision of some -- we started off actually edge computing way before it was even a thing, right? This was back -- I can remember when I first started in 2000, we are doing some form of edge compute. It was pretty limited in terms of what you could do with it. It was more a functions as a service. But the notion of leveraging our platform for compute was always something that we envision doing.

Security was a very natural extension. So as we're delivering these websites, whether it's a commerce site or a banking site, there's so much malicious activity that happens, it was very natural to be able to protect those sites and do it in a way by leveraging our platform. And at the same time, I'm delivering you a shopping cart experience. I'm also using web application firewall rules to protect that particular interaction.

So that business has been phenomenal for us and grown, adding $200 million to $250 million of new security revenue pretty much for the last decade, really. And it's a lot of internal innovation. M&A has been part of our strategy. We've been very successful in integrating companies into our portfolio and getting a larger and larger share of our security wallet, and we continue to expect to do that.

And we actually think that we're the next generation of the web, if you will, of the agentic web, a lot of our security products will be applicable there. Obviously, we'll have to do some innovation and do some things to conform with the new protocols and things like that. Noname and API Security is a perfect example of that, where you've got massive amounts of data flows. Today, it's API, tomorrow, it will be talking to different models, going back and forth to different systems and all that will be exposed. And I think we have a great opportunity there to continue to grow our security business along with our compute business.

So there's a natural adjacency with delivery compute and security. And most recently, over the last several years, what was happening is some of our bigger customers, more innovative customers are coming to us saying, we want to run this application and it requires us to have root access. We need to -- we can't just do functions as a service. I can't use your kind of edge workers platform to program in Java script or program in web assembly. I actually want to run my own proprietary code.

I'll give you an example. We have customer who's using us with their own proprietary technology for live streaming. And they want to do things like synchronization to make sure that the video is synchronized across all different platforms, and they have some code that they use to get much better performance out of that particular stream. Now in order to do that, they needed to be able to run their code on our platform. And we're not designed to really do that. So we bought Linode several years ago, and we deployed our managed container service, where we're essentially slicing off a sliver of CPU from all of our servers around the world. And we have containers where they can actually run that code in that in all -- as many locations as they want to.

And we also saw, at the same time, as customers are coming to us for these more traditional compute use cases where the public clouds weren't giving them the type of performance that they needed. One good example, we have a case study on our site about Apple, what they do with Private Relay, where you couldn't have, say, 4 or 5 big clouds backhauling all that information and actually run the service because users are everywhere.

And at the same time, with our security business, we're spending a fortune on third-party climate, right? If you think of the massive amounts of data that we're processing. And we realize that there's a pretty good opportunity here for us to leverage what we do really well, running a massive distributed system and get into the compute business. Number one, it's going to save us a fortune. So we've started off as our first major customer, and we were able to offload a tremendous amount of workloads off of the public clouds, and that's continuing to grow today.

So we really proved out the fact that we could run this. We needed to acquire some technology to help us get there, and we bought Linode, which was primarily focused on small, medium business, the hobbyist, if you will, and we turned it into an enterprise-grade system. And just so happens now with AI, the demand for compute being in a distributed fashion is even growing greater and greater and did some interesting work with NVIDIA back in the summer, early fall and just most recently deployed GPUs in what we call our Inference Cloud. This is sort of the latest innovation. So it's a very natural extension of what we're doing, well informed by customer demand, and it's been growing phenomenally well for us.

But like from my perspective, I see stability in your delivery networking business, in your security business while you're seeing accelerating growth in your compute business and the CIS business. So let's dive into the compute and the cloud infrastructure services opportunity, starting with public cloud. Public cloud growth is accelerating across the industry, including for Akamai and your Linode business. What are the reasons why this part of the business has moved to a higher gear recently? And is this growth being fueled by a handful of customers? Or are you happy with the breadth of that contribution?

Yes. So I just actually came up with my last meeting with a group of investors where we were talking about, if you had asked me 3 or 4 years ago when we started this, we're now at a $400 million run rate in the CIS business, our cloud infrastructure service business. I would have thought we would have a much higher customer concentration. We would have gotten a few big customers to spend tens of millions with us, and then we would just start to get into a much deeper breadth across, say, finance and retail and travel and all that sort of stuff. And it's exactly the opposite, which is great.

We actually -- that -- if I look at the composition of that, that's hundreds and hundreds of customers. It's anything from a customer doing a couple of hundred thousand dollars with us upwards to a couple of million dollars a month, but it's not driven by a small handful of customers. As a matter of fact, very little revenue today is coming from these mega deals, right? These are starting to ramp up, and they're going to become a lot more material to revenue over the next year or so.

And we're also seeing our pipeline full of anything from customers working with our partners. So we have like a store, if you will, where you can go and say, if you're a media company, you want to do media workflow, we have media workflow partners where you can leverage their technology, use our storage and our compute. That's been going phenomenally well. Observability is one of the fastest-growing sort of use cases that we're seeing where customers are using an observability partner of ours and then ingesting information, storing it, using compute and creating all sorts of dashboards and things like that. And I wouldn't have thought that was how we would have scaled up so quickly. But it's been a great surprise and the demand is very strong across the installed base as well as new customers coming to us.

We're starting now that we've -- started with the agentic web, we're actually getting a lot of interesting inbounds. It sort of reminds me of the early days of Akamai when you walk in when people used to have desk phones and you see the red light on and people will be calling and saying, "I need this stuff." We're starting to see that kind of activity again, which is kind of neat.

As I see investors sort of reengage with the Akamai story and maybe to take a break for a couple of years, but kind of looking at the trend lines of the business. The question I often get when it comes to the public cloud business is what gives Akamai or why do customers choose Linode versus the hyperscalers versus some of the alternative clouds out there. I think one of the important points that you guys make is that all three major hyperscalers are customers of Akamai but if you can just talk to the value proposition of Linode in the public cloud market.

Yes. So I think there's a misnomer out there that it's a zero-sum game. Most companies are doing multi-cloud, and there's applications even with some of the hyperscalers where we just get better performance, right? There's an application where you're just better served, whether it could be economics, it could be latency, we're using a more distributed cloud is a better answer.

We've had companies trying to comply with standards in finance where, today we're complying with Apple Pay. And you can't get that out of a public cloud, but you can get that by using us. We have some customers that might have workloads that are in a third-party cloud or public cloud, that their data is accessed very frequently. So you store the data, but you're reaching in and grabbing that data is going all over the place. That's very expensive. You have a lot of hidden costs, egress fees, for example, it's something that we've had customers say, if I move to you, I'll use your computing storage and you're not going to charge them for the egress fees. And the reason we can do that is we have one of the largest backbones in the world and we deliver hundreds of terabits per second, so the cost for us is virtually nothing. And so we pass that on to our customers and we can differentiate from an economic perspective. So if you need economics, performance, sometimes it's just for diversity, where you want to have multiple cloud providers. It could be maybe a major AWS shop, but you have 2 or 3 workloads with us.

So it's not necessarily a zero-sum game or one cloud takes everything.

Just a couple of follow-ups there. In terms of those lower egress fees, can give us a range on how much cheaper you are versus your -- versus the hyperscalers. And the other question was around -- let me just stick with that first.

Sure. Yes. So a lot of times, even in the CDM business, we started to see this, and we actually started to build some products to help with our customers, where they might have their web infrastructure at a hyperscaler. And you have the notion of your origin, right? So we're all the -- say, if you're a video customer or even a retailer, you have lots of images and that sort of stuff. The idea of having a CDN, obviously, is you want to get great offload meaning every time a request comes in, you want it to hit an edge server and not have to go back to the origin right? Better performance, lower cost. We have customers where sometimes we'll have 99% offload or, 99.5% offload and their bill for egress could be equal to what they're spending in CDN. But just that little bit of a cash miss. Because it's so expensive. And I don't have all the numbers handy, but you can look at some of the public costs for what it would cost for egress. And it's -- compared to CDM pricing, more expensive.

With the managed Kubernetes surface that you guys have launched, is that expanding the types of workloads that customers can run? Is that becoming a criteria for why customers gravitate to [ the low end ]?

Yes. I mean that obviously like if you think going back to the beginning of the discussion, where our first origins were in this notion of Functions as a Service, programming your cash, programming some basic content awareness where you could do, tailor personalized content based on an IP address. You can program the CDM to do that. That's very basic stuff. The -- having a managed container service, now I can run all sorts of different code and workloads in that container that I couldn't do in the earlier days on programmable CDM, if you will.

And in terms of the hyperscalers as we've mentioned, that their customers of Akamai and their public cloud service, what are the hyperscalers using you guys for?

Yes. So we've talked to sort of at a high level, some are using us for video delivery, some are using us for API management, some are using us for advertising decisioning and things like that.

Awesome. So let's move the conversation to the inference opportunity. Akamai Inference Cloud was announced at the end of October, beginning of November. The edge computing opportunity has been discussed about as a potentially big market for several years kind of across the industry. I would say it's generally been slow to ramp, and maybe it's having its moment now. But what -- with the opportunity around the inference, what gives you guys the confidence that a significant portion of AI inference will happen at the edge? And what will be the drivers for this opportunity to materialize?

Yes. Good question. If you think about the next iteration of applications. Today, you might go to a retailer or to like a Home Depot or a Lowe's where you interact with it with a search, right? So you do a search, and you get a bunch of stuff and it's helpful. But imagine now you work with a virtual travel agent or a virtual contractor. The amount of data that needs to be processed and the amount of compute that happens is much more robust, right? You might be -- have a small language model that you're using in real time. And you also want to make sure that, that is trained up and informed, et cetera.

But the amount of compute for that is pretty significant. And you couldn't do that using, say, like our edge workers or program that in JavaScript and that sort of stuff. But latency is a big issue, right, where just like in the old days, when you had a shopping cart, if your shopping cart took forever to load, you see the circle going around, you're going to abandon that. You don't leave the site or refresh it. And the vendor, the partner of ours, ours customers will lose a sale.

Same thing will happen in this world. It's just now compute is going to be a much bigger component, right? Because in order to deliver that experience, maybe that virtual travel agent is booking your dinner reservations for you. It's putting markers in your calendar for travel might be getting you a car service and recommending all sorts of different things. That's a much better experience, but it requires a lot more compute, Latency is a big issue, right? Workloads like robotics, you need to be close to where the factory is. Autonomous driving is going to require extremely low latency.

So those are just a few ideas of what we're seeing from customers. And what's interesting is we started working with NVIDIA and doing the trial to see what can we get out of these RTX 6000 Pros? What is sort of that token to megawatt mathematics look like? And we were blown away with how -- what we can do with those in even relatively small deployment, say, maybe a megawatt of power gets you about 1,000 GPU, you can do some pretty powerful workloads. And we have customers coming to us, anything from, say, AI start-ups that want to do some rentals and just get access to GPUs. And we also have others that want to do clusters where they say, I've got a -- maybe it's a research project I'm doing. Maybe it's a post training. Maybe it's robotics. Maybe it's a really robust advertising decisioning model that wants to work on the fly and requires an enormous amount of data.

So there's -- we're starting to see some really interesting use cases now and a pretty nice pipeline that's building up. And latency is a factor. As a matter of fact, with this very large customer deployment, the latency was the requirement here was such that typically, within the U.S., you get pretty good latency, like you're in the middle of the country and you're on one of the coast. It's usually tolerable. In this particular case, it wasn't. We had to be very, very close to where the application was being run.

Yes. That makes a lot of sense. You mentioned that large customer, it's a $200 million 4-year deal with a major tech customer at the forefront of AI. Why did that customer choose Akamai? And what needs to get done between contract signing and the timing of revenue, which you sort of pointed to at the second half of the year, maybe Q4 in terms of what we're seeing? Just the time line between why do they choose you guys and then the time line between to get revenue to start to materialize?

Yes. So this was an existing customer, not one of our top 1% customers. It's been a customer for a while. And when we announced the Inference Cloud back in the fall, they had called us and said, "Hey, we've got this unique circumstance where we want to run a cluster of GPUs. And here is the type of performance we're looking for.

We want to trial it you, right? And we actually have some -- like NVIDIA does refer some business our way too where customers will come to them and say, "Hey, I've got this use case, I want to do X, Y and Z. I need this type of performance. How would I go about doing it?" and in some cases, working with us is the best chance you have to meet certain requirements. So it was just an idea at first, and then it was -- let's run a trial, so you do a proof of concept, and you run that on a small scale in one of our locations and see what type of performance you get. Once the customer was comfortable with that, they placed a very large order. In this case, it's a fairly good-sized cluster. We had to light up some more data center space in particular for this. So in terms of timing, signing a contract of that size depending on -- it's an existing customer, so that helps. So you usually have an MSA in place and that sort of thing.

But it does take time, approvals internally and that sort of stuff. So it might be 3 to 6 months to do a contract from proof of concept when it actually gets signed with that scale. Maybe it's 2 months on the short end. And then there's a lag between -- in this particular case, since we had to get some new space before we get revenue. But the pipeline is informed from existing customers, new customers, referrals from our channel partners, also from some of the partners we have on the technology side like NVIDIA.

That's great context. I want to have a discussion on what it takes for the build-out of the AI inference opportunity. So we have about 20 locations today supporting Akamai Inference Cloud. What is the build-out of colocation facilities look like over the next 12 months? And then maybe looking beyond that?

Yes. So in some of the -- like right now, the 20 locations we have were all existing facilities, and we just can roll out racks of GPUs. So all of the sites we were in had all the necessary cooling requirements and things like that. So that wasn't a problem.

With certain clusters, if someone who says to, "Hey, I want 1,000 GPU." we may not have space in the particular areas where we need to add on to an existing site or maybe deploy into a new site. So there'll be a mix of rolling out into existing sites where we have capacity. And a lot of our -- the way we're building our CPU or our compute centers is essentially you look for our bigger sites, the 41 sites or so are generally 5 megawatts typically the initial size. I may only be using 1 or 2 megawatts and I'll roll up to 5, but I'll usually have an option to go to 5, 10 or 15 depending on the type of relationship.

A lot of the folks we work with will be doing a multiyear build-out. So there might be campus one is available today, and then we have an option on campus to that might be available next year. So there will be continuous build-out of capacity.

Now in terms of like if you want to think about unit economics, I've given us-- a little bit of this on the call. So if you think about just GPUs in general for 1,000 GPUs, we'll stay in base 10, it makes it easy. It requires about a megawatt of power. It's about 600 kilowatts just for the GPU, but with all the other stuff, it's about, call it, a megawatt power, okay? So a megawatt of power in the U.S., you can get it for anywhere from $2 million to $4 million a year, typically. California is a little bit more expensive, maybe $6 million. But generally speaking, somewhere in that range.

For the CapEx, it's funny. I did this the other day. I did -- I'd like to find public references. So I went to ChatGPT and said, "How much would a 1,000 GPUs cost with all the servers and switches and all this other stuff." And it gives you an interesting answer. It comes up with anywhere from, say, $12 million to $16 million. So let's round that up, we'll call it, $20 million on the high side. The rental market today is around -- I think we launched on Saturday $250 an hour. Okay. $250 an hour for 1,000 GPUs for this year would be $22 million roughly. $2 is around 17.5, okay? Let's take that number divided in half year, okay? So if you think about the unit economics, I've got high end, $20 million of CapEx. I appreciate that over 6 years, it's roughly $3 million, $3.5 million of depreciation, a couple $2 million to $3 million of co-location costs. And even if I get half of that price, it's still very good unit economics for me. The operating margin is in the 60% -- 40% range or better. $2 is phenomenal.

I had a whole section unit economics, but you got in front of me and that's super interesting. In terms of -- on the theme of the build-out of the AI inference opportunity, how do we think about the existing network and growing to that? So whether it's the roughly 50 Linode reasons that you have the broader 4,000-plus points of presence, is that going to be leveraged in terms of this build-out? Or are you building out like net new or renting out net new cohorts?

Yes. So there'll be a combination, I'd say, the hierarchical compute capabilities, functions as a service available in all of our servers. That's sort of serverless request based edge Java web assembly type programming for basic things. the container service, we actually have available in all of our locations as well. Limited amount of capacity, obviously. And some of our locations are pretty robust, where you might have -- we call them our multilink e-cores is the term we use internally, which effectively is a big server farm where you have most of your big telcos all connecting at once. And so you've got maybe several hundred to maybe 1,000 servers or something like that in those locations. And there, you've got more power, more space where you could run your GPUs in those locations. So we could leverage those and roll in some racks of servers and get maybe 100 locations or something like that.

But there will be purpose-built locations for customers that have -- that when the math makes sense, where they have, say, a cluster that they need in a particular area, we'll purpose build for that. So it'll be a mix of leveraging some existing sites. But some of the sites are like in telco hotels. We don't have the power and the cooling necessary to run even a compute server, the 1U, 2U rackmount servers you use for CDM, pretty cheap. They can -- they don't require a lot of power, they don't require a lot of cooling. So you can run those in pretty small locations. But for the -- even a compute server is much more robust for CPU that you wouldn't run them there.

So -- and also, I don't know that the economics would necessarily make sense for somebody to run GPUs in 4,000 locations. The math probably wouldn't work at that point. But it's not saying that we couldn't go a lot more distributed than say, 100, but practically speaking, probably 100 locations for GPUs at some point makes sense. We'll probably grow from 20 today to somewhere 20 to 40, something like that. But a lot of this can be informed by customer demand will be the main driver of why we pick additional locations.

And just as a follow-up there, I think the team mentioned that the initial capacity for the 20 has already been contracted out on the 20 existing location. How do we think about where do we stand in terms of the utilization potential and potentially going denser in those 20.

Yes. So that's not -- we didn't spend a heck of a lot of money there. There wasn't a huge revenue opportunity.

Just sort of proving out the concept out?

Yes, it was proving the concept out and we do have a sliver of that we use for proof of concept. So like I said, the typical sales motion is someone comes to and says, "I want to run a proof of concept." And the proof of concept might be running in a couple of locations, using a few GPUs or whatever, that we do on a regular basis. So we do have some of that in terms of being sold out, that is set aside for proof of concepts. But it wasn't a huge revenue opportunity. The bigger revenue opportunity is this initial buy of $250 million of CapEx. Only a portion of that goes to this big customer. There's still thousands of GPUs to sell there. So there's an enormous amount of revenue to come with that as well.

It's also the basis of my next follow-up is the timing of these purchases on the GPU, CPU side, does that happen once a contract has been signed? Or are you purchasing ahead of that, anticipating future demand?

I mean I would love to be in the situation I was just in where I had a big customer willing to -- if I didn't have the chip inflation, that probably would have covered practically all my CapEx, right? That's an awesome position to be in. It will be informed by the pipeline, growth of existing customers and demand. We will invest ahead of time like we do, but it will be informed based on what we're seeing in the pipeline and what customers are doing.

Awesome. And I want to talk -- spend the next couple of minutes just talking about some of the debates coming out of Q4, which -- I mean the results in Q4 were really strong. You have a CAS business that's accelerating, Global Cloud business accelerating $200 million customer Inference service. One of the things, though, is that margins did come down to 26% to 28% from about 29% in 2025. As CapEx steps up -- I think to the range you provided was 23% to 26% versus 19% of revenue in 2025. So with the full understanding that growth doesn't come free, and we need to fund this investment. How should we think about the margin trajectory from here as the Inference Cloud business scales?

Yes. So if you look at -- we gave this disclosure on the call. The -- where we're seeing the pressure points on margin are in cost of goods sold primarily around colocation and then depreciation. So if you look at that, almost the entire amount is those two items. And with colocation, there's two factors. One is we are buying ahead of time so as I deploy these thousands of GPUs with this latest purchase, well, I haven't sold them yet. So I don't have any revenue against it. Even with this big customer, I'm going to have that facility up and running for several months before it ramps fully up with revenue. So there's the timing aspect.

And that goes for my entire compute platform, right? So I've got capacity. Any time I have capacity available I have some inefficiency in my math on [ colo ], right, which you'll always have that.

The other thing is, as I talked about, how we buy some of the bigger locations, we'll work with our vendors for 7-year deals, 10-year deals, in some cases, and there, you're making a fairly good-sized financial commitment saying, okay, I know I'm going to be using 5 megawatts over the 10 years, and I want expandability, but I want unit economics today at that purchasing power. So I might make a, say, a $50 million commitment over a 10-year period and maybe I'm only spending $1 million in cash. But with the lovely lease accounting standard, you need to put an asset and a liability up. And whenever you have a lease that has either free rent or have escalations or commitments, you need to straight-line that.

So there is some element of noncash colocation costs in my cost of goods sold. So there's some inefficiency there. So that's part of what's driving it. But that said, there's a trade-off between growth and margin. So if I want to grow faster, let's say a customer came to me and said, I want to spend $500 million with you, whatever, pick a number. Well, my margins are going to go down a touch before because my payback on my servers might be two years or whatever. I have to get colocation because a deal like that, I don't just have that sitting around necessarily, unless they want to distribute it everywhere. And perfect locations and fine everywhere that I have capacity that's not reality. It's probably going to be in several locations might be a U.S. opportunity or Europe opportunity or whatever. So there's going to be some inefficiency associated with that.

Where we get good operating leverage is on the go-to-market side, on the engineering side and on the operations side. And we have some overlay sales for compute. It's a relatively small group compared to the size of our sales force. The people that are going out and getting the colocation deals and managing the operations associated with that, doing the deployments, buying testing the hardware and the different routers and switches and chips and all that stuff. The same group that does that for CDN and CDN basically runs our security on the same platform. So I get an enormous amount of leverage there. We've moved about 1,000 engineers out of our CDN business into our compute business because there's a lot of similar things that you do in terms of [ your ] engineering and running the distributed platform. So we will get a lot more leverage on the operations side over time.

Maybe to look at the unit economics question from the lens of a customer so sort of lifetime value of a customer, let's say, it's maybe not this particular $200 million customer, but you signed similar sized deals with commitments for 4- to 5-year ranges, what do you expect the contribution margin to like over the lifetime of that customer commitment? And I was sort of referring to, I think, a couple quarters ago, you mentioned that you think that maybe -- the Inference Cloud business could get back to kind of where your public cloud gross margins are.

Yes. I mean just if you go through the numbers we just talked about, let's say you get per 1,000, let's say you're getting $12 million to $15 million of revenue against cost of, say, $3 million to $4 million for colocation to $3 million of depreciation. Your operating margin is north of 30%. Your gross margins are in the 70-ish percent. So you can get there certainly and that's assuming a discount off of what the published price for rentals are.

Now the other misnomer I think that's out there is people believe, well, 6 years depreciation, that's probably not the right way to think about it because what about the next generation. Well, sure, there'll be a next generation in that 6 years, probably many next generations. That doesn't necessarily mean that everyone is going to move to that next generation because you've done -- like one of the things I'm finding is customers will come to us and say, my particular application runs best on this chipset, maybe it's AMD, maybe it's NVIDIA, maybe it's Intel. And I also have a particular workload in a set of economics that I might not be able to afford the next generation of chips. So that may not make sense.

And I look to our Linode business. Before we bought Linode, they offer GPU as a service and it's been a nice little business for them, and we're selling generations that were put in place before we even bought Linode. We have grown Linode now for 4 years.

So there's -- I anticipate -- I mean, I could be wrong on this, but I don't think I am, there will be a market. Now maybe the unit price has come down a little bit. So how you get good cost recovery of say, a year to two on my service. And the same is true with CPU. You -- kind of the dollar CapEx dollar revenue gets you above a year or so. Even if it's $0.85, you still get somewhere between a year or two of -- maybe it's 18 months of recovery on your CapEx.

So it's a great business. I'm not too concerned about -- most customers would probably renew unless their application goes away, but generally speaking, it's tied to a business that has some notion of scale with it as well that you might say, "Hey, I want to start off with x amount because I'm doing an application that is tied to something else I'm doing that's revenue generating. And as long as that's growing, I'm going to continue to need more and more. And we do see that. We see very nice, call it, same-store sales growth of folks that are using us. So that's very true with the public clouds.

Maybe last question [indiscernible] time about security in the delivery business. So I'll kind of bundle the question. Your confidence in sustaining the growth that you have in [indiscernible] security, was 9% constant currency. I think you guys guided to high single digits, your confidence in stating that level of growth in security? And then the delivery side of the equation, it does seem like the pricing environment is a little better. Fewer competitors out there, we got Olympics, we got the World Cup. And how should we think about the growth trajectory and delivery over the next year?

Sure. Delivery has gotten a bit better. One of the things that's a little difficult to digest this year as we had acquired the assets of NGL. So throughout the year, we had modeled it that some of these customers, some of the bigger customers were multi-CDN and we bought the other CDN. So they have to rebalance. So let's say we have somebody who's doing 50% with us, 50% with Edgio. We combine it, we probably end up with 75% share as a general statement. So 25% goes to fight somewhere else. That happens throughout the year. It's not all like I closed on December 20 and December 21, everything rebalances. It happens gradually throughout the year. So you did see revenue declining. And part of that was like modeled and planned, we knew that was going to happen. Someone else was going to pick up some share where they didn't have share before.

Now we are seeing the pricing environment get better. And we're taking a much tougher stance with pricing now saying, look, we just talked about on our fourth quarter call, $200 million of additional CapEx just because memory prices went up, right, colocation is not getting cheaper. In some markets, it's solid, but other markets more expensive. Labor doesn't get cheaper. We can no longer eat all of this. We have to start passing along some of that price. And certainly, not accepting a 15% or 20% price decline in the delivery business. So we are taking a much tougher stance. We are trying to raise price on renewal. We'll be successful in some areas and others we may not be. But that's a much different stance from us. We've never raised price before. We're doing it for the first time in our history.

On security, I gave out some really interesting statistics on the fast-growing parts of the business. API security exit over a $100 million run rate, growing at over 100%. The penetration rate in the installed base is sub-10%. Very applicable for our WAF customers to use API security. So that's going to look -- enormous runway. And I actually think in the agentic web, as we talked about earlier, with all the data flows that go with that more robust application that's going to be a massive attack vector. So we think there could be even a second generation of growth out of API security, protecting those agentic applications in the future.

In terms of Guardicore, again, sub-10% penetration of the base, the majority of that business is coming from new customers, a very robust channel there. Very great dynamics with existing customers. The typical motion is to add more agents to protect a greater slew of your network. So you start off running maybe 1/4 of your network and then you expand our license business, which isn't a significant business, but has 90x percent renewal rates. Usually, it's an upsell. They're term licenses. So very healthy dynamics in that part of the security business that was growing at over 30% last year.

Well, we're out of time, Ed. Thank you so much for giving the update on the Akamai story. A lot of great things happening in the business and all the best for 2026.

All right. Thank you, Sanjit. Appreciate it.

All right. Good morning. Thanks, everybody, for being here. Last day of the conference. My name is Frank Louthan. I'm the senior telecom analyst here at Raymond James. We're very pleased to have Akamai Founder and CEO, Tom Leighton, here with us. We're going to start out with a few questions and then we'll save some time at the end for you.

But Tom, maybe kind of walk us through the Akamai story, kind of where do you fit into the space and what you do to kind of set the stage for everybody.

Sure. Most of our revenue is in security, growing at about 10%, market-leading products for web app firewall, stopping DDoS attacks, bot management and more recently, API security and Guardicore Segmentation growing very fast. So in Q4, they delivered $90 million, growing at 35%. And so they're driving a lot of our future growth. A lot of investment around AI-related kinds of security as enterprises adopt more use of AI. That's a big new attack surface, so developing the capabilities there.

Fastest-growing product area is our cloud infrastructure services, finished $94 million in Q4, up 45% year-over-year. Even more exciting, we think that will accelerate through this year. So we're calling for 45% to 50% growth in revenue, really, really exciting. A lot of big name companies using our cloud infrastructure services and including all the hyperscalers, which is a pretty cool validation. And of course, we operate the world's largest content delivery network, the largest and most reliable and scalable by a good margin.

All right. Great. So you mentioned the compute platform. Talk to us about how that's kind of changed the business. What are customers looking for when they come to you for compute? And how does that kind of change your go-to-market approach with customers?

Yes. What we're trying to do for compute is the same thing we did for delivery when we created the content delivery marketplace. And then with security, created -- security is a cloud service, WAF operated in over 4,000 POPs and 700 cities, so we can stop all those attacks before they get anywhere near the data center. By being close to users, it's better performance, more scalable, more reliable. And now it's the same story for compute. We can get our customers' compute logic close to users. So it's faster, very scalable and at a very good price point. So it's very competitive in the marketplace.

Yes. Closing that distance comes up all the time with investors, the concept of just needing compute nodes near population densities and so forth. So with that, you've got your inference cloud product that you're launching. Talk to us about that. How does that fit in with the compute platform? And what can investors expect from that business?

Yes. As we look to the future, a lot of the use for compute is going to be AI inference agents doing things on behalf of enterprises and users. And a lot of the applications people are developing, you want to have low latency. Now historically, that was hard to do with AI because the models were slow. And if it took you a few seconds for the model to generate a response, well, it didn't really matter if you were close.

But now with the latest generation of hardware, and we're deploying a lot of the new Blackwell 6000s. They are fast in response. You can generate videos pretty much on the fly. And so now the latency means something. Not only that as the web gets more of these agents and apps deployed, it's going to be more use of video. And that's bit intensive. And so even if you didn't care about the latency, which you do, you have a problem with bandwidth coming out of a data center.

And so it's not possible, for example, to have millions of concurrent sessions with users that are video-based with personalized video coming from a data center. Same thing just like with -- from streaming big sporting events. You don't do that from a data center or 2. You've got to do that in a distributed way. And so Akamai, we have this fabulous unique distributed platform, perfect for AI inference in the future.

So you've got a lot of the critical components here. So when we look at AI, where do you expect to have the most revenue impact? Is it going to be -- you got delivering traffic, AI bot mitigation, compute inferencing at the edge. Where do you think you're going to see the most impact from AI on all the different parts of your business?

First compute, then security, then delivery. Compute because that's where the action is with AI, you have all these individualized responses. Security in a variety of ways. First, the models are enabling the attackers to do more penetrations and be more capable, so you have more need for security services, especially Guardicore Segmentation. Second, as enterprises use AI in more places, that's a whole new attack surface and you need special defenses, which we supply with our security business.

Also with the bot management or the agent management, you want tailored individualized responses based on who the agent is and what it's doing. And that's what our bot management solution does. And so that's very helpful. And then third is delivery. Now with delivery, the revenue generally is based on traffic, which is generally gigabytes delivered. Now the big sources of traffic on the Internet are video and big software downloads, so a big gaming release.

A video is orders of magnitude more traffic than an image. And an image is orders of magnitude more traffic than a text, an interaction buying a sweater. And so the agents themselves aren't generating a lot of traffic per se. There can be a lot of hits, but not a lot of traffic. Where you will see the traffic generated, I think, as more of the applications on websites become video-based and more of your interaction with the web is video. You're talking to your shopping helper. And it's a person who you know and it's a video of a person, and you're getting real-time responses.

And then your personal shopper says, hey, look at this sweater, here's a video of you wearing the sweater at a dinner part, okay? And so it's a personalized video. That will generate more traffic. That said, the value in terms of revenue is more for the generation of that video than the transmission of it. So compute would have more revenue benefit for it.

Okay. And so if we -- let's look at this as customers move to more to block it from optimize it on the CDN side and security, how are you positioned to kind of benefit that as you're -- because with all of this traffic, there's some of this traffic that you want to get through and some that you don't. And so how are you -- on the security side and the delivery side, how are you able to get some traction there?

Yes. We've been doing that since before AI. There's all sorts of bots out there and agents doing different things. There's been scraper bots out there for, well, a decade, doing all different kinds of things for scraping. Now there's a new scraper bot doing it to train models for AI. But there's been just a whole plethora of different kinds of bots doing different things, and our bot management solution gives a differentiated response that our customers want to give.

It could be a partner bot, you want to give a good service. It could be a Google search bot, you want to give it a version of your site with all the right keywords and make it fast. It could be a price scraper bot, you want to give it false prices because it's your enemy trying to undercut you by $0.01. Could be a bot trying to fill up all the seats on your plane so that you'll buy the competitors' seats. And so we've been dealing with that for a decade. So there's nothing really new there. There are the AI bots now, and that traffic has increased, particularly the scrapers so far. And so we just continue to give whatever service -- differentiated service our customers want to give.

Yes. Okay. So talk to us about the compute platform. I get this question a lot from investors, and I think from a lot of generalists and so forth. So how is your compute platform differentiated from your competitors? And what is it about customers using your platform versus kind of the house names and the hyperscale world of large compute companies that we all know. What is it about your business that attracts customers?

We're more distributed. So we're closer to the user, gives you better performance. We're extremely reliable. I think that's really important. And we're very competitively priced. And I think a great proof point is all the hyperscalers use our compute platform to do mission-critical things. And it's not like they don't have their own big cloud platforms that they can use, but they'll get better performance for particular applications where that matters using Akamai.

What's an example of some of those applications? Because -- and just to get like a real world something that you're able to do maybe an application or a product that everybody is familiar with that your platform is much better suited for than just the generic thing on one of the large hypescalers.

Right. Well, one of the hyperscalers uses us for live video. So if you watch a lot of sports online, you're actually using our compute platform. And they chose us over their own capabilities, again, because we're close, so they can tailor the event that you're seeing to give the best possible viewing and to synchronize it. So everybody sees the action at exactly the same time, which could be useful if there's betting applications.

Another hyperscaler uses us for ad selection, which, again, you want to do really fast, and it's better if you can do that locally. Of course, we have a lot of commerce companies and speed makes a lot of difference there. And as you adopt AI, you're going to get a much richer experience, translates into a lot higher conversion rate and performance matters a lot. Reliability matters a lot there. One of our very large new customers has capabilities to manage fleets of robots, cars, automated kinds of things. Again, you want that to be as real time as possible.

Okay. Great. And so then on the distribution side, talk to us a little bit about the status of sort of self-provisioning for CDN and how do you maintain relevance with all the large media companies and so forth. We've seen some M&A in that space recently with Warner Bros. How does that impact you? And talk to us about the supply for that.

Yes, I don't think there's any impact from the acquisition. Both sides use us extensively already today. There's a couple of exceptions, big media companies that do it all in-house. But otherwise, most of the rest primarily have most of the traffic with us. And most of them do some kind of load balancing among CDNs. But in generally, situations we'll have a majority share.

Okay. And that business trended pretty well for the industry last year. Pricing was a little bit better, traffic better than folks thought. What is the longevity of that? Do we expect -- is that -- have we kind of reached a plateau for that sort of business? How do you -- what's sort of the outlook for that going forward?

Yes. We've guided this year mid-single-digit decline in the delivery business. Revenue is the combination of traffic growth and per unit pricing decline. We're continuing to be very diligent about the pricing we offer. There is business that we don't take and share we don't take. And some of the big spiky events, we won't do if the economics aren't right. So we, I think, are seeing better traffic the last year or so and looks like that trend should continue. And we're being a lot -- very diligent on the pricing. And so that helps us.

There's some revenue we let go somewhere else, but it helps our business and certainly the profitability of that delivery business.

Are you seeing any aspect of that business, especially with AI traffic and so forth, where customers are willing to -- are seeing value to using you and paying more? Are we seeing some stability of that? I've seen that in some other areas of my coverage where the hyperscale customers want -- they want execution, and they want it as quick as possible, and they're willing to pay better margins to some infrastructure companies and so forth. Are you seeing the same thing for some delivery applications and maybe that's getting a little bit extra life?

Yes. We generally are paid more than the competition, depending on the particular product and the application could be a lot more to a little more because we offer better performance, and we are a lot more reliable.

All right. So let's talk a little bit about security on that side of the business. How is pricing holding up on security? How should we think about that for the...

Pricing is holding up well there. We have the market-leading solutions by a good margin. And in some cases, this year, we'll be increasing pricing. As you know, the cost of memory has gone up quite a lot in the last few months. And so some of that will be passing on to customers.

So how does that cost of memory affect your business? Talk to us about the capital investment you have to make on the security side. And is that an impediment to your growth? Are you seeing any issues with your ability to get the memory? Or is -- how does that...

No. It's not an impediment to growth. We can get everything that we need. We're a big buyer in the marketplace, but it's more expensive. So we're doing a lot internally to buy less than we might have otherwise. A lot of our servers that we might have decommissioned this year, the math has changed on their useful life. And so we're going to leave them in the field. And they'll be working longer just because the memory cost has gone up so much.

We've estimated that this year, after all the puts and takes, it will be an extra $200 million for us in the increased pricing. Usually, with these things, the supply gets increased, the capacity and the production has increased, and that will help abate the cost going forward. We're not counting on that. So we're doing everything we can to optimize, but we -- it will be an extra $200 million this year.

So when we look at that -- what is the breakdown of that $200 million from additional data center space or servers? Or what do you -- what is it...

That's purely the memory cost.

That's purely the memory cost Okay. So it's not -- you're not having to -- if you're keeping these older servers on, are you having to take on more data center space to...

No, it's just we're not taking on as much CapEx, buying less of the memory, using the stuff that a little less efficient. It's not a 6-year-old server, but working fine. And now the math has changed so that we're going to keep it in service longer.

Okay. Great. All right. So with that, thinking about the guidance for the year. So what does it take to kind of reach the high end of the guidance for this year? And let us -- what are your -- what's kind of built into the assumptions for that?

Yes. So the amount of traffic can be variable and a strong traffic year helps the delivery business. How fast we sign on the new compute business can make a difference towards the back half of the year. Security, that's a little bit more predictable. There are sometimes license deals, particularly as you get, for example, sovereignty, other issues with critical infrastructure, maybe they want it in-house, which we can do.

And then the accounting treatment is different if they take control of it versus our taking control as a cloud service. So that can swing things a little bit. Dollar fluctuations can make a little bit of a difference. If the dollar is stronger, that can depress the revenue through the conversion a little bit. Dollar weakens, the revenue goes up.

Yes. Okay. And then walk us through the path of inference cloud for the year. You're making an investment in that. I think it's roughly $100 million, something like that. Walk us through the pace of that investment. And then when do we start to see that revenue coming in? How actively are you selling it? And when will we start to see that showing up in the income statement?

Yes. We talked about a $250 million investment into inference cloud and a large purchase of the Blackwell 6000s. The initial tranche we deployed last fall in 20 cities. That actually goes GA at the end of the quarter, but it's already sold out from the beta customers. So we're deploying a much larger tranche now. And as we talked about on the call, we have a good chunk of that already committed in a 4-year deal with a large account.

And as we sell out the rest of it, which is not deployed yet, then we would add more after that. The revenue associated with the tranche that we're in the process of doing now, we'd be looking at towards the end of the year to start to get revenue. First, we got to get the servers. We've got to deploy them, get them all turned on and then used. So that's towards the end of the year, we're looking for revenue generation there. So that's really more a big impact next year.

And is this incremental data center space that you're taking on this year to deploy that? And have you had any issue -- how about how many -- roughly how many megawatts of space does that require?

Yes. So a bunch of it we already have from -- as we initially deploy, we signed long-term colo deals for increasing amounts of usage. We are adding new data center space now on top of that. So it's a blend. The typical large-sized data center for us now is 10-ish, maybe 10 to 20 megawatts that we take on as a large-sized data center for us.

Okay. And then as you -- with breaking down some of that investment, how much of that is the servers? How much of that is the data center space you're taking on to deploy this?

Yes. So that would be the CapEx side of things. The -- so the -- say, the Blackwell 6000s, associated hardware. Typical use cases are not just the 6000s, but we use actually our whole platform. And so it's the CapEx needed for that. In addition, there's colo space that, in some cases, we're already paying for or is already on our books because you linearize the counting when you take on a longer colo deal. And in some cases, it's new.

Okay. And so you mentioned there's 20 -- I think you said 20 cities that you'll be going to. The thing that, I think, is interesting for me being a telco guys is looking at the 4,600 locations you have on the delivery network and being able to -- finally being able to use that to bring this elusive concept of edge computing that has never seemed to have materialized, and you are finally in a position to do some of that. So as you look out at that network, talk to us about -- this is a question I get a lot from investors, like why couldn't they do -- how much can they deploy and where can they go?

And one of the gating factors there is the power because a lot of your locations are on telco data center facilities or telco facilities that were built for voice. And so maybe you have a little bit less power. But if you look at all those locations, how many of those can you realistically deploy? I mean you're looking at inference cloud, how many megawatts does it take to put a pod of servers out there and GPUs? How should we think about that?

Great question. And the answer is it's hierarchical and depends on what you're trying to do. So in all 4,300 locations, 700 cities, we operate function as a service, our EdgeWorkers solution. So that's everywhere, totally serverless, and that's been out there for a little while now and used actively. Then the next tier up would be our managed container service. And this is where we deploy customer containers in software into our existing hardware. So no extra deployments and stuff needed.

Now that can go into any of the 4,300 locations. We're actually using it live today. It's been between 100 to 150 cities. So not all of them, but 100 to 150 of the larger regions. And actually, one of the hyperscalers is using that capability today. And that does your container. Then stepping up another level is you have full stack compute and storage, VMs, big storage, object store. And that runs today in 36 cities, about 40 data centers. That's where we're deploying by and large, the Blackwell 6000. Now we're in 20 cities today. And the next tranche will be maybe some new locations, but mostly beefing up the existing ones for the next tranche of the 6000s.

So the critical place is having it in the city, not necessarily in all 4, 5 or 6 POPs in the city for having this deployed.

Yes. And you're right, the 6000s, they're not going into the 4,000 locations, and they're not set up for that. But they could go into 100 to 200 cities over time.

Okay. Great. That's great. All right. Well, why don't we see if we have any questions from the audience, and I got a couple more. Eric, go ahead.

Who are the buyers of the new full stack that you're building out?

Usually, it goes to the CIO. You mean by the function -- job function or...

The kind of organization. Are those hyperscalers or more enterprise buyers?

Enterprise buyers, including the hyperscaler companies. But yes, the major enterprises for us initially was big media. Now commerce is heavily engaged. And our biggest customer is industrial.

Did you mind a follow-up?

Yes, go ahead.

And how do you normally price these? Are these 1-year deals? Are they -- if they're longer, are there escalators for things like memory...

Again, it's hierarchical depending on what you want to do. So you can buy product-led motion on the website. It's $2.5 for a VM hour, and you buy 1 hour, if you want. Then as the customers get larger, now you're probably in a sales-led motion. Often there'll be a commit to a certain amount of usage over a period of a year, 2 years, 3 years and the reps comped for longer-term deals. And what's new for us now is you can buy clusters, and that would be multiyear commits. And we talked about our first customer in that motion that with a 4-year $200 million commit, and they're basically buying a cluster of the GPUs.

And what does the revenue kind of breakdown look like that at the low end of a cluster? What are we talking about as far as monthly recurring revenue, just to get an idea?

Well, it depends on the size for the monthly recurring revenue. But if you buy at list, $2.5 oer VM hour, obviously, if you're buying a cluster for 4 years, you're going to pay a lower rate than that.

Yes. Okay. Great. All right. Any other questions from the audience? All right. Okay. So talk to us about capital allocation priorities for the next 12 months. How should we think about that?

Pretty much where we've been all along, I would say. We buy back the equity generally that we distribute to employees. We opportunistically buy back a little bit more on average, maybe 1% of the equity outstanding a year. Last year, we bought back more, more than we'd ever done before, about $800 million. Part of that was we did a convert and as part of that, bought back some as part of closing the convert. But our strategy is the same. We use the capital for M&A. We also use it, obviously, for CapEx, which is part of the operating of the business. But there's no intended shift in terms of our use of capital and buying back stock.

So -- and then talk to us about M&A. You bought quite a few different companies. Usually, it's -- you're buying a product, you're buying a capability, it's more of a buy versus build strategy. You're clearly -- you're building the inference cloud yourself. What kind of -- where do you see opportunities for M&A? Is it in security? Is it in the compute? Where you think the things to plug in some platforms?

Yes, we're looking in both areas. Security, very fast-moving landscape. So obviously, a lot of interest there. We've been very happy with our major acquisitions there with no name for API security and Guardicore for micro segmentation. There's other areas we're looking at. We're also -- we're very disciplined. So we're not going to pay a crazy amount of money for something. It has to be something that will return real value to shareholders. And on the compute side, we're looking at ways that we can enhance our capabilities there. It's not quite the same thing as security doing a lot of the compute in-house.

Does anything stand out to you on the security or the compute side to say that it's something that you would need to have or is it an area that you'd like to move into the M&A might be more of a possibility?

Generally, it would be some kind of product adjacency. So it fits within our current product set, it makes sense to enhance our security platform play, something that we think our reps can sell that we know the buyer because it's close to the buyer of some of our other security products. So having it fit with Akamai is the kind of thing that we'll be looking at.

Okay. Great. Anybody else got a question in the audience? All right. So kind of to wrap up here, talk to us a little bit about the company. I've been asking all my companies this question, sort of what's one big sort of misperception about the business? I think the obvious one for you guys is you're not a CDN necessarily anymore. That's part of the business, but that's not really what you are, even though you're often thought of that. So maybe just to level set take that one off the table, what is sort of -- when you talk to investors and you're talking to customers, what's the biggest misperception about Akamai that you'd like to kind of address and set the stage for?

Well, I think the biggest change that investors are starting to understand is that, yes, we are a cloud company and have a strong capability that's accelerating at a very fast rate. I think cloud has been sort of a show-me story for investors, and I think we're showing them. We're getting very fast growth on a meaningful number now, signing up some impressive enterprises, including, I don't know any cloud company that has all the hyperscalers as customers of their cloud business. And I think that's a good proof point that if they're buying our cloud services, there's something there, really does give better performance. And for non-cloud companies that don't have their own cloud, it is very competitively priced.

Okay. All right. Great. Well, Tom, thank you very much for being here. Appreciate everybody coming. We've got a breakout session after this. If anybody is interested, feel free to join us. Thank you very much, Tom.

Great.

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 edge workers and web assembly, 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 4-year $200 million commitment for our Cloud Infrastructure Services with a major U.S. 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 3-year contract for our IAS 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 2 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 [indiscernible] tech 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 4-year $40 million contract. South Korea's largest mobile operator selected Akamai following the well-publicized BPF door 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 U.K., a major branch of the U.S. 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 5-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 5 years and a 3-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 U.S. 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 the 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 3 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. U.S. 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 4-year 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 8 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, 2 fewer calendar days in Q1 compared to Q4, plus 2 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] And today's first question comes from Sanjit Singh with Morgan Stanley.

Congrats on a very strong Q4 results. Ed, you played a lot of great detail on the dynamics around CapEx as well as the momentum you're seeing 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 dollar CapEx per dollar 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, 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?

Yes. 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.

And the next question comes from Mike Cikos with Needham & Company.

Congrats on the strong end to '25. The first question I have for you on that major U.S. tech customer, can you help us think about how this came together? It's great to see the duration. We're talking 4 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 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 -- [indiscernible]. when thinking about the capital intensity here, and I really appreciate the disclosure [indiscernible]. 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.

Yes, 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.

The next question comes from Rishi Jaluria with RBC.

It's nice to see acceleration in the CIS business at scale. Maybe 2 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 there above. 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 and 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.

Yes, yes, 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, yes, we're having good success with existing customers, but also with new customers. John 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. Can you just help us understand kind of the puts and takes and how that ties into your numbers?

Yes, 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 3 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 is 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.

Our next question comes from Roger Boyd with 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?

Yes, 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.

The next question is from Fatima Boolani with 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.

Yes. 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?

Yes. So in terms of Inference Cloud, there's 2 models. One is the traditional model where you buy access to the GPU by the [ VM ] 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, 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.

Yes. 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 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.

And the next question comes from Frank Louthan with 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?

Yes. 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.

And our next question comes from John DiFucci with Guggenheim.

A lot of interesting things happening here, Tom, and especially around the CIS business. And thanks again 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 4-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 4-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...

Yes, 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.

The next question is from Will Power with 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 2 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 yes, 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 [indiscernible] tends to be a little bit more ventured but maybe that's not [indiscernible] 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.

Yes. 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.

Next question comes from Jackson Ader with KeyBanc Capital Markets.

This is Evan [indiscernible] 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?

Yes. Great question. It's performance. It's scale. And yes, cost is generally lower. But just as an example, we talked about on the last call, the 3 big hyperscalers in the U.S. 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.

And the next question comes from Patrick Colville with 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 hyperscale core. Why would accelerate compute be different that you're going to have this large and very exciting markets at the edge?

Yes, 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, 2 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, yes, 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 that 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 [indiscernible] by the token.

The next question is from Jonathan Ho with 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?

Yes. 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.

And the next question comes from Rudy Kessinger with D.A. Davidson.

Jonathan actually took the main one that I had. But on the $250 million, you're spending [indiscernible] 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?

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

And the next question comes from Mark Murphy with JPMorgan.

This is [indiscernible] 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?

Yes. 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 [indiscernible] then I think at least 3 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, 2 of the 3 big hyperscalers are large Akamai customers for delivery and security. And of course, now we're adding compute into the mix and already all 3 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.

Yes. One thing I'd add [indiscernible] 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 when 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 U.S. gives them too much latency. They need to be within couple of hundred miles, which is different than what you've typically seen [indiscernible] 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 go in a [indiscernible] 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.

And the next question comes from Jeff Van Rhee with 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?

Yes. 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 or 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 that 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, yes, 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.

All right, almost lunchtime. We're super excited to have the CEO of Akamai, Tom Leighton. Tom, thank you for joining us at Nasdaq London and once again.

Thank you.

I appreciate it, Tom. We're going to focus a lot of conversations I think what the the key investor excitement is around, what you guys are doing in compute specifically with GPU inference. Before we get through, though, maybe just sort of a level setting question in terms of as you look 2025 year to-date. How would you characterize the IT spend environment across the different areas of business? And what about 2025 has surprised you either to the upside or the downside?

You mean spend that we're spending in IT or that our customers are spending?

It's customers.

Customer. Yes. So obviously, security is still very important on people's minds. The attack rates have gone up, especially now with Gen AI gives power to the attackers and a lot of adoption of Gen AI capabilities in enterprises, and there's a whole new attack landscape. You got to defend that. And on the compute side, a lot of interest in the new applications that are becoming possible, agents to do all sorts of things. And so I think rapid adoption of AI, and that's a tailwind for Akamai.

Awesome. So let's talk about the opportunity with the Akamai Inference Cloud. So Akamai Inference Cloud has launched. It's getting a lot of investor excitement. Can you talk about how the partnership with NVIDIA came together? And why do you feel Akamai can be a player in the GPU inference market, given a lot of competition with the hyperscalers and the neo cloud. So just maybe just give us a history of like how you guys thought about entering this part of compute space.

Yes, there's a lot of questions in there. We've always had a good relationship with NVIDIA. I remember way back in the day when there was interest in deploying GPUs in our edge platform to help create gaming as a service that never really took off because of the financials. It's better to have the user spend, the power in the home to power the console, to buy the the compute device, to pay for the colo in the home than doing it in the cloud. But now with the rapid rise in Gen AI and agents and Inferencing, that makes a lot of sense to do on the edge.

I think there's a lot of excitement there. Certainly, in our customer base about what's the web going to become, what's going to be possible? And just -- take an example, say, in commerce. We've got customers that, boy, wouldn't it be nice if you -- when you bought a article of clothing that it fit and you didn't have to return it. And so you can scan your body, the e-commerce company will know your shape, they'll know the various articles are clothing, do they run large, small, whatever. And so that when you do buy something, a very good chance it will fit.

Well, in addition, you'd sort of like to know how do you look in that article of clothing. And so today, we have some customers that will show you a picture of that. We've got customers that want to show you a video of you wearing the dress and then in different environments. Pretty soon, I think you'll see your personal concierge, will be an Avatar or it will look like a human being. It will talk to you. It will make suggestions of what you might look good in and show you. The whole experience in commerce could well change.

You look at buying tickets for things, concierge service for that, what you might like to go see, getting everything all scheduled. There would be agents just all over the place. Each agent doing a specific task, medium-sized model, and they'll all be talking to each other and coordinating against data personalized to you. And so the whole experience and how the web works, the protocols, probably going to be different. And we're excited because that's a perfect area for us. You're going to want those applications to be really fast, reliable, scalable, secure.

The way we have built our platform to do that and a key aspect is to be distributed. So the compute is being done close to the user. If your a particular agent is generating a personalized video, no way that scales in a central data center, just like streaming way back in the day, no way you're going to deliver all those streams from a few locations and big data centers, can't work.

You're going to want that to be done distributed. And if you're buying something, you're going to want low latency. Now -- before now, when you're running the models, they were slow. They were big. As you get the lighter weight models on things like the NVIDIA 6000s, they're fast. And so you do want to be close. So you don't have the bottleneck being the back and forth between the user and the model.

So I think in some sense, the web changes, but what you need in the fundamentals very much fundamentals that Akamai has helped the web scale from the beginning. They're delivering. And then, of course, it's got to be secure.

In some sense you're talking about kind of a continuation of hyper personalization, but doing it in real time, and that's kind of real-time inference capability and things like video -- real-time video, that's a whole new world.

Yes. I think you'll even see it in things that are what used to or what are today one-to-many video that the version of the game I see is going to be different than the game you see because maybe I like this team and you like that team. We've got -- I was talking to a customer just a couple of days ago in New York with exercise stuff. And you're in the class doing your thing, and you want to personalize in terms of your language so that you can enter other markets. Same instructor, but talks in your language and accent, I guess the whole -- everything I think is going to change in a way that is -- we're in a very good position to help enable.

Yes. That's super interesting. So let's talk a little bit about the underlying -- at least the hypothesis around unit economics of the Akamai Inference Cloud. So on the earnings call, you described the current unit economics as $1 CapEx basically equals $1 revenue. Can you unpack that for us? I mean, what gives you the confidence that these inference workloads will have the sufficient lifetime value to become a profitable, not just a high-growth business?

Yes. I think the same math looks like it's holding for the newer GPUs, they cost more, they take more power, but they generate more revenue in ballpark, the same ROI. And I think a good question when you're buying the GPUs is are they going to last? And what you've seen so far is the GPUs being used in these gigantic farms for a gigantic training. And there, every year, you want to buy the next version because you're trying to do more variables, you're trying to get well, can you do generalized intelligence or something. That's not the game we're in.

We're in supporting applications for customers. And the nice thing about that is that, hey, the 6,000 is good at generating a video, personalized video on the fly and it's still going to do that in 3 or 4 years, right? It's not an issue that we're going to need a bigger one to generate that video for you. So the specific tasks you're doing we believe that equipment will be good for us over the long haul because we're not in the big core training, taking the model to the next level to play chess better or to solve super hard math problems.

That's a pretty clear distinction I'm glad you made that. And so you talked about like the technical capabilities of the chips and the hardware. In terms of the workloads because they're applications essentially, do you also feel that, that application and those workloads are going to be around 4 or 5 years? Or do these workloads kind of shift from one cloud to the next as they kind of shop around for the best unit cost and just get your perspective on.

I think the applications once they're here, will be around. I think cost does matter to our customer base. And it's an area where we have good competitive advantages. Many of our customers that had been using a hyperscaler that have moved to us, we're helping them save money at the same time. And of course, with our distributed architecture, we're very efficient at moving data around. We do more of that than anybody. And so we're in a good position, I think, to offer competitive pricing.

Great. In terms of the CapEx build-out to pursue the Inference opportunity, how do you show that any incremental CapEx investment will ultimately see the traffic right? Today, it sounds pretty obvious, pretty easy. You build it kind of they will come, that's kind of the stage of the market. As you think about building a durable business, how do you guys think about the CapEx build-out and the revenue coming online?

Yes. So we build out CapEx for what we think we'll be consuming in the near future. Initially after Linode, we did do big tranches that is in use. And so we're in the mode now that we build out now based on what we think we're going to sell and use 3 to 6 months down the road, a related issue is the data center deals that we do. And so for the bigger data center footprints, those will be long-term contracts and will often build in room for growth. And we pay as we go. We do get hit with the accounting charge for the linearization of that so that the accounting says that we're spending more than we're actually paying in the early years. So we do get hit with some of that.

In terms of the Akamai Inference Cloud footprint, I think you're currently in 17 locations. What does that look like over the next year in terms of expanding upon -- building upon those 17 geo-locations?

Yes. So there'll be more cities we're currently building out in India and Southeast Asia, and they'll also get deeper. So there'll be bigger footprints. And so in some of these cities, we're looking at 10-megawatts data centers, which is larger than generally we've been. We're in over 4,000 POPs. And obviously, the vast majority of those are not GPU equipped POPs, they're not to think about the power. In fact, we don't even pay for the power in the vast majority of those locations. But for the GPU footprint, there will be some cities that will be bigger with more concentrated GPU.

And then in terms of like pricing and how the pricing model works for Inference. Can you just sort of lay out or sort of outline what that looks like? It could be -- is it pretty straightforward to sort of GPU per hour type pricing? Or do customers are going to make some sort of commitment and burn down? How does that...

Yes. So both. So far, it's been per consumption basis, VM, hours could be tokens in terms of GPUs. Also for GPUs, there are some cases where a customer may want a tranche. And then we would sell, okay, this many GPUs over some number of years that are committed.

Great. The Akamai Inferences Cloud is part of a broader business called Cloud Infrastructure Services. And that's been kind of the engine powering, I guess, the best growth at the company. Cloud Infrastructure Services, I think, accelerated in Q3. And the team has been signaling that could accelerate meaningfully going forward. What drove that acceleration in Q3? And to what extent is this being driven by a handful of customers? Are you satisfied with the breadth of the growth coming out of CIS?

Yes, great question. The biggest customers are generally the biggest spenders. So we've had a bunch of growth driven that way. I think we've been very favorably impressed and surprised at the breadth at the same time. And part of that is our field is now selling it broadly. Last year was really the first year of broad sales. We have a specialist team that we're growing. There's more market awareness that, hey, Akamai as a cloud company, what you're doing with the hyperscalers you can do with Akamai. Of course, now we have Inference Cloud, which gives us another capability in terms of market awareness and capability to sell.

So it's both. We've got some very large customers that are growing. The hyperscalers now are all cloud customers at Akamai and a lot of the more good enterprises, not having to be a giant company, but a solid enterprise.

You could take back to the origins of Akamai's entry into the Cloud business, through this acquisition of Linode, which got you into kind of classic centralized public cloud offering, was there any synergies with like Linode and their data center footprint? And then as you expanded that with the core Akamai network? Or was it kind of a complete -- completely different compute stack? And was there any sort of integration efforts associated with that?

Initially different compute stack, not distributed, not enterprise-grade, small and medium business, but really good stuff, very developer-friendly, very popular with developers. And so what we've done is get it to be enterprise-grade. So a huge amount of work on reliability, various certifications, more functionality that major enterprises need, also making it more distributed. So we're in over 3 dozen cities now with full stack compute and storage. A new fabric in these cities is to make it be a lot more reliable. And we have taken the capabilities and put it into our distributed platform, and you see that with our managed container service, which is a software. We take the software that we are running in those core data centers for containers and deploy it into our edge platform.

And in fact, one of the hyperscalers is using that today because we can get their containers, their business logic closer to end users. We have a lot more cities than they can get with their hyperscaler approach, which we compete with.

So yes, Linode was different, but we are using those capabilities to fully integrate it with our platform. Another thing we'll be doing is making the container deployment be serverless. Today, we're serverless with JavaScript, but that function as a service, which is more session-based but getting containers to be spun up automatically, so you don't have to worry about preprovisioning, like today, you do with the cloud and the hyperscalers.

When you think about that specific element about managed Kubernetes Service, running more serverless more broadly, that being unlocked, you got GPU and Inference Cloud, how much of like getting into cloud-native workloads, how much of a demand boost or demand driver can it be for CIS going forward?

I think a lot. That's where -- I think a lot of the future demand is going to be and that excitement is -- Yes, that's, I think, very important to be able to do that.

Is that driving a lot of the customer decisions and the sort of contract commitments that you're winning today?

I think it's driving customer interest because a lot of that is still work to be done. We just started Inference Cloud. We're not fully serverless now with containers, but that road map is exciting for customers. And I think it's just, hey, customers are getting aware that we have these capabilities. It performs very well. It's more distributed than the hyperscalers, so it gives better performance. And for a lot of applications, we're a lot less expensive than hyperscalers. If you're moving a lot of data around, which big media is, if you have really chatty applications, a lot of hits, which commerce does, we're less expensive.

This is brought up a question in my mind. I just hosted the MongoDB management team. And they made the point that in 2025, all 3 major hyperscalers had some sort of outage. And when I think about Akamai's offering, kind of the distributed nature of the 4,000 points of presence, what you guys got the 36 locations with Lenode. Does the Akamai Cloud start to become part of the resiliency strategy for particular workloads given that we've seen kind of outages across the hyperscalers this year?

I think that makes a lot of sense. And I think you'll see the outages probably increase. Just the nature of the beast that as companies get older, your people are single points of failure. And if they move to another company, you've got code bases that nobody at the company really understands it. And that happened in one of the recent cloud outages. It's an area we worry a lot about at Akamai.

Also change management. I'd say the hyperscalers have done a pretty good job there. They do go down from time to time. It's an area where we make huge investment at Akamai. The last time we had an event like that would have been 4.5 years ago. And our goal is to really be Five 9s. And we changed that. One of the biggest banks here in the world based here, the regulators measure it and Five 9s is the standard, and we -- they achieved it using Akamai.

And that's 10 minutes of downtime in 2 years across everything, including attacks or you made a change that failed something up. So a huge effort. And I give the hyperscalers a pretty good score even though they've had outages. Some of our other competitors, very poor. They used to go down every quarter, now you see it happen multiple times in a quarter with big outages. And that's not something you change overnight. It's -- it has to be a design focus and a lot of effort put in to make that happen, not an accident.

The conversation that you and I have been having over the last 15 minutes has been focused on the Compute business and specifically the Cloud Infrastructure Services piece, where that's where the Inference Cloud is, that's where the public cloud business with with Linode is, there is a whole portion of compute revenue that's non-CIS. Can you talk a little bit about what's in this business? And is there a situation because I think it's kind of like a drag on growth in terms of the overall Compute Business growing mid-teens. Is there a world where that business gets sold or it moves into discontinued operations so that investors kind of see the better growth that you're seeing specifically from CIS?

Yes, that's a great question. That business is the stuff that we were doing that was compute related before Linode, basically. And so there were special compute related functions we would do for customers. For example, queuing, customers wanted that, so we did it. It wasn't a real focus area for us. And over time, other companies were created, that's all they did. And so in particular, with queuing, we ended up making a relationship with one of those companies where we've migrated our queuing solution to theirs, which is better, saves us a lot of money because we don't have to worry about keeping a legacy product going.

And also, they become a customer of our cloud. And so as their business grows, it grows on Akamai and helps us. We did that with our media services live, something else that we didn't want to keep doing. We've done it with our Video Manager Service. And these these things, a bunch of those were in what we call other cloud applications. They are the legacy cloud.

And we've got -- there's net storage in there. There's some other things, some of them are growing generally, they're not focus areas for us. And so it's not something you would sell that business. We got to keep our customers happy. But if the right deal comes along where we can save money, help grow our Cloud business by getting more partners on it. Yes, we would do that.

I think going forward, we've said that business is going to -- other cloud apps will be flattish roughly. All the investment is in CIS and that's where all the growth and potential is. We'll probably still report both, although we may -- when we talk about compute just focus on CIS next year since that's what's important. We'll disclose, I think, OCA CC What it was. And of course, as CIS gets bigger, if you were to combine them get this piece pretty static, this piece is getting very large. It won't be -- won't matter.

Over time, it will mix down. So it's made the conversation on to security, which is -- generates the majority of Akamai's revenue. You've been in cybersecurity for over a decade now, built a fantastic business, a $2-plus billion run rate business. Growth has dipped below 10% on a constant currency basis. When you take a step back, how much of an investment priority is the Security business for Akamai, given all the opportunities around public cloud, Akamai Inference Cloud, CIS, just in terms of like where the incremental dollars are going? How would you sort of stack rank security versus the rest of the business?

Security is very important. It's the majority of our revenue is an important growth driver for us. As we look forward, our goal is to try to do around 10%, including M&A. We're always looking for the right addition in terms of M&A. We've been very happy with Guardicore and Noname, they're both doing great. We've looked at 30% to 35% ARR growth this year, which is great to see, and I think a lot of runway there. Separate from M&A, we've launched our firewall for AI. I think protecting AI is really important, and they'll be -- that will become, I think, an important market where we want to be a player. So yes, it's important, a big area of investment for us. And I would say security and CIS. Those are the big investment areas.

100%. When you think about the composition of the security business, you have your traditional web security business business that you've been in for a very long time. And then you have the growth engines of that business. You mentioned Guardicore and your API Security business, which is Noname, the AI Firewall. Is there a time where there -- is there like a stabilization potential with kind of the core web security business? And is there a time where that -- the dollar growth from Guardicore core plus API Security -- is there like kind of an inflection point where those scale and we see better growth out of the security business? Or does M&A really need to be part of the equation to sustain that double-digit growth?

Yes. So the majority of the revenue, as you noted, is in the traditional businesses, Web App firewall, Bot management to stack on top of that, stopping DDoS attacks. And that is more mature. We're the market leader by far. It's growing, but it's not going to grow as fast as it did. And then you've got the newer businesses where we have market leadership position growing very rapidly. I think M&A is an important part of future. Adding new capabilities, the security landscape changing very rapidly, AI should accelerate that. And so I think acquisition, yes, is important going forward. And the key is to get the right value. We're not going to pay crazy amounts of money for something. We're very careful with what we buy.

The API Security business, you mentioned, across the $100 million run rate, what do you think -- what does the TAM sort of look like in API security? And what do you see the potential penetration of API Security within the Akamai customer base?

Yes. API security is great because there's a lot of room still in our customer base, growing very rapidly, but also outside the customer base, you don't have to have been a traditional CDN or WAF buyer to need API security. And it also has growth potential in terms of AI. So already, the latest version of the product will find your shadow AI and pretty much every enterprise has shadow AI today. And you're going to need to identify that and protect it. So it couples very nicely with our firewall for AI.

Let's talk a little bit about Guardicore, which has been 1 of the major drivers of security for the last few years. What's the runway for growth there? And to what extent is Guardicore emerging as a land product for new customers? Or is it primarily an installed-based there?

It's both. Good runway. It's something we do cross-sell into our base, but Guardicore, in some sense, even less related to CDN or WAF. It's behind the firewall solution. any enterprise really, especially if they're worried about data ex filtration or ransomware, we need Guardicore. And so we have had a lot of new customers to Akamai through Guardicore sales.

If we think about going into -- running up on about 2 minutes left, as we think about exiting 2025, and then you've got Q4 to go, so I don't want to get necessarily get ahead of that. But is it you think about like your priorities for the team in 2026? What are your hopes and aspirations in terms of whether its investment priorities, growth objectives, what is 2026 going to be about for Akamai?

Yes. It's about stronger growth about rapid adoption of Cloud Infrastructure Services, particularly with Inference Cloud, which is a new capability. continuing the strong growth in our security capabilities. Also, as you talked about adding a lot of new customers because you think about the rapidly growing products, API security, Guardicore core segmentation, cloud infrastructure services, those can be sold to a lot of customers that aren't Akamai customers today that don't worry about CDN, maybe don't worry about Web App Firewall in the sense that our traditional base does.

And so we have already started a program to greatly increase and [indiscernible] Hunting new customers at Akamai. So cross-sell is great. We're doing that, but we've got a lot of opportunity to increase our overall base, and that will be a big focus area next year.

Can you speak to like the sales motion and the -- maybe even the partner strategy around that to land -- potentially multiple products that are traditionally outside of the traditional Akamai customer base?

Yes. partners even more important, especially those products I talk about often partner-led. So that's good. They're partner friendly, which is good. So yes, I think it's -- we're in a good position now, and we're making the investments and the associated compensation structure to realize that.

In terms of the partners, should we think about these as GSIs, are these the hyperscalers, which partners are these?

They're not the hyperscalers, but yes, so GSIs, the big firms that you would think of, sometimes carriers good partners. The hyperscalers are customers, and we compete with them. Sometimes our products are listed on their marketplace, but we generally are not going to market with them.

We've gone through basically 30 minutes without mentioning the Delivery business, but maybe just one in terms of kind of the state of the Delivery business post couple of years of consolidation. What are your sort of underlying assumptions for that business in terms of pricing and the competitive dynamics? And what are your hopes for that segment of business? We just come down as a percentage of as I think it's sort of under 30% of the business today. But kind of what's the state of the Delivery business as we head into 2026?

Yes, a lot better than it was in the last couple of years. And you're right, there's been a lot of consolidation, probably at least 5 competitors are gone because they were selling below their cost. That is still happening, but less than it was before because there's fewer of them. It's still competitive. Traffic growth overall is better. The pricing declines, which we control to some extent for us, less than they were before. We do turn away some business which hurts on the traffic side, but it's better on the pricing side. So we're looking towards close to stabilization.

It's declining -- revenue is declining low to mid-single digits, probably be that way for a little while. We'd like to get it even -- overall, over time, like to actually grow it. It's not -- we've cut back a lot on the investment there, both in terms of the CapEx, half where it was before, and we're careful about the kinds of big users that we take on to make sure it's really profitable and driving cash flow for us.

Well, Tom, thank you for spending 30 minutes with Nasdaq London. Enjoy the conversation. All the best in 2026.

Thank you.

Good day, and welcome to the Third Quarter 2025 Akamai Technologies, Inc. Earnings Conference Call. [Operator Instructions] Please note, 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 Third 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 November 6, 2025, and we assume no obligation to update any of these forward-looking statements.

As a reminder, we'll 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 had a strong third quarter with results coming in above expectations for revenue, margin and earnings per share. Revenue grew to $1.055 billion, up 5% year-over-year as reported and up 4% in constant currency. Non-GAAP operating margins improved to 31%, and non-GAAP earnings per share was $1.86, up 17% year-over-year as reported and in constant currency. Our business performed well across the spectrum of our portfolio with accelerating momentum for our Cloud Infrastructure Services or CIS, continued strong demand for our high-growth security products and continued stabilization of our delivery revenue.

We're especially pleased with the greater recognition of the strength of our distributed platform and differentiated strategy among customers and industry analysts. For investors who may be less familiar with how we have transformed Akamai's business model from the CDN pioneer to a leader in cloud security and distributed cloud computing, I encourage you to read the new report on Akamai from IDC, titled, Akamai: Navigating the Cloud Frontier - A Transformation from CDN to Distributed Cloud Provider. It offers an objective third-party perspective of how Akamai has evolved our strategy and our key differentiators in security and distributed cloud computing for AI inferencing at the edge. You can find the report on our website.

As a great proof point for the advantages offered by Akamai's uniquely distributed compute capabilities, the top three cloud providers in the U.S. are all now using Akamai Cloud Infrastructure Services. And in Q3, one of them signed an expanded multiyear renewal that solidifies Akamai's position to be their premier distributed cloud computing provider. This customer has a dominant position at the core of the Internet, and uses our widely distributed managed container service to get their business logic closer to end users for superior performance.

Our revenue for cloud infrastructure services in Q3 was $81 million, up 39% year-over-year as reported and in constant currency. That's an acceleration from the 30% growth rate we had in Q2. We signed many new and expanded contracts for our Cloud Infrastructure Services in Q3, including with a major global appliance and consumer electronics manufacturer in South Korea, a multinational financial services company in Singapore, a leading U.S. developer of analytics software, a U.S.-based supply chain planning software vendor, a European cybersecurity provider, a major U.S. airline, a leading American video game company, a leading media and entertainment company in India, and one of the largest media companies in the world. Also, a multinational gaming company in Japan contracted for our Cloud Infrastructure Services as part of a larger $37 million 2-year renewal for an array of Akamai products and services.

Last week I was with our team at the AI Industry Conference, NVIDIA GTC, where 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. With the rise of AI, the Internet is undergoing a fundamental shift in architecture. The Internet we're building today is driven by AI, where human intelligence is supported and augmented by intelligent systems powered by AI Inference.

Akamai is positioned to power inference the way we power the web by bringing inference physically close to users. This will enable faster performance and global scale to support intelligent applications worldwide.

When the web was first taking hold, the need for performance and scale is what catalyzed Akamai's founding. Akamai helped to end what was known as the World Wide Wait, enabling the Internet to scale to provide real-time services to billions of people around the world. Subsequently, we introduced web security as a cloud service, enabling the web to be used safely for myriad critical applications such as banking and commerce. We see the same need for performance, scale and security playing out again with AI inference today. By combining highly scaled GPU and compute capacity with Akamai's unparalleled global reach and security at the edge, Akamai Inference Cloud enables intelligence to run instantly, securely and exactly where it's needed, right next to the user, agent or device. This is how Akamai can power the new generation of AI applications, conversational, personalized and Agentic. All designed to scale in real time to meet unprecedented demand.

As we look at AI investment cycles, we see the market at a transition point. Until now, the AI story has largely focused on training, the initial creation of AI models from massive amounts of underlying data. To train foundation models, AI pioneers have relied on hyperscale clouds and their centralized data centers with their enormous concentrations of compute, power and capital. We believe that AI Inference or the execution of queries against a trained model is the new frontier, one that requires purpose-built infrastructure to enable distributed low-latency, globally scalable inference at the edge, with response times measured in a few tens of milliseconds.

As AI systems are adopted at scale, we expect the growth of Inference will drive enormous demand to this new intelligent layer of the Internet. And we're not the only ones who see it coming. Fortune Business Insights noted in a report on the rising global AI Inference market that due to rising demand for real-time low-latency AI processing near data sources Edge Inference leads the market and is projected to grow at the highest CAGR of all AI inference models. And as NVIDIA's Founder and CEO, Jensen Huang said: When we launched Akamai Inference Cloud at GTC, "Inference has become the most compute-intensive phase of AI, demanding real-time reasoning at planetary scale. Together, NVIDIA and Akamai are moving Inference closer to users everywhere, delivering faster, more scalable generative AI, and unlocking the next generation of intelligent applications."

Akamai Inference Cloud brings together Akamai's globally distributed architecture and expertise with NVIDIA's Blackwell AI infrastructure to provide the computing needed to unlock AI's true potential. The service is available today with 17 locations around the world, and we're building out more points of presence as customer demand grows.

One of our initial customers, Monks, the European digital-first marketing technology services and consulting company said "with Akamai Inference Cloud, we will accelerate the delivery of key capabilities, including identifying players and plays and delivering tactical insights to coaches while the game is still happening. That's only possible by distributing advanced GPUs to the edge, and we believe it will transform how we approach sports broadcasting and immersive fan experiences."

Another customer, Harmonic, whose technology helps to distribute video content for television and the Internet said, "Akamai Inference Cloud will allow us to run larger parameter, more capable models locally, expanding the number of functions we can deliver cost effectively within the same compute instance to deliver fast response times, sophisticated personalization and more enriching video content."

At Akamai, we believe the technology ecosystem that enables the AI revolution will require multiple providers of AI infrastructure, the hyperscalers, NVIDIA and also Akamai with our unique distributed capabilities and our unparalleled expertise at the edge. We are very excited about what lies ahead.

The edge, of course, is also where Akamai deploys our security solutions. And as customers speak with us about their plans for AI inferencing, they tell us they see valuable synergy between Akamai's security and delivery product lines and our cloud computing capabilities. and how they trust Akamai to help make the Internet faster, more reliable and secure for their businesses.

Akamai security growth in Q3 continued to be driven by strong demand for our market-leading segmentation solution and by rapidly growing customer adoption of our API security solutions. Combined, these high-growth security products grew revenue 35% year-over-year as reported and 34% in constant currency. Our segmentation wins in Q3 included a $3 million expansion contract to give one of North America's largest health care technology companies the visibility and control they didn't have before. A $1 million contract with a European insurance group that is also a net new Akamai customer, a multiyear contract with a large insurance company in Korea. And an expansion contract with a large bank in Mexico to extend their initial deployment across their operations in Latin America.

In Q3, we also continued to see growing interest in our market-leading API security solution. As organizations shift towards an API-first strategy and expand their use of AI applications that rely on APIs in a fundamental way, adopt tools that enable them to discover and monitor deployed APIs and to manage risk. Comply with stricter data protection regulations, especially in Europe, and respond to public reports of API-related breaches that have raised awareness and increase the stakes for financial and reputational loss.

Akamai API security wins in Q3 included a $7 million contract for API security with one of Europe's most important banks. As part of a $31 million multiyear commitment for security and compute. Adoption of API security as part of a $20 million expansion contract with one of the world's largest airlines. An expansion of API security as part of a $42 million contract across the breadth of our portfolio with one of the world's largest software companies. A $2.6 million contract with one of the largest life insurance groups in Asia. The displacement of a competitor at a FinTech payments provider in Brazil. And we also signed 7-figure contracts for API security with 2 of the 10 largest financial institutions in the U.S. and one of the largest banks in Canada.

We're also pleased to note that for the sixth straight year, Akamai has been named Customers' Choice in Gartner's latest Voice of the Customer report for cloud web application and API protection. Akamai was also recognized as Customers' Choice in Gartner's Voice of the Customer report on online fraud detection.

Before I turn the call over to Ed, I'd like to express my gratitude to our employees for their great work in Q3, and for making Akamai a great place to work. In recognition of your efforts, Glassdoor named Akamai as one of their top 50 best led companies of 2025.

Now I'll turn the call over to Ed to say more on our Q3 results and our outlook for Q4 and the year. Ed?

Thank you, Tom. I'm pleased to report that we delivered strong third quarter results with total revenue of $1.055 billion, up 5% year-over-year as reported and 4% in constant currency. We also had another quarter of very strong bottom line performance with non-GAAP EPS of $1.86 per share, up 17% year-over-year as reported and in constant currency. Our strong EPS results were driven by higher-than-expected revenue and strong execution across the board.

Moving now to revenue. Compute revenue, which is comprised of the fast-growing Cloud Infrastructure Service or CIS solutions that Tom mentioned earlier, and our other cloud applications, or OCA was $180 million, up 8% year-over-year as reported and up 7% in constant currency. As a reminder, in Q3 2024, we recorded a $7 million onetime benefit related to the release of some deferred revenue in conjunction with the expiration of a long-term legacy compute contract. This revenue was part of our other cloud application products, and it had a 5 percentage point impact on a year-over-year total compute revenue growth rate.

Total compute revenue was driven by continued strength in CIS. For Q3 2025, CIS revenue was $81 million, accelerating to 39% growth year-over-year as reported and in constant currency, a nice step up from approximately 30% growth last quarter. As a result, we continue to expect CIS ARR year-over-year growth in the range of 40% to 45% in constant currency at year-end.

Security revenue was $568 million, up 10% year-over-year as reported and 9% in constant currency. Revenue from our high-growth security products, by that, I mean, API security and Zero Trust Enterprise Security was $77 million, an increase of 35% year-over-year, and 34% in constant currency.

Given the continued strength in our API security business, we now expect to exit 2025 with a run rate of approximately $100 million for that product line on both an as-reported and constant currency basis. Finally, we continue to expect the combined ARR for our high-growth security solutions to increase by 30% to 35% year-over-year in constant currency for 2025.

Moving to delivery. Revenue was $306 million, down 4% year-over-year as reported and in constant currency. This result was slightly better than expected, marking another quarter of improved trends in our delivery business.

International revenue was $525 million, up 9% year-over-year or up 8% in constant currency, representing 50% of our total revenue in Q3.

Foreign exchange fluctuations had a positive impact on revenue of $4 million on a sequential basis and positive $8 million on a year-over-year basis.

Moving to profitability. In Q3, we generated non-GAAP net income of $269 million or $1.86 of earnings per diluted share, up an impressive 17% year-over-year as reported and in constant currency, and $0.20 above the high end of our guidance range. Finally, our Q3 CapEx was $224 million or 21% of revenue as we continue to invest in our fast-growing CIS business.

Moving to cash and our capital allocation strategy. As of September 30, our cash and cash equivalents and marketable securities totaled approximately $1.8 billion. During the third quarter, we did not repurchase any shares. As a reminder, year-to-date, we spent $800 million to buy back approximately 10 million shares, marking the largest annual buyback in our history.

As it relates to our 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 when market and business conditions warrant.

Before I provide our Q4 and full year 2025 guidance, I want to touch on some housekeeping items. First, as in prior year, seasonality plays a significant role in determining our financial performance for the fourth quarter. Typically, we see higher than normal traffic from our large media customers and a pickup in seasonal online retail activity from our e-commerce customers. However, both are difficult to predict.

Second, regarding Q4 operating expenses, as is typical for our business, we expect it to be higher than in Q3. The main driver is the seasonal jump in sales commissions as our most successful reps achieve their annual quota accelerators. Finally, on July 4, 2025, the One Big Beautiful Bill Act was signed into law, introducing significant provisions, such as the permanent extension of certain expiring Tax Cuts and Jobs Act provisions, international tax framework modifications and it restored some business tax benefits. This new legislation, however, has not had a material impact on our tax rate in 2025.

With those factors in mind, I'll move to our Q4 guidance. For Q4, we are projecting revenue in the range of $1.065 billion to $1.085 billion, up 4% to 6% as reported and up 3% to 5% in constant currency over Q4 2024. At current spot rates, foreign exchange fluctuations are expected to have a negative $5 million impact on Q4 compared to Q3 levels, and a positive $11 million impact year-over-year. And for the full year, at current spot rates, our guidance assumes foreign exchange will have a positive $13 million impact on revenue in 2025 on a year-over-year basis. At these revenue levels, we expect cash gross margins of approximately 72% to 73%. Q4 non-GAAP operating expenses are projected to be $322 million to $331 million. We expect Q4 EBITDA margin to be approximately 42% to 43%. We expect non-GAAP depreciation expense to be between $143 million to $145 million, and we expect non-GAAP operating margin of approximately 28% to 30% for Q4.

Moving on to CapEx. We expect to spend approximately $171 million to $181 million. This represents approximately 16% of our total projected revenue.

Based on our expectations for revenue and costs, we expect Q4 non-GAAP EPS in the range of $1.65 to $1.85. This non-GAAP guidance assumes taxes of $57 million to $60 million based on an estimated quarterly non-GAAP tax rate of approximately 18% to 19%. It also reflects a fully diluted share count of approximately 147 million shares.

Our complete guidance for full year 2025 is available in today's press release, but let me walk you through the highlights for now. For the full year, we expect total revenue to grow 4% to 5% in constant currency. Non-GAAP operating margin of approximately 29% to 30%, and EPS in the range of $6.93 to $7.13.

In closing, we continue to be very pleased with the performance of our Cloud Infrastructure Service and high-growth security solutions. We are very excited about the potential of the Akamai Inference Cloud as we extend AI to the edge.

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

[Operator Instructions] Today's first question comes from Mike Cikos at Needham & Company.

Congrats on the solid quarter and the execution you're talking to. I just wanted to come back to the segment commentary real quick and just to make sure that I'm understanding the guidance on the various components properly. For security or compute, are we at this point reiterating the growth that we had spoken to last quarter? I think you were looking for computing the magnitude of 15%, call it, security around 10%. Can you provide any final parameters there? And then I do have a follow-up.

Mike, this is Ed. Yes. So with security, we're calling for about 10%. We don't give guidance by quarter. So for the full year, we obviously reiterated our ARR guidance. So that hasn't changed. And as we said before, with compute, will be maybe a touch under 15% for the year as some of the bigger contracts ramped up a little bit later in the year than we had expected, but definitely picking up momentum in CIS though.

Great. And one more for Tom, but just to add before I leave it there. Are there any [ tea leaves ] or guardrails you can give us as we're thinking about '26, just given how '25 has played out at this point?

No. So we'll give you guidance in '26 in the February call. The only thing I would say is that the momentum that we're seeing in CIS, especially with the new AI Inference Cloud, we're getting a tremendous amount of activity and demand for that. So there's a very good chance we could accelerate growth in our CIS business next year.

That's excellent. And that actually feeds right into my next question beautifully then. For Tom, I know you spent a good chunk of your prepared comments on Akamai Inference Cloud, which has to be intentional, right? But you spoke to a couple of different initial customers, Harmonic being one of them. You spoke to the 17 locations, and this being available on a global basis. Can you just help us think about where we are in that inference curve, right? We've been in frontier pioneer model world for a couple of years now. It feels like things are happening at the inference level, but what's the boots on the ground view that you have today?

Yes, first inning of a very exciting game. There's just so many customers that want to adopt AI applications and do inference for -- applications that need to be fast for real users. An example would be a commerce company, and they want to present the right products, personalized images to the user and then if the user is interested in something, they really want to show not only the product, but the user wearing the product and not just in a picture, but in a video. And in the video, they want to show the user in a context and environment that makes sense for the user. We've got customers with AI-powered toys. Customers with -- that want to do robotics and they need really fast control and response. And so they need to do the compute, the inference close to the end user at the end.

Media Workflow, people are going to see different versions of games, different versions of movies. It will all be personalized. And this needs something like the NVIDIA Blackwell 6000, which is very powerful, but also well suited to run at our edge. And that's why the partnership with NVIDIA makes so much sense. So we're in the first inning. We're just launching the service in the last couple of weeks, but we're seeing a very strong amount of interest among our customer base. This is exactly what they want.

Our next question today comes from John DiFucci with Guggenheim Securities.

This is Lawrence Vensko on for John DiFucci. You've communicated your initiatives related to the go-to-market strategy with the hiring of hunters and experienced specialists to support new business sales and security and compute. Can you just walk us through how you're thinking about the hiring of additional reps for the remainder of this year? And how should we think about the ramp period of these sales reps before they become fully productive?

Yes. We've made a lot of progress in the go-to-market transformation, and that will be continuing through the early part of next year. I would say by the time we get into Q2, a lot of the transformation will be done. There will be continued hiring from now through at least the first half of next year to have increased sales capacity for hunting, both in security and obviously also in compute. So that's an ongoing effort, but the transformation part will be largely done by the beginning -- towards the beginning of next year.

And our next question comes from Rishi Jaluria with RBC.

Wonderful. Great to hear. So a lot of the momentum, especially on the compute side. Maybe two questions from me. I wanted to first start with -- you talked, Tom, about some of the deals that you're signing with the hyperscalers and where they're using you for more edge inferencing. At the same time though, as we know from all the hyperscalers, everyone is suffering through capacity constraints right now and everyone is trying to find any resources wherever they can as we think about just advancing AI on both the training and inferencing/reasoning side. So maybe help me understand what gives you confidence that as we get through this capacity constrained era, regardless of how long it lasts, that Akamai will still be well positioned to benefit from that. And that's not something that some of the hyperscalers or partners might think about bringing in-house as the opportunity materializes itself, especially with edge inferencing and more capacity gets built out? And then I've got a quick follow-up.

Yes. Akamai has a unique platform. Nobody is like us. We have over 4,000 points of presence. We're in -- already in 700-plus cities. And that's unique. And we already support our Edge Worker solution, our function of the service in every location. In fact, one of the hyperscalers is using us for ad market, to get their ad logic a lot closer to users, another hyperscaler using us for API orchestration again, needs to be fast and close to users. We talked about our managed container service. A third hyperscaler is using our managed container service for their media workflow, and again, because it's closer to users. So it's not a capacity constraint issue. It's not that the hyperscalers have run out of capacity. Certainly, that's not the case. It's because our platform is different and we can make their logic, their compute logic run faster for users because it's closer.

And obviously, we compete with their cloud businesses to win that business, but it's because of our better performance. And the good news is we don't have to go deploy 4,000 new reasons or start new deployments in 700 cities because we already have this distributed platform. We're augmenting several of the regions that we've talked about with the new Blackwell 6000, and that's pretty exciting. And we will continue to do that as we scale that business.

Yes. Understood. No, that's helpful. And then maybe if I then shift to -- just thinking about the API Security business. Obviously, you've done well with that. In addition, just as we think about kind of the evolving paradigm in applications, right, shifting to agents and multi-agentic systems. And obviously, we're seeing the rise of things like MCP and A2A as a way to bring those altogether. Are there opportunities to take what you're doing in API security today and start to extend it now into these new kind of Agentic protocols?

Absolutely, and we're already doing that. For example, of API Security and detecting the APIs, detecting the new AI agents and apps that the shadow AI that enterprises have running and don't know. And then, of course, to protect that with our new AI firewall service. And this is one of the reasons that we're so excited about our API security business. So not just to protect the legacy APIs, but the new Agentic web and to protect -- and to identify and protect all those new inferencing applications.

And our next question today comes from James Fish with Piper Sandler.

Interesting stuff on the compute side. But how should we think about the required CapEx for inferencing here and relationship you have now with NVIDIA? Has that evolved over the last year or so? And for you on that point, how should we think about compute gross margins here moving forward over the next year to 2?

Jim, good questions. So we've done an initial deployment with NVIDIA. We're in about 17 cities or so, and we've got that up and running. That was in our Q4 CapEx. It will be informed by demand. And what we're seeing is initially some customers coming to us with some pretty large request. So the CapEx will very closely be followed by revenue, and it will be informed by demand. So we had given you sort of a metric of about $1 of CapEx as a $1 of revenue. It's about the same here. It could be a little better depending on utilization. As far as margins go, it will be very similar. I would expect obviously, as we do a deployment, let's say, we get some orders for $50 million, $100 million, whatever it may be, and you're putting out a little bit more CapEx for further down the line -- pipeline stuff.

It'll be a little inefficient at first. But once it gets to scale, I would expect to see similar gross margins to what we see in compute and maybe even a little bit better just given the scarcity in the marketplace. So you could potentially have slightly better margins. But we also expect to get pretty good operating leverage and scale out of it as well. So as we get -- as we scale up, I expect us to get -- help the overall gross margin of the company as we get to scale.

Got it. And going back to the go-to-market side of things. This quarter did seem to have a lot of callouts around, I'll say, cross-sell or packaging across all 3 segments. Is there a way to understand what incentives you're giving to your sales team? Or what percentage of the business is whatever you want to call it, ELAs, others call it pool of funds. What percentage of customers are using all 3 segments at this point?

Yes. Good question. So I would say one of the things we did and what we're seeing in the field this go around here this year is we incented longer-term deals. So we're definitely seeing an elongation of our sales cycle, which is good -- not sales cycle, but our customer average length, which is good. So we're seeing longer-term deals, larger deals, et cetera. And you'll see that reflect in the RPO metric that will come out tomorrow in the queue. So that's one of the drivers.

We're also seeing larger deals, not necessarily pool of funds or ELAs. We do have a few of those, but those are necessarily drivers. We are seeing the adoption of compute definitely pick up in the installed base. So I don't have a metric to give you today on what the percentages that use all three, there's a decent amount of customers. I'd say we have some compute-only customers, but largely speaking, most of the customers are either a security customer or a compute customer. About 74%, 75% of our customers are both security and delivery customers. So that's been pretty consistent over the years, maybe come up a little bit. But yes, we don't have those -- necessarily those pool of funds deals or ELAs where you've got a big commitment without product specifically addressed or volume against a particular product line.

And our next question today comes from Gabriela Borges with Goldman Sachs.

I wanted to follow up exactly where the prior commentary left off. So in terms of the potential phases of inference deals, Ed, I think you mentioned off hand there in the order of magnitude, $50 million to $100 million. I'd just love to hear a little bit more about that. Do you think that the pipeline can support or does the pipeline already show deals of that sort of order of magnitude because I could see how that could be a meaningful contributor to your growth algorithm into next year?

Yes. What I was saying there was, let's say, if you had a large -- because we have had some -- interested in some fairly large deals. If you had a deal of that size that you would buy more CapEx than that. So let's say, if I got it in order for 50 to 100 or something along those lines, I'd probably be buying more CapEx because there's more demand to follow. But the point I was trying to make there is that we are seeing some customers reach out to us for some pretty sizable deal sizes in terms of larger than what we typically see in compute today. So it would be -- I'd say, just in general, just going to be larger deals to start for sure.

Yes, super interesting. The follow-up I have, either for yourself or for Tom is on the delivery business. You're putting up the stabilization and the growth rates that you've been talking about for a couple of quarters now. Remind us, is there idiosyncratic opportunities when the cohorts come up for refresh, depending on the year that help influence those pricing dynamics and remind us why pricing is more stable now than it has been in the past?

Yes. So good question. We will call out generally when we have -- we've got today now six customers that are 1% or greater of our revenues. So we don't have a ton of concentration risk. But when those 6 or our top 10 as they come up for renewal in 1 quarter or within a 6-month period, that will definitely have an impact on revenue. We don't -- we didn't have that this year. We don't expect that next year. We just have the normal revenue renewal cycles that we typically have. We are pushing and incenting our sales reps for longer -- longer contract length and we are seeing that, which is good, including with some of our larger customers, which is good as well.

As far as the pricing dynamics go, we have seen some stabilization in the larger media deals where you see probably the biggest impact on revenue. Still some price pressure in sort of the larger base, if you will, but nothing that's out of the ordinary as a matter of fact, it's a little bit better than what we've seen historically. And in terms of what the drivers are of that, I think it's just -- there are fewer competitors in the marketplace. A lot of them have gone out of business or in some cases, just exited the business if they're an existing different company that's not just focused on delivery. So that it may have something to do with it as well.

And our next question comes from Frank Louthan with Raymond James.

So it's been a pretty good year for delivery overall. Anything really driving that and anything early that you see in the trends in Q3, to give us an indication of how that seasonality is shaping up. And then with the larger contract deals you're getting with customers, any risk to the sales cycle along dates?

Yes. Usually -- so on longer sales -- sorry, I keep saying cycles -- I mean longer contracts, no, it doesn't necessarily elongate the sales cycle with existing customers. With newer customers, obviously, your sales cycle is a bit longer, but not with existing customers, no. In terms of the dynamics of the business, Q3 typically is a little bit lighter on the seasonal quarter for delivery, just given the dynamics of content, sports seasons, vacations, that sort of stuff. So we saw kind of a normal pattern there. But traffic growth is probably the biggest driver coupled secondarily with the pricing declines have moderated consistently throughout the year. So it's really a combination of the two.

And our next question today comes from Sanjit Singh with Morgan Stanley.

Congrats on the solid results. I wanted to go back to the compute business, and it's great to see CIS accelerating. In terms of that other $100 million in that portion of the business, I know there's headwinds around the storage piece and some -- I think there were some video optimization close that you guys were transitioning to our partner. In terms of when does that potentially stop being a headwind to overall growth? Just to have an update on that portion of the reference.

Yes. Those would be in our other cloud compute applications segment. And that's not really the focus of the business. There's still some more that will happen there, but more or less that was flat quarter-over-quarter. It's not where we're investing, not where we'll see the growth. I think you want to focus on the CIS, the Cloud Infrastructure Services, that's where all the excitement is and where all the future potential growth is. And so the -- in fact, going forward, we may even just separate the two and report on CIS because OCA is pretty small, pretty stable. And the big driver of our future growth is Cloud Infrastructure Services. And that's where we have our products like Edge Workers for Function as a Service, and 4,000 POPs, manage container service that was being used by a hyperscaler for their media workflow and AI. So Akamai inference Cloud with huge potential growth. And that's all part of Cloud Infrastructure Services. So probably that's what you want to be thinking about when you think about Akamai Compute.

Yes. So -- and that's what we're looking at as well. I just want to get a sense of when -- maybe when some of the revenue headwinds start to fade. But fair enough. On the Inference Cloud opportunity, what do you sort of envision? Is there a security attach opportunity associated with Akamai Inference Cloud and love to see -- care about how you're thinking about the security attached to Akamai Inference.

Yes, absolutely. And that's a great question because as you're putting these applications and models out there, they got to be secured. In fact, they have even greater vulnerabilities than a normal application or API would have. And so you're going to need API security, you're going to need like an AI firewall. And those are things that we have market-leading solutions for it so that we can build that around your inference engines and your models that are on Optimize Cloud.

And our next question today comes from Fatima Boolani with Citi.

Tom, I wanted to ask you a big picture question. As we think about the mix of traffic and let's just call it your traffic estate that runs through your pipe. When you think about the mix between classic video delivery and OTT versus enterprise, but now maybe even AI and some consumerized AI applications potentially driving uplift there. I'm curious how you're thinking -- well, what the state of affairs is today from a traffic mix perspective with the rise of AI and bots. And how should that modulate over the next couple of years and thinking about how that dovetails into your delivery and CIS business. Would love your perspective on that. And then I have a follow-up for Ed, please.

Yes. Interesting question. Today, the vast majority of the traffic would be video, either on-demand or live and software downloads. Now as you think about the future, you're right, sites that -- by commerce sites that might not have had any video or much video in the past, they're already thinking about how to make the entire experience be immersive with video. So that as you go to a page, it starts with a video of you wearing something they think you'll like to buy. And that does increase the traffic. Also, even the traditional video, live sports. As we talked about, we already have a customer that -- the feed that I see when I'm watching the game is going to be different than the feed you see or things -- it will be customized to the person. And so AI is going to be used even to watch traditional video to give a better, more personalized experience.

And who knows if you ever get people wearing devices that give you augmented reality, well, that drives a lot of new traffic. So I do think that you're right that there is a reasonable prospect that as AI becomes more prevalent that it will impact the traditional delivery business in a way that will be favorable to Akamai.

And Ed, this is a back to basics question, piggybacking on some of what you discussed earlier. But could you just walk us through the relative high-level gross margin and gross profit profile of the business from a segmentation perspective. And really, the spirit of the question is you've seen very nice operating leverage in the business in spite of the fact that I would have thought that the delivery business is perhaps got the most inferior gross margin profile relative to the other segments or revenue segments rather. So I would love to kind of get a quick recap of the relative gross margin profiles and some of the puts and takes, especially as it relates to some of the CIS business and the CapEx requirements that you talked about earlier.

Yes, sure. So I'd say, we had shown some margin back a couple of years in terms of the 3 segments with security. And from a gross margin perspective, kind of high 80s. Compute was in the low 70s and delivery is probably high 60s, if I'm remembering it correctly. It's probably still in that sort of ballpark. And I think the business in general will run in the kind of low 70% gross margins might be down a point or 2 as we're building out scale for -- you got a little bit of a timing issue between the demand and the revenue and the build-out because you have 2 pieces of the build-out. You've got the colocation where you're -- especially with AI Inference will be buying more -- larger colo buys, so you have some unfavorable accounting potentially.

So you might have a little down trend in gross margin and compute for a bit. But we do think you can get to that sort of low 70s gross margin. We are seeing from a CapEx perspective, even with the AI Inference and what we're selling with the AI Inference Cloud, that dollar of revenue to dollar of CapEx is a reasonable proxy for what we're seeing. And like I said, it could be a little bit better with the GPU as a service because there is a scarcity there. So there's a pretty decent market price set for that today, but that could be a little bit better. So I do think that, overall, you get good leverage because our sales force, the way we're going to be designed, you've got some specialists, but it's reasonable in terms of the specialists and our sales force will be able to sell everything and bring specialists and so we should get good operating leverage across the entire business. So it's not just delivery that gives you good operating leverage, which it does, but it's all 3 products that will give you good operating leverage.

And our next question today comes from Jonathan Ho with William Blair & Company.

With CIS, are these mostly sort of new compute and capacity deals that you're winning? Or is there also sort of a growth coming from existing workloads that are being migrated onto CIS? And related to that, is there may be an opportunity to benefit from outages at AWS and Azure as customers look for greater resiliency?

It's a combination. But the outages you raise is a really important point. And people don't think about it very much. And this is important whether you're buying compute or delivery or even security. In fact, maybe even more important in security. Our goal at Akamai is to have five 9s of reliability. And that means that over 2 years, the site or the app is down less than 10 minutes collectively from all causes, including attacks. And we're achieving that today, and we know that because some of the world's major banks, the regulators, want to see Five9. And we put a tremendous amount of investment into our platform to make sure that when we update metadata or software or a customer updates their metadata, it doesn't have some unintended consequence that blows up the platform. And we see what happens with our competitors who don't make that investment. And for example, in security companies that we compete with where some of them, they're down for an hour every quarter, and that's just a disaster for a bank. They can't survive like that in today's world. So reliability is critical. And that's an area that really is a strength for Akamai. And so I think that's super important. That's a great call out.

And just maybe as a follow-up. When we think about your security business, can you talk a little bit about the penetration rates for opportunities such as segmentation and as well as how your AI security products are doing?

Yes. So there's a lot of room for growth, a segmentation and API security. And also, as we talked about earlier with API security, get a whole new market around the AI Inference engines and models and agents that are going to need special security. Obviously, it's early days on our specific protection for AI firewall, but very strong interest in the customer base, hundreds of prospects and lots of proofs of concept and starting to get the first customers now adopting the solution. And I think that will be a pretty quickly evolving landscape in terms of protecting the models, the inference engines and the agents.

And our next question today comes from Will Power at Baird.

Okay. Great. I guess two questions. Tom, maybe starting with you. I guess it would be great. I know you've touched on this a fair amount. As I think about the Akamai Inference Cloud and the NVIDIA partnership, I wonder if you could just speak to the medium, longer-term strategic importance of it. Is it principally access to black well GPUs? Or are there other parameters and facets of the partnership to be aware of anything on the go-to-market side, et cetera? Then I have a question for Ed.

I think the really important thing is it's providing very strong compute capabilities to support AI close to the users, the data, the devices, the robots and the agents, and that's what's unique about the offer. So you're combining Akamai's distributed platform, which is the most distributed by far in the world with leading GPU capability. The new 6,000 are very powerful. You can support models with hundreds of billions of variables. They can do very cool things that weren't possible before, literally like showing a user who comes to the site in the site in a video. Very cool stuff. And that's unique, I think, with Akamai. And we do have a good relationship with NVIDIA, and we are working together in terms of commercializing the capability with customers and the ecosystem.

Okay. Great. And I guess, Ed, nice upside on operating margin performance and it sounds like largely expecting that to continue into Q4. So I'd just be great to get any color as to kind of what's driving the upside relative to prior expectations. And kind of this 30% adjusted operating margin level, is that kind of the right framework to think about as we kind of move into next year?

Yes. So we'll give you guidance for next year in February. I'd say execution, I mentioned that at the top of the call. Some of that's driving additional revenue. Some of it is just -- even with our development efforts and the capitalization of labor is a good gauge for productivity. That was a bit higher this quarter. So we were more productive there. The team has done a nice job even in procurement with our -- some of our vendors in terms of getting better pricing. We're modernizing some of our back office, so we're able to retire some older systems and consolidate on to one. Oracle is a good example of where we're consolidating on to. We've got great execution with our team that's building out the network in terms of getting better pricing on co-location and bandwidth and that sort of stuff. So I'd say it's just good execution across the board.

And our next question today comes from Patrick Colville at Scotiabank.

I guess one quickly for Dr. Tom and then one to Ed, if possible. So Dr. Tom, I guess, my question for you in regards to the NVIDIA partnership, there was some releases last year and Akamai introducing NVIDIA GPUs out of the Edge. So just help us understand what is new this year in late 2025 versus last year with this NVIDIA partnership.

It's much deeper. And now we're deploying the Blackwell 6000, and that's a huge leap from where we were with the 4000 in terms of capabilities, and we're deploying them much more broadly, and a much stronger partnership and relationship. So it's a world of difference and that enables the Inference Cloud and all the applications that we talked about.

Okay. Crystal clear. And congratulations on that exciting partnership. Ed, if I may, just a numbers question. I mean, the first caller kind of asked you about your soft guidance for the different business lines. I think your answer, if I was not mistaken, was 10% for security, just under 15% for Compute. So if I understood that rightly, that implies that delivery probably takes a leg back down again in 4Q. Am I thinking about that the right way? And if so, is that conservatism? Or is there something that we should know about as to why growth in delivery would inflect back down?

Yes. We gave you a pretty wide range there, and delivery is hard to call in Q4. So I wouldn't read it as we're expecting anything negative necessarily with delivery. The seasonal aspects of the quarter don't really manifest themselves to around Thanksgiving. So it's hard to say what the retail season will look like and what the sort of end of year media season will look like as you get new devices online. So there's a variety of outcomes you can get this quarter.

And yes, what I said was we should get to about 10% for Security, a couple -- a little bit below 15% on Compute, but that actually bodes well for next year because it's really just a timing issue and then delivery is sort of the fill in. So depending on where you peg your model on that range, you'll get a variety of outcomes for delivery.

Thank you. And our next question today comes from Rudy Kessinger with D.A. Davidson.

This is Andres Miranda for Rudy. Coming back to the beginning of the call, you said that you have now the 3 larger cloud providers using CIS. That implies to us that, that wasn't the case before. Can you just confirm that? And if that's the case, did you just sign one this quarter? And what is the upside moving forward? How should we think about the 3 large cloud providers.

I didn't completely get the question. Can you repeat the question that you're asking?

Yes. So like at the beginning of the call you said you had the three larger cloud providers now using CIS. Does that imply that, that wasn't the case before? So did you just sign one of them in the quarter? Or what is the upside moving forward for CIS?

Good. We signed the third -- we just signed the third one. And the first one signed a much larger contract. So one got a lot bigger, and one is new. And so now we have all three. Is that what you're asking?

Yes. Thank you.

And our next question comes from Tomer Zilberman with Bank of America.

I actually want to go back to Security and talk about the demand you're seeing there. If I take the commentary from some of your peers, they're talking about an acceleration in the underlying demand environment, but when I look at your trends, you've kind of been growing 9% to 10% the last few quarters and you called out 10% for the year. So I just wanted to see kind of the puts and takes of what you're seeing in terms of demand and how you're thinking about that as you go into next year.

Yes. So I think what we're trying to highlight for you today is we're seeing significant demand for our API Security and our Guardicore Zero Trust platform security products. API Security, in particular, if you go back in time, we closed our acquisition of Noname back in June. So this is the first quarter of full organic year-on-year growth. And we more than doubled. So we're going to exit at about $100 million run rate. So we're seeing an amazing demand for API security and continued strong demand for Guardicore.

So -- and also you have -- as Tom talked about, with API Security and what's happening with the Agentic Web and the opportunity for future growth, if you kind of look out into the future, there's a lot of runway for API Security and the penetration rate inside of our base for both products is relatively low, and we've got a great track record of getting very high penetration. So we've got some products that are been around for a while that are still growing, but it's not growing as quickly. So I think you missed the opportunity, if you just focus on the overall number. You're really going to look at the two fast-growing products, the underlying demand for those products and also our position in the market, we're very well positioned in the market with leading market leading products.

And our next question comes from Jeff Van Rhee with Craig-Hallum Capital.

This is Daniel Hibshman on for Jeff Van Rhee. Congrats on the quarter. Maybe one just to open up on the delivery trajectory and what's being expected there. Now, is this a sort of line where as always the growth rate is kind of always be in constant flux just based on the market dynamics that year? Or do you think the trend line we're stabilizing around here kind of in the single-digit growth -- a single-digit decline is sort of a trend line to be expecting into the future? Just kind of long-term vision on how you expect that to behave secularly.

Yes. Good question. So there's always seasonality just in the trends on traffic on the Internet. Q4 is always a larger seasonal quarter. You've got the return of college football and the NFL and you've got new content for new TV shows and that sort of stuff. So that always drives more traffic at new devices coming online. You've got a big holiday shopping season. So that's very typical to see a jump in traffic there.

Typically, Q1 might be a little bit lower than what you saw in Q4. Q2 generally in line with Q1. And then Q3 tends to be a little bit seasonally softer just traditionally because of not as much sports going on. You don't have this -- you've got no new shows coming out and people are on vacation, not using the Internet as much. So I don't see any change in that sort of general trend on the Internet.

As Tom talked about, with these AI agent applications could create more video traffic, just more API traffic. So there's a possibility for a leg up there. We've had weak gaming over the last couple of years, some big titles are in the backlog. That actually helps console recycle refreshes help as well. So we're due for one of those in the next year or 2. So I think the demand trends could get better over time. But we've been pretty cautious with delivery because we -- occasionally, you can get surprised. But we're very pleased with what we're seeing, and we are kind of getting back to that where we had projected the business to be kind of flat to down single digits is certainly what we've delivered this year. And if the trends remain constant in terms of what we saw this year, it's possible we could do that again.

And then just one other for me on the share repurchases, just any methodology or strategy change to call out both in regard to the record buybacks we saw in the first half. And then it looks like -- I just -- out of curiosity was looking, it looks like this is the first quarter. Akamai hasn't bought back any shares since it looks like a quarter back in 2009. So typically just a very, very steady cadence. Is this a little bit of a shift to buying more opportunistically in more concentrated amounts? Or just any thoughts if there's any change in the thinking there?

No. As Ed talked about earlier, no change in our thinking or strategy. And in fact, we bought back more shares or spent more on shares this year than ever before. So yes, we didn't buy back shares in Q3, but we bought back a ton this year.

And our next question comes from Jackson Ader with KeyBanc Capital Markets.

The international versus the U.S. script has slipped a little bit here in the last couple of quarters. Just curious which segments were strong or maybe stronger than you expected in the international segment? And just traditionally, when we see international strength versus U.S., which segments should kind of be flagged in our minds?

Yes, good question. And you're right, it did slip a little bit. One thing that did aid to the U.S. growth last year or the '25 was some of the Edgio contracts were more concentrated in the U.S. So those are not starting to anniversary. So that's a piece of it. But internationally, I would say in APJ in particular, we are seeing that sales team really embraced compute in a way that they're sort of leading the charge as far as signing up a lot of large compute deals and embracing security as well. So it's kind of strength across the board there.

APJ, in general, has been very, very strong for us. EMEA has been strong. Some of the country growth that I've seen across Western Europe was a little bit surprising in terms of a bit healthier than we've normally seen. So I'd just say, across the board, international has always been good for us. We're seeing it sort of pick back up again. And I would say compute and APJ is probably the one thing that I would call out in terms of strength.

Okay. Great. And then a quick follow-up on the Inference Cloud. You mentioned, Tom, the fact that you're close to the robots, right? You're close to the user, which I understand. But I'm just curious, I mean, is there -- would there be other things outside of kind of what I think of as like almost the Internet of Things use case that might also trigger more inference at the edge. Like if a rise in small language models were to happen or diversity of silicon. Are there kind of headlines we should use as word association that would be positive for the Inference Cloud when we see them.

Yes. I think -- well, I don't know about catchwords to look at, but pretty much everything is going to be powered by AI. I think how the web works is going to change. Everything is going to be model-based, how you interact with it will be different. There'll be applications people haven't even dreamed about yet. And a lot of these, especially when there's a bot that's doing something important like car or humans interacting in some way, you're going to want the thing to be in real time. And by that, I mean within 10 small number of tens of milliseconds. And for that, you need to be close and you're not going to want to be going far away to a big data center with a giant model that's doing a zillion things and has a lot of capacity and infrastructure that really isn't relevant to your test. And so I do think you're going to see the proliferation of small- to medium-sized models that are operating close to the user with specific tasks in mind. And I think that's why you're starting to hear the industry leaders talk about Inference as being -- well, really the next big thing and ultimately larger than the giant models and the training and the core of the Internet. And that that's where the future of the Internet and the web goes.

Thank you. And that concludes today's question-and-answer session and today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful day.

And I'm really excited to be hosting Akamai Technologies, CEO and Founder, Tom Leighton, thank you so much for being here.

Thank you.

Well, I think we have a lot of ground to cover, so I'm going to jump right into it. But I think a good place to start would be just to kind of take stock of the year in terms of Akamai's business performance, specifically around you all taking some very strategic and necessary steps to revitalize certain growth areas and refocus the business to higher growth areas. So just from that perspective, if you can talk to us about key achievements over the course of the year and more specifically around some of the financial and business targets and goals that you also shared about 6 months ago.

Yes, we've had a good year, a good year for execution, getting ahead of plan and where we started the year, raised full year guidance on top and bottom line on the last call. Really excited about our cloud infrastructure services. That ended last year with an ARR of about $0.25 billion, and we're on target to deliver 40% to 45% growth there this year.

And that has just a really bright future. It's a huge market. Akamai is differentiated in our distributed approach to get the business logic closer to end users, which gives better performance and also a lower cost given the extensive nature of our platform. So very excited to see that. Security performing well, especially with our API security and Guardicore segmentation solutions. We ended last year combined, they were about $0.25 billion, and we're on track this year in ARR to grow that 30% to 35%, which is really exciting to see. We just released a new product, AI for -- firewall for AI, very early days, but a lot of customer interest there. Everybody is deploying all sorts of agents and AI apps, and they need specialized security.

AI is a great tool, but it's a huge vulnerability. It's something that has access to all of your data, is speaking to the public. It's not deterministic like a normal application. You never really know what it's going to do and already been some pretty bad headlines for companies that got burned there. So very excited about that. And delivery is stabilizing, which I think is a relief to a lot of folks to see that. Last year was not a good year, but doing much better at this point. And I think the prospects are good going forward there. So overall, we've been very pleased with the developments this year and the execution.

Because you brought up delivery, I think I'd love to peel back the onion on that a little bit. As you said, the last couple of years, there's been quite a high degree of variability in that franchise for you. And of late, there has been a much greater degree of stability. And so the recovery we've seen in that business, how sustainable is that recovery? And just to kind of bring it down to more tangible drivers of what's going to ensure that the business continues to stay more stable rather than have maybe more of the erratic growth patterns that we saw more recently?

Yes. I think the delivery marketplace was impacted by a bunch of companies that were selling below cost. And we have the best cost basis in the business. We're the biggest and best by a good margin, but it's not helpful when there's competitors out there that are doing anything to get some revenue. And...

On $1 for $0.90.

Exactly. And doing it at scale. Now 4 of them went broke for the obvious reasons. There's still a couple of players doing that, but a lot less than there were before. So the market is still very competitive, but not nearly like it was before. And traffic levels are picking back up as well. So that's a good combination. And I'm optimistic that going forward, we're -- it'd be a much better situation.

I know Ed and I have talked about this offline rather. But at the risk of being oversimplistic, the delivery business has just been a product of pricing and volume, right? So you sort of alluded to pricing being far less irrational. I'm not going to say pricing is rational. It's far less irrational. So I think that is easy to appreciate. On the volume side, you did speak to the traffic volumes picking up a little bit. So what would you attribute that recovery in traffic, especially in the absence of new content releases and OTT launches? I know there's a hit-driven component to some of the gaming side. But would love to get a little bit more granular on the V side of the P times V equation for delivery.

Yes, great point. And traffic growth is not like it was back in a time where there were a lot of new OTT providers or early days of COVID where everybody is locked up inside. So it's not at that level and doesn't need to be for us to have a good business there. The improvements in traffic we're seeing is really pretty much across the board, no one sector you'd point to, which is also good to see. So I think we're at probably more of the new normal at this point. And there are potential drivers that could take it up further. If we start doing a lot of video associated with Gen AI, how the web changes, how we interact with it, text doesn't drive a lot of traffic. But anything with video, if we start wearing headsets a lot of the time, that drives a lot of traffic. So there are potentials for more. And of course, we always like to have better quality on our videos and better quality means a lot more traffic. And so that's helpful.

You brought up AI, and it begs the question, could that potentially be a very strong force in creating an inflection point in growth for Internet traffic, especially for consumer applications. I think there's somewhere -- 80% to 85% of generative AI traffic is geared towards consumer applications, which kind of interestingly dovetails with the delivery business, and then we can naturally talk about the compute business. But just curious what you think the further democratization and mainstreaming of AI and consumer-facing generative AI applications is going to do to traffic volumes over time.

I think it helps. And the question is how much. If we move into a new world of the web where it becomes more voice than click, that's good because voice drives a lot more traffic than reading the text. If it gets to a world where there's video interaction that what you're seeing back is a video presentation of some kind, that's huge. That's a really wonderful world to be in for content delivery. We do the delivery for a lot of the entities that would be involved in that, including one of the largest Gen AI search engines. So I think there's good potential there. It's early days. Still today, it's basically text.

Just to kind of put the delivery conversation to bed, the business is declining less. What is it going to take for the business to actually get to a path where it's not in an x growth mode?

It's a little bit better on the pricing stabilization and decent traffic levels. And if something does turn and generates a lot more traffic, that's a huge win.

And large customers and how they've been behaving vis-a-vis in-sourcing some of the delivery capabilities, how far down the path are we that, hey, the largest customers for whom it makes ROI sense to do delivery on their own, have we run the course on that? What are the risks of more customers incrementally shifting more volumes to a DIY approach and more of a multi-CDN vendor management approach?

Yes, pretty much -- I think all the big guys that would do it have done it. I think all the big guys do have some kind of multi-vendor. In fact, some of them may be decreasing the number of vendors, especially with 4 of the providers gone now. So I think -- yes, that's a factor, but I don't see it really changing at this point. Now you ask, okay, who does it make sense for? I don't really think it makes sense for any of them. I think it's better. We provide a better capability at a lower price point, but some of them just think it's important for them to have that capability.

Tom, you and the management team have worked really hard to take Akamai from a 60% delivery business to a 60% compute and security business, which has a higher horsepower and torque in terms of growth. So with that in mind, let's talk a little bit about security. The broader strategy there and the insights you can offer us at a portfolio and SKU level because underneath the hood, you've got multiple enterprise-grade security capabilities, but they have wildly different growth profiles. And so just from a broader portfolio strategy perspective, how are you thinking about security and how we should internalize some of the product level growth?

Yes. We've made a lot of progress in security. It's now the majority, over half of our revenue is just security. We're one of the largest security vendors in the world. Not many security companies are over $2 billion in revenue like Akamai, getting good growth. And you're right, there's a dynamic that some of our products, which are market-leading, have a lot of penetration now. And so they're a little bit more mature and they're going to grow a little slower going forward. And some of our products are newer, very big markets growing really rapidly. API security, a lot of potential for continued growth, segmentation, leading products to stop ransomware. So a lot of growth there.

And I think you'll see us over time continue to develop new capabilities, think about firewall for AI that should be very important over time. And there'll maybe other acquisitions that we do. We've been very pleased with the acquisitions of Noname and Guardicore. And if we can find the right next company like that, that's reasonably priced, which is hard in this market, yes, we would do that and increase the amount that we can provide our customers and strengthen the security platform that we sell and the growth.

Is there a white space in the security portfolio that would behoove you to be more assertive and aggressive on M&A? I appreciate that you are going to be very particular about the valuation context and all those things. But any specific areas of interest or opportunity, again, within the security portfolio that would be more accretive to the overall platform?

Generally, our strategy is to look for capabilities that are close enough to what we do that it makes sense to package as a platform that we know the buyer, that we can be successful in selling it and really growing it. So durable long-term growth. And so those are the areas that we look at for security.

How are you positioning yourself both from a brand recognition perspective, but also from a go-to-market perspective within the cybersecurity proper arena? There are [ mass ] forces in that space in and of its own right. So how are you ensuring you have the brand recognition? And then maybe the companion question to that is how much of your penetration of security capabilities within your customer base is predominantly an add-on for your very large delivery customers that essentially are glomming on to security as an adjacent functionality on top of their delivery?

Yes. For our major verticals in security, you say, led by financial vertical, they all know who we are. You go to any bank, financial institution, CISO, we're one of their largest vendors, 2 or 3 sometimes largest for security. And so we have pretty good brand recognition there. Now as we grow the portfolio, we would increase marketing for certain capabilities, but the buyers know us today in security.

And from a KPI perspective, what are you tracking vis-a-vis demand generation vis-a-vis there are certain episodic dynamics around, hey, ransomware attacks are through the roof or zero-day attack volumes are through the roof. And I guess this particularly pertains or would pertain to the DDoS business, right? Are there any particular KPIs or macro drivers that you feel the security business is maybe more sensitive to both on the up and down? And how do you mitigate some of that in the context of having a more durable and higher growth in the security business?

Yes, showing the value is really important in security. Now our most motivated buyer is somebody who just got hacked or even better if it's the nextdoor neighbor from somebody who just got hacked. And so you do see episodic buying patterns sometimes. What was it 6 to 9 months ago with KillNet, they went after hospitals and organizations that just had never really thought about it.

And then, well, that, in a sense, drove a lot of business our way because we have the leading solutions to stop the denial service attacks, hadn't really done business with those companies before because they didn't think they needed a solution. Now they know they do. And that can drive an uptick in the business. Ransomware, yes, that's why you're seeing such spectacular growth with our segmentation because a lot more industries realize, oh my goodness, they need a solution, and we have the best one. So in peace time, if you will, in a sector with a company, it's important to keep showing the value that what we're providing to them and making sure they understand what's going to happen to them and the cost if they don't have defenses.

I want to shift gears to the compute business. This entire franchise got a nice turbo boost and shot in the arm with the acquisition of Linode, and you've really built organically upon that acquisition with more CapEx and infrastructure-oriented investments or really building that out. But there have been very, very big changes in this segment and in this offering, both from a product and capability standpoint, but also from a messaging standpoint and then naturally also from a go-to-market perspective. So can we -- we've come a long way, but I think a recap would be very helpful, especially in the context of you shedding and rationalizing some low ROI areas within that portfolio. So I would love to have you kind of spend a little bit of time talking about the evolution and -- the ongoing evolution of the compute franchise.

Yes. It's -- that's a really important question. The Linode acquisition was transformational for us. And we put a huge amount of investment into it, not just on the capital increase in size or increase in footprint. We're now in 36 cities, a whole new architecture, much more scalable, much more reliable. We can get various accreditations for it, more functionality. We're building out an ecosystem of partners. We have pretty much full stack media workflow to compete with the hyperscalers there. So a lot of investment and growth.

And that's captured in our cloud infrastructure services, which we call revenue, which is stuff that really comes from Linode and our edge computing, our JavaScript Function as a Service. And we're just now going live with our managed container service. We can take customer containers and support it in any of our edge regions. And we got the first few customers now that we're running containers in 150 cities, and we can scale that to 750.

In fact, one of the first big users is a hyperscaler because we can get their containers in more cities than they can. And so that is our future in compute. We had legacy solutions that we developed for customers that did compute in our platform, but not in the way you'd think of as a hyperscaler doing it. And some of those, yes, we're phasing some of those out because they don't make sense for us to invest in going forward. And probably next year, maybe when we talk about compute for the year, we're really just focused on cloud infrastructure services. It's where all our investment is going and where all the growth is. And I think a very exciting trajectory.

You talked about a 40% to 45% ARR growth aspiration for CIS in particular, this year. So what does that actually assume? And what gives you the confidence that this is the right ZIP code of output that you can achieve? And then what are you seeing in your customer base from a behavioral workload migration to Akamai's footprint standpoint that's giving you this confidence that it's going to grow at this hyper growth rate, which is orders of magnitude above company level?

Yes. So well, for this year, it's contracts because at this point, pretty much the revenue we're going to be getting in Q4, we have a very good solid understanding of. Maybe something moves a month or 2 crossing into next year, but basically, that is pretty well understood. Longer term, as we think about it, we think we have a compelling value proposition in an enormous market. We can provide better performance and a bunch of the apps need that. A bunch of the apps out there that customers want their compute logic close to users. So the user gets a better experience.

AI is a tailwind there for apps where you want to talk to the thing, chatbots, inference engines, buying decisions get made based on that latency is really important in that context. And we can do it at a lower price point because we have the world's most distributed and I think, efficient platform. And so particularly for applications where there's a lot of data moving around, very expensive to use the hyperscalers, and we can provide a lower price point. And in today's world, if you can cut your cloud bill in half, that's a big deal.

Hard dollar savings. So bridging us back to your 20% CAGR aspirations over the next 5 years for the compute franchise, you're going to exit at ideally 45% or higher this year. Decelerating to 20%, what does that imply?

Yes. So that's the thing. The compute number when we talked about it, there's 2 pieces. Cloud infrastructure services, which is doing fabulous and our legacy compute applications, some of which we're deprecating or handing over to partners who then migrate to our cloud platform. And so that legacy part, think of it as flattish, you got the part that's really booming. The booming part is going to cross over and be the majority early next year. And so that's how you get this is 40% and then the whole thing being, say, 20% over the longer term. Probably we're going to change -- maybe it will change how we report next year that says, look, let's just focus on the part where we're investing in and that's growing. And that's the bigger number.

One of the other elements that I wanted to discuss with you is the interplay or the necessary interplay between CIS and delivery in that, by and large, a lot of the visibility that you have in CIS momentum and workload migration to your edge is coming from your delivery customers, right? So to ask the question more bluntly, are you seeing a little bit of a shifting of the deck chairs in terms of what would have been delivery revenue as being maybe captured in CIS revenue? How should we disabuse investors of the notion that this would have been maybe categorized as delivery revenue and maybe delivery is ending up being a loss leading mechanism to drive more CIS workload growth. How should we disabuse us of that notion that, that is not the correct interpretation?

Well, that's not what's happening. We would do that. For example, some of the hyperscalers sometimes will say, "Hey, buy our compute, delivery is free." Sometimes they'll do that. And that's because compute is worth 10x as much. Now we would do the same thing. There's been a couple of times we've offered to do that. It hasn't happened because the compute is 10x the delivery, that's a slam dunk and probably higher margin. So that's not a factor today in our compute revenue. If we get a new customer in compute, we will pick up delivery, and that will be allocated to delivery. It turns out that the sweet spot, center of mass in our new compute revenue is big media, and they are big Akamai customers generally for delivery, but they still have the delivery portion separate from the compute portion.

Okay. In terms of driving greater leverage and, again, a return on investment and return on invested capital on your infrastructure footprint, all of the efforts around scaling the compute business would downstream have very favorable leverage impacts, right, because the value of that workload is significantly greater than all things being equal, a delivery workload being run at the edge, right? And I think you've been very candid about that. So just from a compute-related ROI perspective, what does that algorithm look like versus if you were only just back in the day just running delivery, right? What does that look like?

Yes. So very, very roughly $1 of compute CapEx when we are selling our Infrastructure as a Service or a partner service is $1 a year of revenue. And we're amortizing now over a 6-year period. So very attractive economics. Now some of the investment initially we made was for our internal uses. And there, we don't bill ourselves, but it does greatly reduce what we were paying the hyperscaler.

And this was the program that you undertook where it was roughly $100 million of hyperscaler spend that you effectively in-source to drink your own champagne, as they say.

Yes. And in fact, today, if we hadn't done that, it would be a lot more than $100 million for saving.

So the 1:1 ratio is the right way to think about it.

Yes, approximately. Maybe storage, a little bit less, but ballpark, $1 of CapEx is $1 a year of revenue, very, very roughly.

And I know a lot of investors who have been familiar with you have realized that you do have a very capital-intensive business, especially when traffic volumes for delivery purposes just going through the roof, supporting new launches and things like that. As you pivot to more of these higher-margin workload and use cases, right, how does that change the structural capital intensity of the business going forward, i.e., do you go from becoming a high teens, 20% plus CapEx player to low teens? And how long does that take to transpire?

Yes, great question. So first, with CapEx, most but not all is the deployed network. We have software capitalization, other kinds of things that -- infrastructure that would go into capitalization. Delivery used to be pretty intensive, but we've cut it in about half. The delivery business used to be about 9% of revenue, and that's down now 4%. And of course, we've changed our strategy there. There's a little bit less traffic growth, which helps. We're always working to make our platform more efficient in terms of its delivery capabilities, but we're not going after the huge spiky crowd kinds of things where you got to do a lot of build-out. We're not taking the super low-price business, which is a lot of build-out, but not enough revenue. And so the capital intensity is cut in half.

Security, not so capitally intensive, so not an issue. Compute is capitally intensive as we're growing. And the faster we grow, the more it shows up in CapEx, certainly as a percentage of revenue. And that's -- it's a good thing. We want to grow fast. But if you're growing really fast, you're going to add a lot of revenue next year, you got to build out the CapEx to support that revenue. Now over the long haul, that's a very attractive proposition on the P&L. So today, yes, you're right, we're in the high teens when you put all those things together. It depends on the mix going forward and how fast compute grows. I want to have a problem where I come back and say, wow, compute is doing even better. And so yes, we're going to put more CapEx in to fuel that. I think investors will be very happy.

What would be the catalyst for that? Is it you moving into more on the inferencing side at the edge? Is that something that you're kind of seeing green shoots in this compute or CIS business in particular today? And would that be the telltale sign of, okay, you're seeing -- you're going to invest ahead of that sort of cresting?

Yes, inferencing AI in general is a strong tailwind. Yes, so that -- it remains to be seen how large, but looks very promising for us. And as we look to the future, more desire to have the workflows be closer to users for performance reasons. And we're in a great position to do that. We're at the best at being able to do that.

I want to shift gears to kind of operations and then more specifically go-to-market. So we talked about the strategy shift at the top end or from a revenue perspective, but you're making mirroring adjustments on the go-to-market side and no pain, no gain, right? So there has been change in the way the sales organization has been structured and incentivized. So I think it would be worthwhile to have you shed light on what has changed? How far down the path are we? What things have you seen that give you encouragement? And all of us want results yesterday, right? But what's that time frame where you feel that the changes are going to be seasoned and you can gain your stride again on the go-to-market side after these changes?

Yes. So there's a lot more focus on hunting because our new products that are growing fast appeal to a broader set of verticals than we had. So a lot of opportunity in hunting. There's increased investment in specialists to support the sales of new products. So today, that's segmentation, it's API security, a few folks around AI security and compute. Now in another year or so, we may not need as many of the specialists on API security. I probably fold into the regular field. Maybe there's new products in security that those folks would be taking over.

So -- and overall, increased investment in go-to-market because we have the products and the greenfield to go after. We've made improvements in rep efficiency. Contract lengths are going up in a material way by design. So we're making good progress now. We're starting to see some of the benefit. And this will be work that we continue certainly through the end of this year and probably into next year as well. And then we start, I think, seeing even more benefits in next year.

And historically, I think some of the changes you've made has been more reconstitution or realignment of existing resources, but I want to be unambiguous and clear, you are actively increasing the level of investment in terms of headcount added to the sales organization, more quota-carrying reps, et cetera. Is that the right interpretation?

Yes.

Tom, I'm going to take a step back and ask you a very big picture question. You've had a seat in terms of watching pretty massive technology and economic cycles, just having founded the company and being at the bleeding edge of the explosive Web 2.0 era and where we're at. I would love for you to give your perspective on how much of what we're seeing with AI and generative AI today rings alarm bells, but also harkens back to some of the things you saw when the Internet was on the precipice of just absolute explosion.

Yes. It is possible that we're going to see a major transformation in the web and how we use it. That will be a pretty fundamental transition that instead of the model of clicking on something or interacting with an app, and we'll be doing it in language, even better for us if it's video. There's already new protocols for the models to talk to each other and share data with Agentic AI that you would ask your device to set up something for you. It would go out and deal with all the entities out there to do it. It would be smart enough to know how to do that, what you want, and it would produce the result.

So that's really a different kind of world than today when you want to do something or buy something or reserve something, you're doing a lot of that yourself and clicking or tapping on your device. That world may fundamentally change, which is a pretty cool concept. On the -- and that will create a huge demand for the compute around all that because it is compute-intensive. It does create massive new security issues, which happened with the original web.

Everybody raced to adopt it, got great benefits from it and just massive security loopholes and challenges that we're still suffering from today. The security challenges are going to get bigger when we do that. The AI is fundamentally different. With the big enterprise codes and app today, they got good developers, it gets coded. You know what it's going to do. AI does not work that way at all. It's much more efficient to create the application, but you watch what it does, and it seems like it's working, but you have no promise.

False positive score.

Yes. You have no idea really that hallucinates. On top of that, it has access to all your sensitive data and it's talking to the outside world. And already, you're seeing some of the exploits there. That's not a good thing. And you have no real control on the insides. Once some data, maybe malicious data gets in, there's no way to get it out. There's nowhere it's stored. It's embedded into the billions of variables in the model. You can't get it out. So it's a totally different underlying world. We're going to get a lot more efficient all across the board, but security is going to be a huge, huge challenge.

Fair enough. I think my last question for you is you've had the opportunity to see a lot of investors today and possibly even yesterday. What is the single most prominent and most salient misunderstanding or misperception that you're finding investors are running into with the Akamai story?

Yes, it's a great question. In fact, we did an investor survey recently because -- the one common theme is, wow, you're undervalued. We are. And I bought stock...

I was going to say, you're putting your money where your mouth is.

Yes. Our Board Chairman bought stock. I don't know if he's ever done that before. The company bought back a lot of stock. And maybe the concerns were we had -- delivery was tough last year. That is stabilizing. Security, we have a fabulous security business. The majority of our revenue, good growth, market-leading products and compute, I guess the question people have is, well, is that real? Is that really going to -- yes, it's real. And so we're looking at ways -- some of the advice we got from investors in the survey was how we position ourselves and explain it, because you think about, wow, our cloud infrastructure services, $0.25 billion, which is not totally trivial last year, growing 40%, and we got a strong trajectory from there. So we just, I think, got to communicate that better and execute and show people, yes, we're doing what we said.

Stuff. We're going to be rooting and watching you from the sidelines.

Great. Well, thank you.

Thank you very much. I appreciate your time.

Thank you.

Great. Good morning, everybody. Tim Horan, I am the Digital Infrastructure Communications and now Satellite analyst at Oppenheimer. My pleasure to be hosting Ed McGowan the CFO -- long-time CFO of Akamai and long-time Akamai employee. Thank you so much for joining us, Ed.

And I guess the company has evolved dramatically over the last -- your career there, last 5 years, 10 years, 15 years, you have a hell of a lot of new products. Cloud is a major business for you guys now and growing rapidly. Security is a huge, major business kind of growing rapidly. How do you explain what the company is now or define what it is? And kind of what is the strategy tying all this together here longer term?

Yes. Well, Tim, thanks for having me today. Good to see you again. Yes. So I've been here 25 years, and we've changed quite a bit. What's interesting, though, I think if you go back to even our IPO slides, there was a view of how the company was going to evolve, starting with CDN going to security, compute was on the horizon as well.

So it's kind of played out how we had thought it would over time. Obviously, it's -- each business is in a very different state at the moment. But all of the different services do leverage a common platform. And even our compute data centers, even though they're separate from the CDN, we have connected our backbone to the location. So that serves as a competitive advantage, right?

You've got better performance, but also basically 0 cost because of how much traffic we serve. And if you look at every hyperscaler, they've got some form of a delivery platform. It's required if your users are displaced and your applications are further away, you need some type of a platform.

We did a great job of moving from a CDN to a security company over, say, call it, from 2011 through continuing on today, it's over half our revenue. And there, we leverage the platform, the data that we got from the platform. We saw every Internet user multiple times a day, and we built a very big web security business. And now we're moving into the enterprise security space with our Guardicore and API security, which does a little bit of both web and enterprise. So it all does fit together.

Our strategy in terms of where the business is going. I think CDN is kind of a flattish to down slightly type business. Obviously, it's gone through a couple of years of some challenges in terms of traffic growth rates and the pricing dynamics, but things are starting to get a little bit better there.

We don't look at that as a significant growth driver, but it is a very strategic asset for us required in both security and in compute. And with the enterprise compute business, I think that's a significant area of growth, a long way to go there with innovation and M&A.

So we think that can continue to be a good source of growth for us. And I think the real big opportunity and where -- if we execute well, the company will find its largest source of revenue over time coming from compute.

And how do you define your platform? I know you said it's a common platform, but what are they all leveraging together? And how has that platform kind of evolved here?

Yes. So I mean, at a basic level, when we designed the platform, it's now 400,000 machines and over 4,000 locations. The concept originally was the Internet wasn't designed for performance. So we built an overlay network effectively that is performance-based, right?

Now when I say we leverage the platform, if I think about the security products today, let's say, web application firewall, that same server that's delivering, say, a video experience to your house might be blocking an attack coming from your neighbor's house, let's say they have an infected device and they're part of a bot army or something. So we are able to get a lot of leverage off of that platform for the security and delivery business, both with the physical infrastructure as well as the data.

And also, if you think about being able to, say, for denial service attacks, block attacks where they emanate instead of bringing them into a central location, you get significantly more capacity out at the edge to be able to block those attacks, but also it's very cost effective for us, too, because we're using those machines for multiple purposes.

So that's the platform in terms of security and compute from the physical side. Then with -- like as I talked about -- sorry, delivering security, with compute, it's tying the CDN network into the core data centers. And also, we just launched our container service, which effectively is being able to run a container in any one of those 4,000 locations to the extent that it makes sense, if there's enough capacity there and the economics make sense for us and there's customer demand.

So there's that physical side in terms of the hardware and then also some of the core technology, the routing technology and all that kind of stuff. But then there's also from an engineering perspective and operational perspective, the same people that build out the delivery platform or building out the cloud infrastructure platform.

We get a lot of similar engineering efforts across the different product lines. And then from a go-to-market perspective, there's scale where we're selling to the same customers, multiple products, you're getting pretty good scale in the go-to-market.

There are some overlay functions that are specialized in selling some of these advanced capabilities. But in general, the whole field force can sell pretty much every product. So you get some scale there as well. So that's what I mean when I talk about sort of the overall platform from a like the technical platform, but also just the operational platform that we have as a company and the ability to have people multi...

So you kind of -- you've integrated Linode and a bunch of your cloud computing capabilities into the same platform at this point?

Yes.

Got it. So just switching gears a little bit. One of the themes I'm getting from the conference is that AI is actually starting to happen. I know it's been happening for a while, but people are -- enterprises, I should say, are deploying it, and they're seeing productivity improvements, improvements in products on and on. And apparently, this is also creating new demands for different -- well, lower latency networking, different forms of networking, maybe forms of edge compute.

So kind of related to all this, what does AI mean for your business from a revenue and a technology perspective? And then I'd love to understand after that, what does it mean for your own operations and how you're...

Yes. So if I think about the security business, we just launched a product, an AI firewall product, which we weren't even thinking about several years ago. So a new category, which effectively helps, say, a commerce company or a travel site has a chatbot of some sort and there's request going in and outbound, being able to put a firewall in place to ensure what's going in is what should be going in and you're not getting hit with denial of service attacks or bots, you name it.

And then also what's coming out, the responses are not hallucinations or something that might be offensive or personal identifiable information or trade secrets and that sort of thing. So that's a new area. So there's a new revenue source there. We just launched that. A lot of demand so far from customers, a lot of proof of concepts, a couple of paying customers. So it's still early days there.

I think there'll be more security-related products to come there. In terms of security demand, I think it's a massive driver of security demand. Think about how sophisticated the attacks are getting even -- I was talking with my HR team, we just went through a training on how to identify that you're actually talking to a real person when you're interviewing them remotely, that these AI technology got so advanced that you can actually fake someone up when you think you're actually talking to a human, it's actually not a human.

So there's -- just the sophistication of these attacks are going to get even more and more sophisticated. And a product like Guardicore becomes even more crucial because all your external defenses, your endpoint detection, your secure web gateways, all that stuff, something is going to get in because the attackers are getting so much better. So that helps the demand environment.

In terms of compute, we are seeing some early days with GPU as a service. We do offer that in the platform. We do have some folks running inference engines, kind of very early days on that. So there's not a ton of revenue yet, but I do think that's a good opportunity for us.

As an aside, how do you tell you're interviewing AI instead of a human? What is the trick?

I didn't really pay attention because I don't really interview anybody, but there was a whole training that we just launched for it. But yes, there's like tricks you can ask them certain questions and look for eye contact and all these different things, but it is becoming a challenge. It's something I would not have thought. I mean, certainly doing deep fakes, like you could find your voice or my voice with all the earnings calls that we've done and make phone calls and tell my employees to do something using my voice, right?

Now how do my employees going to know that? So you have to make sure you putting controls in place to be able to ensure that my treasurer doesn't go and launch a wire out to somebody, and we just make sure we have controls around that. But security environment is going to be the same thing, right, where things will get much better at faking people out.

Yes, that's incredible. So is AI -- it sounds like -- is it driving more security attacks and quite different security attacks?

Yes, definitely, definitely. Yes. So we're seeing -- just even if you think about your own world of the text that you get or voice mails that are fakes and the e-mails, go back 10, 12 years ago, it used to be that I have an uncle over in somewhere in Africa or whatever and some misspellings and poor language and you knew like, okay, this obviously isn't real. But some people would fall for it and they would give their bank account information and get their money stolen.

Now it's a lot more sophisticated and it does look like it's maybe something coming from your boss or my boss and it's something we should act upon or a link that we should click on. Like I've seen some fakes -- one of the bigger targets in my environment and some of the CFO, the finance departments usually get hit with a ton of e-mail fakes. And they're starting to get really good with the workflow.

So it look like, let's say, coming from an Oracle application or a Microsoft application or something like that where it does look like it's legitimate workflow that you would click on to go perform an action. And as soon as you do that, the bad guy in, your machine is infected and now you've got ransomware running around in your environment.

Yes, incredible. And also, a lot of companies -- a lot of your customers, in particular, have content that, that content unknown to them has been used to train AI models, and they would rather get paid for it.

No, it's a great point. That's something that the publishers in particular, are trying to figure out. And obviously, search is going to be potentially turned upside down in terms of the model. I think we're in a pretty good position to participate in that.

Obviously, certainly, if there's protections that customers want in terms of not allowing AI bots to get in and get their information, we can identify those and block those. That's just one example. But as the commerce model changes, there's a potential that we could be involved somehow. I don't have an answer to that yet today, but it does create an opportunity.

I know some people are worried that does that mean there's less Internet traffic. Maybe on the margin, you might see a little less traffic to some publishers, but I think the streaming, that's not going to be replaced by AI. That's where most of the traffic is, the software downloads and that sort of stuff. So I don't think it will have a material impact on traffic on the Internet. It certainly will have some, but I do think it opens up new business models for you.

Well, I definitely wanted to talk about the traffic and a little bit because I've heard different theories about it. But just getting back to your ability to kind of host models from an inferencing perspective, it would seem like your infrastructure is really, really well positioned to do that in some form of edge compute with lower latency. And I know you're starting to see that a little bit, but are you starting to create products or infrastructure that can really support that?

Yes. So I mean, we are -- we -- the managed container service is probably the best example of something we launched recently, where if you wanted to run in, say, hundreds of locations, we certainly have that capability now where you can -- whether it's running GPUs or CPU, running your model in multiple locations, very low cost. It's the same locations where we would have some CDN infrastructure.

Obviously, you're not talking about a training model out there. It's a very lightweight application where latency and cost is a big issue. So that's a good example of something that we recently launched. But we're working on other things, too.

Like I said, there's some demand for GPUs today. We're being pretty smart about how we're thinking about rolling that out. But that's another area potentially of some interesting revenue for us. I don't think you'll see us get into the training model anytime soon, if at all, because it's -- the hyperscalers pretty much are going to lock that market up.

So then on the traffic side, there's a lot -- it does feel like Internet traffic has been slowing here a bit the last couple of years. Well, do you think that's correct? And do you have a sense of what's driving that and maybe what can reaccelerate? I guess there's some thinking that AI could maybe reaccelerate the traffic growth again, but...

Yes. I've heard both sides of the argument, right? Some say it will take traffic away, some say it might accelerate. It depends on the application, right? If it's something that's going to have consumers spending more time online, consuming high-bandwidth applications, certainly, that's going to drive a lot of traffic.

But in terms of demand, I think we saw over the last, say, 18 months, 2 years, obviously, out of the pandemic, extremely strong volume even the year after the first year of the pandemic, but then it started to taper off. One thing that we noted from our customers, especially the streaming customers, one, there was the writer strike.

So content -- new content was not as readily available. And there's a lag between when you produce a movie and when it actually gets released or a show, there's usually a year lag or sometimes 2 years for a movie. So there was less new exciting content. The streaming folks like the Disney's of the world and NBC's, they were focusing on cost savings. They had kind of rolled out aggressively, got a lot of consumers and then they started cracking down on things like password sharing.

There was some experimental stuff going on with the new codec so that you would play around with the bit rates to try to get good quality with fewer bits, Fewer bits means less traffic, obviously. I think that's kind of largely played itself out. There'll always be new advances in technology, but we are seeing much better streaming traffic, especially over the last two quarters and continuing here in the month of July and early August.

So we're seeing better traffic. It's not the typical 30% plus traffic growth we're seeing on the Internet as a whole, but it's a much better environment. Some of that could also be there's less competition, too. You had four sort of scale players on the large volume side exit the market. We were the benefactor of a lot of that. So the demand environment is better. There's still do-it-yourself with the really large players, and that can throw things around a bit. But I think in general, the trends are looking better.

That's interesting. So you think it was a bit of a onetime hiccup in traffic growth. We didn't have a lot of huge new content and some of the password sharing cracked down was a bit of a onetime issue. Yes, interesting. And so is traffic for streaming -- has it improved? Like is it like 50% better than it was, 25% better? Just...

Yes, that's a good question. I would say it's not 50% better, but it's noticeably better. We're seeing much -- like looking at my model coming into the year, we're doing a lot better from an overall aggregate growth standpoint, maybe 1/3 better or something like that. That's...

And I guess while we're on it, your overall revenues on CDN have improved a bit. I know the Edgio acquisition helped there. But are you seeing -- what's going on with pricing trends? I mean they were brutal there for about a decade on and off. Have they improved from the trends?

Yes. So there's -- I always sort of break the business into two components. There's a super high-volume big media streaming software downloads, gaming customers where they put the most downward pressure on pricing for the first 15, 20 years. And that was just volumes were significantly growing and just you do a deal for a year and then you build out a table and the volume a year later is much higher than you ever contemplated. So that put a lot of downward pressure on pricing. That's starting to moderate. And you can see that because it's tens of customers that are in that category. That's been improving.

You're not seeing the type of annual discounts like you saw in the past. So that's good. There's also less people chasing it, too. So that helps a bit. And part of that has to do with volumes are not growing nearly as fast. We literally, for the first 10 or 15 years, our traffic doubled every single year. And we're not seeing that now. We're talking about hundreds of terabits of traffic on the platform. But then there's the rest of the base. That's your commerce, your travel, your financial services, manufacturing, just kind of auto, all that rest of the traffic, small percentage in the grand scheme of things.

But there, it's probably a little bit more price sensitive than the upper end. On aggregate, if I look at my pricing trends, they are moderating. So look, if I look at my year-over-year price declines, they are heading in the right direction. They're starting to moderate, and that's been helping with sort of flattening out the business.

If you look at our revenue in the last 3 quarters, it's been between $318 million and $320 million. So we're kind of flattening out a bit, which is good. You'll always have renewals. There'll always be a big customer or two that's going to bounce you around, maybe decline a couple of million over quarter-over-quarter, but definitely much healthier than both pricing and volume.

And I guess in that regard, in that particular segment, you had a new competitor in -- well, not that new anymore, Fastly, seemed for an initial period have some features and functionality that you guys didn't have. Do you think you have kind of similar latency to them now or maybe even better and a better overall product at this point?

Yes. It's interesting. The -- where they started off was going after the -- that second group of customers I was talking about, they come after the commerce and the less traffic type customer that higher price point, lower traffic, focused on acceleration, not just delivering and cashing. And they find it's tough to grow.

We don't lose a lot of customers. So it was sort of a futile endeavor. Where they started to focus after that was on the big delivery. So you see them in at the Disney's, TikTok, Sony, Microsoft's of the world, and they pick off a percentage of the share. A lot of those folks will load balance between sometimes their own infrastructure and 3 or 4 CDNs. So they're picking up growth there. And that's -- you can grow pretty quickly for a year doing that.

If you become a new entrant at Microsoft or Apple or whoever, and you pick up 10% or 15%, you're going to show growth for a year, and that can be meaningful. But that's a tough business, right? It's heavy CapEx, it's -- the margins are much worse than ours. I don't think I would say they had significant technology advantages. They were, in some cases, they had some tooling that was a little bit easier for customers to onboard themselves.

We had more sophisticated products to solve more sophisticated and difficult challenges with enterprises. And we had a much bigger services organization to very sticky with the customer because a lot of times, they would outsource a lot of what running the sites and running the security like web app firewall, we have a pretty big services business that runs the -- runs whether it's bot management or web app firewall for our customers.

We handle all the rules, rule changes and things like that. But they had little things like Fast Purge was a thing that they had at one point. They had an origin offload product that we created something very, very similar. So I wouldn't say it was anything significant.

In terms of performance, they perform decent in some of the bigger Internet locations. But when you get a heavy traffic day, that can cause some serious concerns. And we tend to see more share shift our way in that particular time because being on the other side of the choke point or the congestion point when you're deployed in many locations in an ISP, you're going to get better performance. And a lot of these sophisticated load balancers will balance off of performance.

Good. And are you seeing much impact from Cloudflare? Do you compete against them much?

Yes. So Cloudflare doesn't compete on the big media streaming and gaming yet. I think at some point, they might. I think it will be probably a bad decision because it's got a very different growth profile, and it's got a very different set of economics, and it's very -- much more capital intensive to get in that business.

We do see them compete for web app firewall to some extent, probably lose a handful of customers a year. We take about a handful of customers. Our churn in terms of lost customer annualized revenue for customers that churn off the platform is less than 0.5%, and it's been like that for years.

So they don't take a lot of customers and more of a nuisance where they'll go to a procurement and say, "Hey, we can do it for 1/3 of the price" and you're just in there dealing with price declines on renewals as a result. But don't lose a ton of business there.

We do -- on CDN, there's -- they focused on the down -- like the lower part of the market. So like they have 1 million free customers or something like that and 100,000 or so paying customers. We focus more on the top of the pyramid. They've been trying to come up market into the enterprise space. So we don't see them a ton.

There's also some traffic we don't touch, but I know that they do deliver some of the adult content and some of the other stuff that -- dark web stuff that we don't touch. But that -- I have no idea what the economics look like there. I assume they're pretty good.

But they also have a pretty good secure web gateway business from what I understand. We don't see them that often. They compete quite a bit with Zscaler. Our Swig is not a huge revenue generator for us. They don't have an API security solution, and they don't have micro segmentation.

And in terms of compute, maybe a bit on the Functions as a Service business, but in terms of the big compute opportunities, we don't see them there. They're more of a kind of legacy edge compute. They do have a storage platform, but yes, so they're not a huge source of competition for us.

So when I talk to investors about you guys, I guess the key question people are asking me to ask is, can you maintain double-digit revenue growth in security? It seems to be a pretty big focus. I know you're entering the enterprise security market, which is substantially larger.

But I think you've been entering that for quite a few years. I think you have some very differentiated products now. But are those products enough in enterprise security to maintain double-digit revenue growth?

Yes. So we broke out the growth rates for you guys this last quarter. We bundled API security with Guardicore platforms, which includes Secure Web Gateway and our enterprise access solution. And there, that business was growing 32% year-over-year, $67 million in revenue. That's so approaching $300 million, growing at a very nice clip.

Obviously, that's not enough to offset the rest of the product slowdown. That rest of the products, WAF, DDoS, Prolexic, that's growing 7% roughly as a total category. Some products growing a little bit faster, some growing a little bit slower, but that's a fairly decent number to think about.

We've always said that 10% would include acquisitions. So in order to maintain the 10% over a longer period of time, there'll be acquisitions as we've always done. The enterprise category is probably the area that has the most opportunity for growth for us. We've had some fits and starts. And I think now we're getting our sea legs much better there. And starting to get some real traction and we think that there's more to do from a platform perspective.

So there'll be some homegrown products. We just launched, like I said, the AI firewall earlier in our conversation, and we'll be launching new features and functionality. I think the security landscape is going to change much faster and very quickly over time as a result of AI. So I think there's certainly lots of opportunity for both continued growth with the stuff we have now, but also new innovation and acquisition.

Yes, that's really helpful. And I would think it's a different sales motion, enterprise security than web security. And that obviously has taken some time to develop. Where are you with that sales motion and go-to-market?

Yes. So we're continuing to invest in our -- what we call our overlay sales team. When we do an acquisition, we tend to keep, especially in the enterprise space, where even with Noname, we kept their sales force and with Guardicore, we kept their sales force in their channel and kept the channel for API as well.

But we have a gentleman who is Senior Vice President who reports directly to P.J., who runs sales, runs an overlay team that has license to hunt in all of our existing accounts and has a big hunting effort outside of our existing accounts because obviously, enterprise security is a much bigger opportunity than web security because there's certain verticals where websites really don't matter, and they have lots of employees and spend a lot on IT security.

So we do a fair bit of hunting there. There's more sophisticated channel operation there. We do, I think, almost all of our business with the exception of some stuff we sell to our internal -- our existing customers goes through the channel with Guardicore.

So I'd say we're probably in the later innings there in terms of -- we'll be adding more capabilities to that, looking to add a few more channel partners. And to the extent that we do acquisitions, if it makes sense, we'll keep the sales specialists that come along with an acquisition and just roll them under that team.

But it's a smaller team than our regular field force, obviously. And they work in conjunction with our -- the owners of our major accounts, and we have compensation to make sure that both sides get paid for a deal if it goes, we have multiple folks working on it.

And I know you used the term platform. Is your web security and enterprise security, are they kind of converging onto the similar platform? And I guess, what do you mean by kind of platform? And how do you...

Yes. So with -- it depends. In some cases, yes. So for example, with API security and our web app firewall, we've built what we call a connector. So if you're using Noname security and you're a web application firewall customer, you can use our web app firewall to put in rule sets to block malicious things and basically protect your API traffic, if you will.

With the Guardicore, there's really not a connection to the web products per se. There is a platform where you've got enterprise access and secure web gateway along with micro segmentation. So that's all one pane of glass. You can set one set of rules and that sort of thing. That's an area that we've consolidated over the last, I think it was 18 months ago now under one leader out of Israel, who came from Guardicore that's making that more of a whole platform. So we'll be adding capabilities to that over time.

So just switching gears, and thank you to cloud infrastructure. Cloud, broadly speaking, had an acceleration of growth, it seemed like in the industry. And you guys had very, very strong growth. Is your growth sustainable, you think? And how much investment will that require? And I guess even before that, do you agree that the overall cloud sector saw some accelerating growth? And what do you think kind of drove that?

Yes. So there's sort of two pieces to our cloud business. There's the legacy, what we call other cloud applications, which if you think about the origin of that, that was really stuff that we would build or offer as a way of getting more delivery business.

So for example, we had an origin -- sorry, an object storage offering for some of our big media companies that wanted to get better offload. They might say, go to the storage platform before you come back to our origin if you have a cache miss, and so that was kind of a highly redundant object storage platform, about a $50 million business. It's not growing anymore. We've -- we're end of lifeing that.

We have a storage offering in our compute business that's both -- we have a block storage offering as well as an object storage offering. So we'll be selling that now. Hopefully, most of those customers will migrate to that platform. I assume some will just end their contract with us.

But -- so we've signaled that, that business will decline over time. We had some cloudlets that we developed, say, waiting room applications, image management, video management, where we're looking for partners to offer that as a cloud service to drive cloud business. And in some cases, we are migrating away from our own solution to a new -- to a partner's products in exchange for them moving some of their cloud spend off the hyperscaler to us, and then we jointly go to market, sell that product.

We don't have to develop it anymore and that sort of thing. So we do expect that business to decline over the next 18 to 24 months. It grew about 3% this year. So that's not a growth engine. The cloud infrastructure services business that grew 30%, that is a significant growth engine, and that's where we're really investing significant dollars. And there, we talked about 30% growth this quarter with expected accelerating growth going into the back half of this year and into next year.

We do have a lot of big customer contracts that we've signed that have not started to generate revenue yet. So we have very good line of sight. We did tell investors that we may have a bit of a timing issue this year where we may not be able to get enough months of revenue to hit the 15%. We might miss it by a point or two potentially, but that will just make the growth next year better.

So it's really just a question of how quickly can you migrate traffic over from an existing application to ours. In some cases, we had to do some development. In some cases, we had to do some build-out. So there was a bit of a lag that we knew coming into the year, and now we're really at the whim of the customer in terms of how quickly they'll migrate.

So I have two questions from the audience. I definitely want to hit on. There's a question on the fourth quarter, Ed. Will the Noname acquisition -- when does that acquisition lap and that -- just...

So June -- yes, we had a couple of weeks of June, revenue in June last year. I called it out for you. It was $8 million of inorganic contribution. So if you look at that category of API and Guardicore, 48% growth, back that out, 32% growth if you take the inorganic contribution, which was a quarter less a couple of weeks of revenue that we had last year.

Okay. Got it. And then are you still expecting some revenue losses from the U.S. Fed in the fourth quarter?

Yes. That's a good question. We've seen some. It hasn't been significant so far. We are making a big investment in becoming FedRAMP high. So we do expect the federal government business to grow over time, certainly.

We're already FedRAMP medium, I think, is what they call it, but we're investing to become FedRAMP high. We have good line of sight to some pretty good opportunities there. But there could be some additional -- like say, for example, Department of Education was a customer. So that's going away. So obviously, that revenue will go away. Nothing material, but it's a headwind.

And then lastly, a lot of different businesses, a lot of moving parts. Can you give us a sense of what you think this business can grow at longer term of revenue? Is it a mid-single-digit revenue grower or high single? Can you get to double-digit revenue growth overall at some point?

Yes. I mean I think if you look at the ingredients to get to double-digit growth, say, 10% or better, one of the big impediments to that was the delivery business was shrinking 8% to 10%. So now I think that's hopefully in the low single digit, kind of 0% to 4% as we had negative 4% as we had sort of set as a long-term target. I think that's probably right.

There's some risk to that, obviously, DIY can sometimes maybe knock you off course for a year. But let's say you get that to that sort of level of 0 to minus 4%. If security kicks in at around 10%, that certainly is going to help. But I think compute, especially as compute infrastructure services becomes a much larger portion of the business, certainly a much bigger market, you have the opportunity to be a high single-digit, low double-digit growing business sustainably.

I think we're not quite there yet. I think we have the ingredients to get there. There's a lot of execution that's required, but that's certainly our goal. That's what we're investing for. That's what we're trying to get to. And we think we can ultimately have the end markets to get to hopefully a sustainable double-digit growing business. That's the goal.

And can you do that on a relatively stable EBITDA and free cash flow margins? Or will that come down over time?

Yes, good question. So I think what we're learning with the gross margin in the business for compute with sort of the partner dynamics and how we're going to be going to market there with partners versus us building our own sort of applications, think of like media workflow. We're not going to build our own. We'll partner with somebody.

So if you resell it, you get a lighter margin. And then also some of the dynamics around colo and the lease accounting, we're probably not going to see expansion in gross margin. I see maybe a point, but I'm not anticipating that even though the mix will shift.

Really, you'll see it on the operating side in terms of getting operating leverage. And you actually saw that this quarter, right? We beat revenue and there's a significant flow-through to the bottom line. We delivered 30% op margin, EPS by $0.15.

So we are definitely set up for really good operating leverage. And I think that margins can expand beyond 30% over time. There's more investment to go, both with capital as well as some engineering efforts. And obviously, if you do an acquisition, you're dilutive for a year. But yes, I think there's opportunity there. And then from a free cash flow perspective, I think the growth rate in compute will ultimately dictate where free cash flow lands.

I think over the next few years, as we grow from $300 million run rate roughly in CIS to a couple of billion, you probably can do it at the same type of dynamic in terms of low 70s gross margin, CapEx somewhere in that 18%, 19%, 20% range and EBITDA margins kind of where they're in the low 40s and then maybe the operating margin is either side of 30%, maybe it expands a bit.

And then as you get beyond that, the -- you may be making much bigger bets on infrastructure. And at that point, it's a very different company. And there, you're talking about a significantly larger growth in terms of dollars. So that -- you just kind of watch the progression of the hyperscalers in the very early days.

They sort of ran kind of the economics we're talking about now in terms of like the cash flow -- the investment in CapEx to revenue. And obviously, they got much bigger and started building their own power plants and stuff like that. We're many, many, many years away from that if we ever get there.

So I think what you see now for margins and cash flow will probably be roughly the same and then hopefully expand a bit. And then if there's big opportunities, we'll certainly tell you if there's a big investment we're making that would lead to faster growth and more revenue, certainly let you know about that.

We're out of time, Ed. Really appreciate it. And thank you, Mark, for lending us Ed for 45 minutes here. It was great.

Thanks, Tim. Really appreciate it.

Absolutely appreciate it.

Good day, and welcome to the Second Quarter 2025 Akamai Technologies, Inc. Earnings Conference Call. [Operator Instructions] Please note this event is being recorded.

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

Thanks, and good afternoon, everyone, and thank you for joining Akamai's Second 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 August 7, 2025, 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 had an excellent second quarter with results coming in above our guidance for revenue, margin and earnings per share. Revenue grew to $1.043 billion, up 7% year-over-year as reported and up 6% in constant currency. Non-GAAP operating margin was 30%. And non-GAAP earnings per share came in at $1.73, up 9% year-over-year as reported and in constant currency and $0.15 above the high end of our guidance range.

Our strong performance was enabled by the stabilization of revenue from our delivery product line, combined with the solid growth of our security and compute product lines, as we continue to reposition Akamai to take advantage of the tailwinds in these markets and the substantial opportunities associated with AI. I'm especially excited about the growth and opportunity we're seeing for our cloud infrastructure services portfolio. CIS revenue in Q2 was $71 million and grew at 30% year-over-year as reported and 29% in constant currency. We're projecting even faster growth throughout the remainder of the year as we start recognizing revenue from some large deals signed earlier this year.

As a reminder, our cloud infrastructure services portfolio consists of the compute and storage solutions that we've developed based on Linode, along with our Edge Workers product and the ISV solutions running on our cloud platform. It's the high-growth portion of our cloud computing product line, and it's where we're focusing our investments.

Our rapid growth in cloud infrastructure services is driven in part by our customers' desire to get their compute instances closer to end users for improved scalability and performance and by their need to reduce cost. This is particularly true for new Gen AI applications, which are increasingly being used to drive real-time decisions, shape user experiences and power operations.

To attract and retain customers, businesses are developing a variety of AI-based apps and agents for personalization, support, search, inference and other tasks. Akamai's globally distributed platform spanning more than 4,300 points of presence across 130 countries offers unique advantages for deploying such AI applications bringing business logic and data to within milliseconds of end users globally and operating at a scale that provides a petabyte per second of throughput capacity.

Already, customers have deployed AI-powered applications on Akamai Cloud for tasks such as image classification, image optimization, speech to text and speech to image, chatbots, inference engines, virtual fitting rooms to name a few. Last month, we introduced our new AI gateway solution to customers at an event in London. This new solution is designed to address 3 of the biggest challenges that businesses encounter when they deploy large language models, AI that's too slow, too vulnerable to attack and too expensive to run at scale.

AI gateway acts as a smart traffic controller that sits between users and the AI services deployed by our customers. So now instead of every AI request having to travel all the way to a centralized server, Akamai makes it possible to handle many of these requests closer to the user at the edge. Moving AI closer to the action makes each interaction faster makes our customers' systems more energy and cost efficient and ultimately allows our customers to deliver a vastly better experience for their users.

The edge is also where Akamai deploys our security solutions, including our new firewall for AI that fights prompt abuse and model compromise as well as our bot and abuse solutions that help our publishing customers monetize their content by monitoring and controlling access by AI scraper bots. AI gateway and firewall for AI are prime examples of how we're bringing our expertise at the edge to the cloud to make AI faster, more secure and significantly more affordable.

There are also good examples of the synergy between our new cloud computing capabilities and our security and delivery product lines as customers buy cloud computing from Akamai alongside security and delivery. Examples of the many contracts we signed in Q2 that included a large commit for our cloud infrastructure services, our 3-year $16 million renewal and expansion agreement with one of the largest companies at the forefront of the AI revolution, a 2-year $28 million agreement with one of the world's leading travel companies, a 3-year $18 million deal with a leading Internet platform in South Korea, a $19 million deal with an Internet company in Japan, and a 3-year $10 million agreement with one of the world's leading media companies.

Turning now to security. Security growth was driven in part by the continued strong demand for our market-leading Guardicore Segmentation solution as more enterprises relied on Akamai to meet compliance requirements and to defend against ransomware and data exfiltration malware.

Ransomware remains a top financial and reputational risk for enterprises as illustrated by the highly publicized attacks that took down several major retailers in Q2. According to news reports, one attack in April on a British retailer impacted operations for at least 3 months, costing the company an estimated $400 million in lost revenue. And a retailer in the U.S. reported $20 million in lost sales when a cyber attack took down its e-commerce platform during their Memorial Day weekend sale.

In a world where attacks are finding new ways to penetrate traditional perimeter defenses, segmentation is the last and most important line of defense for major enterprises. And our market-leading segmentation solution is making a big difference for our customers. With our sophisticated threat intelligence, we've detected a wide variety of malicious ransomware attacks on commerce companies.

And customers who use our segmentation solution we're able to identify these attacks and protect themselves from operational harm and financial loss. In fact, Akamai is the only vendor to be named Customer Favorite in the new Forrester Wave: Zero Trust Platforms report, receiving perfect scores in 3 categories: segmentation and control, pricing flexibility and supporting services.

Our segmentation wins in Q2 included a $9 million contract for Guardicore with one of the world's leading consumer and commercial insurance providers after Akamai demonstrated the fastest time to policy across their on-prem, AWS and Azure environments. A $5 million contract with one of the world's largest financial services companies that selected Guardicore after struggling to modernize their environment for Zero Trust to protect aging networks for which they had no visibility. And a $3 million contract, 2/3 of which is for Guardicore with one of Japan's leading financial institutions. Wins and other industries included deals with a leading manufacturer in the U.S., a major steel producer in Asia and a large holding company in Latin America.

In Q2, we also continued to see strong interest in our market-leading API security solution, which earned Akamai recognition as a leader in KuppingerCole's Leadership Compass API security and management report released last month. Our API security solution combines very well with our market-leading WAF and bot management solutions to provide a compelling platform for app and API protection for major enterprises.

Major API security wins last quarter included a $15 million agreement with one of North America's largest real estate fintech companies, which included $2 million for API security. A $4 million expansion contract with one of the largest managed care organizations in North America, which included $2 million for API security. A $2.3 million agreement with one of the largest life insurance providers in India, which included $1.4 million for the protection of their API ecosystem as they migrated away from their previous provider. And the $20 million 5-year contract renewal with one of the leading fashion and home retailers in Europe that included 7 Akamai security solutions in addition to compute and delivery.

We're very pleased to see customers increasingly utilize the full breadth of our security platform across applications, APIs, infrastructure and enterprise Zero Trust security. We believe this illustrates the strength of Akamai security defenses, the depth of our threat intelligence and our close relationships with enterprise customers who rely on us as a strategic partner in security, helping them consolidate their security spending with a major vendor they trust most to protect their businesses and reputations.

Before I turn the call over to Ed, I'd like to say a few words of welcome to the two new directors on Akamai's Board, Janaki Akella and Bas Burger. Janaki has held several executive roles at Google, including as lead for digital transformation for Google Cloud and Chief of Business Operations. Prior to that, she was a partner at McKinsey & Company. She brings deep expertise in cloud computing, cybersecurity and AI as well as general management and strategy consulting experience.

Bas Burger is the CEO of BT International, the division of the U.K. telco company that delivers global data, voice, security and cloud connectivity solutions to multinational organizations. Bas brings expertise in leading complex global organizations, executing go-to-market initiatives focused on driving customer acquisition, retention and expansion, and building strategic partnerships with major technology infrastructure and cybersecurity providers.

Their insights and counsel will be invaluable to us as we continue to innovate and expand our cloud computing and cybersecurity offerings and advance our go-to-market transformation to best capture future growth opportunities.

Now I'll turn the call over to Ed to say more on our Q2 results and our outlook for the rest of the year. Ed?

Thank you, Tom. As Tom just mentioned, we delivered very solid second quarter results with total Q2 revenue of $1.043 billion, which was up 7% year-over-year as reported and 6% in constant currency. We also had another quarter of very strong bottom line performance with non-GAAP EPS outperforming our guidance range by $0.15.

The strong non-GAAP EPS performance was driven by a combination of higher-than-expected revenue, lower-than-expected bandwidth costs, higher interest income related to the convertible debt issuance in May and lower share count as a result of our stock buyback activity in the first half of the year. It's also worth noting that we received an unusually high amount of bandwidth and colocation credits during the quarter, resulting in a onetime positive benefit of approximately $5 million to gross margin in the second quarter.

Moving now to revenue. Compute revenue was $171 million, up 13% year-over-year as reported and in constant currency. Compute revenue was driven by continued strength in our cloud infrastructure services, or CIS. CIS revenue was $71 million, up 30% year-over-year as reported and 29% in constant currency. As Tom noted, we expect the growth rate of our CIS business to accelerate throughout the rest of this year and into next year, driven by some large contracts signed earlier this year that will start generating revenue late this year and into 2026 and beyond. We continue to expect CIS ARR year-over-year growth in the range of 40% to 45% in constant currency at the end of the year.

Revenue from other cloud applications, or OCA, was $100 million, up 4% year-over-year as reported and up 3% in constant currency. As we mentioned on our Q4 call in February, OCA includes many of our more mature compute products such as image and video manager, cloudlets and legacy NetStorage. We expect the revenue from OCA to remain relatively flat quarter-over-quarter for the rest of this year. However, as a result of a $7 million onetime benefit included in Q3 2024's results, we anticipate that the year-over-year revenue growth rate for OCA will take a onetime dip in Q3. As a reminder, this onetime benefit was related to the release of some deferred revenue in conjunction with the expiration of a long-term legacy compute contract.

Putting this all together, we remain very excited about our opportunities for compute. Based on the timing of revenue recognition for the larger deals I mentioned earlier, our compute growth for 2025 could be a little less than our goal of approximately 15% in constant currency for the full year.

Security revenue was $552 million, up 11% year-over-year as reported and 10% in constant currency. Within security, the combined revenue for API security and Zero Trust enterprise security was $67 million, up 48% year-over-year as reported and 49% in constant currency. These results include approximately $8 million of inorganic revenue from Noname. Excluding this inorganic contribution, year-over-year revenue growth would have been approximately 32%.

We continue to expect security revenue growth of approximately 10% in constant currency in 2025. And we continue to expect the combined ARR for our Zero Trust enterprise and API security solutions to increase by 30% to 35% year-over-year in constant currency for 2025.

Delivery revenue was $320 million, down 3% year-over-year as reported and down 4% in constant currency, well above our expectations. We're very encouraged by the continued improvements in both pricing and traffic growth we observed during the first half of the year.

International revenue was $516 million, up 10% year-over-year or 8% in constant currency, representing 49% of our total revenue in Q2. U.S. foreign exchange fluctuations had a positive impact on revenue of $17 million on a sequential basis and a positive $8 million impact on a year-over-year basis.

Moving now to profitability. In Q2, we generated non-GAAP net income of $251 million or $1.73 of earnings per diluted share, up 9% year-over-year as reported and in constant currency and $0.15 above the high end of our guidance range based on the items I mentioned earlier. Finally, our Q2 CapEx was $214 million or 21% of revenue.

Moving to cash and our capital allocation strategy. As of June 30, our cash, cash equivalents and marketable securities totaled approximately $1.6 billion. As a reminder, during the second quarter, we used cash on hand and funds available under our revolving credit facility to fully repay $1.15 billion of our outstanding convertible senior notes that matured on May 1, 2025.

Following this repayment, we issued $1.725 billion in senior convertible notes with the maturity date of May 15, 2033, and with a coupon of 25 basis points. As part of the offering, we incurred net cost of $275 million from note hedging and warrant transactions while concurrently spending $300 million on stock buybacks. It's worth noting that in the second quarter, we used approximately $250 million of the proceeds from this offering to pay off prior borrowings on our revolving credit facility. The net proceeds of approximately $900 million from this offering have been invested in highly liquid marketable securities currently yielding approximately 4% on a weighted average basis.

As it relates to return on capital, as I just mentioned, we spent approximately $300 million to buy back approximately 3.9 million shares during the second quarter. We ended the second quarter with approximately $1.2 billion remaining on our current repurchase authorization. Year-to-date, we spent $800 million to buy back approximately 10 million shares. Going forward, our intention remains the same to continue buying back shares to offset dilution from employee equity programs over time and to be opportunistic in both M&A and share repurchases when market and business conditions warrant.

Before I provide our Q3 and full year 2025 guidance, I want to touch on some housekeeping items. First, despite initial concerns, the likelihood of a complete TikTok ban in the U.S. appears to be less likely. With this in mind, we are now including domestic revenue from TikTok in our Q3 and full year 2025 revenue guidance.

Second, regarding compute revenue. As I mentioned earlier, last year's Q3 results included a onetime $7 million benefit that will not reoccur in Q3 2025. Third, as it relates to gross margin, we are projecting an increase in colocation and related costs starting in Q3, as we anticipate additional compute capacity coming online during the quarter. This will result in roughly a 1 percentage point increase in cost of revenue in Q3 compared to Q2.

In addition, for our qualified compute partner sales, or QCPs, we occasionally bundle third-party products as part of a total solution for customers. In certain situations, we must record the gross revenue from these sales and the associated costs. The gross margin on the partner resales is typically lower than our company gross margin. Therefore, as qualified compute partner revenue increases, we expect it will lower our overall gross margin. We anticipate the sales of QCP partner solutions will impact gross margins by approximately 70 basis points this year. It's worth noting, the primary advantage of working with QCP partners is their solutions do help drive additional higher-margin CIS revenue.

Fourth, as we previously discussed, we are investing to strengthen our go-to-market approach. We're increasing our sales rep hunting capacity to be more proactive in finding and securing new business and we're adding experienced specialists to help support the sales of our new security and compute products.

In addition, we're also growing our channel organization to expand our partnerships and open up potential new revenue growth opportunities. These investments are crucial to our long-term success, but it will take time for the incremental headcount to ramp and start delivering results. As a result, we anticipate that our operating margin in the second half of the year will be lower than in the first half.

Finally, on July 4, 2025, President Trump signed into law the One Big Beautiful Bill Act. The act includes significant provisions such as the permanent extension of certain existing provisions of the Tax Cuts and Jobs Act, modifications to the international tax framework and the restoration of favorable tax treatment for certain business provisions. The new legislation has multiple effective dates with certain provisions effective in 2025 and others implemented through 2027. We are in the process of evaluating the act, but we do not expect it will have a material impact on our tax rate in 2025.

So with those factors in mind, I'll move to our Q3 guidance. For Q3, we are projecting revenue in the range of $1.035 billion to $1.050 billion, or up 3% to 4% as reported and up 2% to 4% in constant currency over Q3 2024. At current spot rates, foreign exchange fluctuations are expected to have a positive $3 million impact on Q3 revenue compared to Q2 levels and a positive $6 million impact year-over-year. At these revenue levels, we expect cash gross margins of approximately 72% to 73%.

Q3 non-GAAP operating expenses are projected to be $327 million to $332 million. We expect Q3 EBITDA margin of approximately 41%. We expect non-GAAP depreciation expense to be between $139 million to $141 million, and we expect non-GAAP operating margin of approximately 28% and for Q3.

Moving on to CapEx. We expect to spend approximately $227 million to $237 million. This represents approximately 22% of our projected total revenue. Based on our expectations for revenue and costs, we expect Q3 non-GAAP EPS in the range of $1.62 to $1.66. This non-GAAP EPS guidance assumes taxes of $54 million to $55 million based on an estimated quarterly non-GAAP tax rate of approximately 19%. It also reflects a fully diluted share count of approximately 145 million shares.

Turning to the full year. For 2025, we now expect revenue of $4.135 billion to $4.205 billion, which is up 4% to 5% as reported and 3% to 5% in constant currency. At current spot rates, our guidance assumes foreign exchange will have a positive $13 million impact on revenue in 2025 on a year-over-year basis.

For 2025, we are estimating non-GAAP operating margin of approximately 29% as measured in today's FX rates. We anticipate that our full year CapEx will be approximately 20% of total revenue. And for the full year 2025, we expect non-GAAP earnings per diluted share in the range of $6.60 to $6.80. 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.

In closing, we're very encouraged by our strong first half financial performance marked by solid results across both the top and bottom lines.

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

[Operator Instructions] The first question comes from Mike Cikos with Needham & Co.

Just wanted to come back to some earlier comments on the financials, but I know that we have the updated view on compute. Can you just walk us through how the first half of the year transpired versus expectations, and why we're indicating how calendar '25 could finish up sub this targeted 15% that we've been talking to?

Yes, I'll take the first pass at that. So far this year, compute -- particularly cloud infrastructure services, where we're focused and seeing really great growth is exceeding -- meeting and exceeding expectations. We've signed a large number of customers at significant revenue. We are in a position, depending on when that revenue starts getting recognized towards the end of the year, would impact what our overall compute revenue would be for the year, but we do forecast 40% to 45% growth in ARR on a full year basis by year-end. So a significant acceleration from where we are today, which is already doing extremely well at 30% growth on a number that is almost a $300 million ARR.

Ed, do you want to add anything to that?

Yes, I think you covered it, Tom. I mean it really just comes down to some of the large deals that were signed this year when they actually turn into revenue. So if it's a month or 2 late in terms of when the customers ramp up, that may potentially land revenue slightly below 15%. But I think the big key takeaway here is that we feel very confident with the business that we've signed up that we're on a significant acceleration path for CIS revenue.

The next question comes from the line of John DeFucci with Guggenheim.

This is Lawrence Vensko on for John DeFucci. I just wanted to quickly touch on the delivery business. So you guys have been clear about the headwinds that you've been seeing for some time now. But it seems like the last 2 quarters, we've been ahead of where the Street was expecting it to be. So if we think about the competitive environment pre-pandemic and where it is now, do you think you're seeing an incremental benefit from the exit of some of your CDN peers in recent years and some of which that you've acquired assets from? And is this just an improvement in trends? And is this a sustainable improvement in trends? Any color there would be very helpful.

Yes, there's a substantial difference in the competitive landscape pre-pandemic and today, 4 of our biggest competitors pre-pandemic are gone. And we did pick up the contracts, the ones that we wanted from those customers. We've done a good job upselling and cross-selling there. On top of that, the traffic trends overall, I think, are improving, and we're seeing that.

So you get a combination of a little bit better pricing environment. It's still competitive, of course, but not in a crazy way it was as 4 companies were on their death rows, just offering any price at all to get some business. And so as we look forward, as Ed talked about, we're looking at mid-single digits decline. And over the longer term, we want it to be stable and steady and not see declines there.

The next question comes from Fatima Balani with Citi.

This is Mark on for Fatima. Maybe just wanted to touch on CIS again. Just in regards to the large contracts you guys signed earlier this year, can you give a sense of the contract structure? Are there minimum commitments or firm demand that you see in the pipe that's really given conviction for the second half growth acceleration? It just seems like, obviously, there's a big healthy ramp here to get to the 45% ARR target.

Yes. This is Ed. I'll take that one, Tom. So there's a number of different contracts that were signed. We've announced a couple of them, and both of the 2 largest ones have minimum commitments, and there is a ramp to the revenue throughout the year. And as we had said at the beginning of the year, we did expect this to be revenue later in the year, and now we've got a better line of sight to it. But a lot of it depends on how quickly the customer will move the application and ramp it up. So we do have, like I said, a very high confidence level in that revenue. There's 3 or 4 really large contracts that have been signed, all which have commitments. So we feel pretty good about that.

Great. And maybe just a follow-up. Does the 40% to 45% ARR growth target assume only the minimum commitment? Or what's sort of the building blocks here?

Yes. So the way we define the ARR, just to make it simple for investors to follow is we just take the Q4 times 4 as an ARR proxy. So it be -- it wouldn't be the minimum commit necessarily. It would be whatever revenue that we were generating from those contracts within the particular quarter in Q4.

The next question comes from Frank Louthan with Raymond James.

Can you give some insight into the guide? And to what extent is the uptick in the guide coming from including TikTok for the rest of the year? And then as a follow-up, the subdivision on the compute, can you maybe give us a little more color on what's going on in the part of that business besides Linode that's growing a little bit less?

Yes, sure. So in terms of the guidance, as we've disclosed for a while now, what the U.S. revenue from TikTok is, it's about $40 million, $40 million to $50 million. So you can assume about half of that roughly given that we're giving guidance for the back half of the year is in the number. So as you can tell, the midpoint of the guide is up much more than that. So there's more to it than just the TikTok increase. It's really kind of strength across the board.

And then your other question was in terms of the other cloud applications. If you go back to the last call we had when we talked about the other cloud applications and sort of broke it out for you, broken it into the different categories, image management, video management, the legacy NetStorage, cloudlets, apps, et cetera. There's a number of things going on underneath that business, some of which we are transferring some of that business to compute partners of ours in exchange for large commitments back on the compute side and then we go to market with those particular partners. So that's going to start to come off over time, say, over the next 12 to 18 months.

Legacy NetStorage, we have a legacy platform. We had disclosed that number of around $50 million on an annualized basis. We've got a new storage platform in the Linode and compute part of the business in the CIS business. So we're going to be end of life in that business, and that business will hopefully migrate over to CIS. And as it does, we'll let you know. So there's -- we're not expecting a lot of growth. It is still growing. It's growing at 3% to 4%, but we're expecting that some of that revenue to decline over time, just in line with what we have said in the past.

So that amount that you're sending over to partners, can you quantify that? What is the total amount of that, that's set to be transferred?

Yes. So we haven't disclosed that. It's not overly significant. It's a smaller percentage of that total of the roughly $100 million.

The next question comes from Jackson Ader with KeyBanc Capital Markets.

I wanted to just follow up on two things regarding those large CIS contracts. Ed, you mentioned a couple of times, it kind of depends on when the customer moves the application over. I'm just curious like how much visibility do you actually have, or maybe control do you have in the movement of those applications? Are they waiting on Akamai to ready anything to do anything? Or is it really all in the customers' court?

Yes, it really -- it depends on the particular customer. For example, with one of the larger contracts that we signed, there was a particular application that they had planned to move later in the year that was dependent on us building out some capacity. So as you think about my prepared remarks, we talked about adding some capacity in a location that wasn't in our initial plans to build, but we did build for that. So there was something that we did have to do. With other customers, generally, there's a period of time where they're running a proof of concept. Oftentimes, they'll have their own windows in which they want to move things. It could be a moratorium on their own end where they don't want to move a particular application during a particular busy time, et cetera. So it really does depend.

So I'd sort of break it out this way. There were some things that we have to do and we're on schedule to perform all of our obligations and then the rest is really just up to the customer. We do have a lot of communication back and forth with the customer and have a pretty good line of sight, but there's no guarantee that a customer is going to move exactly when you say they will. The good news is we're very confident with the overall size of the contract, and we think these contracts have upside to them. It's just really a question of exactly what month we're going to start to recognize revenue.

Got it. Okay. And then a quick follow-up. You mentioned how, I think, you're going to make some investments, maybe on the go-to-market side to try and drive a little bit more of the CIS contracts. Curious what the pipeline looks like heading into the second half for those.

You're talking about the pipeline for CIS or just the pipeline in general?

For CIS specifically, but if you want to answer in general too, that would be great.

Yes, sure. Yes. So the pipeline for CIS is growing, and it's -- we're seeing a couple of different things there. One, we're seeing participation from all across different verticals and different geographies, which is good. And we are seeing some of our larger customers coming back with newer applications. So a little bit of the existing customer growth as well as a lot of new logo growth.

And also, the size of some of these deals are larger than what we typically see in our security and our delivery business, which is good as well. So I'd say it's a very healthy pipeline and continues to grow. And just across the business, I'd say, it's fairly normal in terms of what we're seeing from a pipeline perspective.

But the only callout that I would make is API security, in particular, is extremely strong. We're seeing very, very healthy growth in API security and a lot of demand for API security, especially with our web application firewall customers. It's a very natural upsell motion. So we're starting to see that pipeline grow significantly and a lot of deals come in as a result as well.

The next question comes from Jonathan Ho with William Blair & Company.

I wanted to follow up on that last comment around the security business. Can you maybe speak to what's driving the demand for both API and micro segmentation and security? And maybe why are we not seeing stronger security revenue growth? I know there's some legacy security components that are tied to delivery. But just wanted to maybe parse this a little bit and help us understand how the other 2 segments are performing.

Yes. There's a lot of greenfield in both API security and micro segmentation. And customers are now realizing they need to have security solutions there. Most major enterprises literally have thousands of APIs exposed, and they don't have a good handle on what they are and what the vulnerabilities are. And that's what we provide, the visibility and also the security. And we have the market-leading solution to do that. And so there is a lot of demand.

The same thing for micro segmentation and in some sense, even more important. The attack rates have gone up, the successful penetrations have gone up quite a bit. The damage from ransomware, as we talked about on the call, is extraordinary, incredibly expensive. And again, we've got the market-leading solution with Guardicore. And so we are seeing very strong demand there and strong growth. And off a nontrivial number, we're looking at 30% to 35% ARR growth coming off over $0.25 billion ending last year. And so yes, good reasons for the demand.

And of course, if you think about the impact of Gen AI, one of the sort of bad impacts in general is that it really aids the attackers. And so I think that's part of why you're seeing so many more penetrations today. And micro segmentation is your last and best line of defense. And we've got an exceptional track record of protecting our customers there. And so I think that's why you're seeing the growth.

Now those are decent-sized products now growing rapidly, but the overall security number running now at about $2.2 billion has a very large component from web app firewall, our Prolexic DDoS solution, bot management. WAF and the scrubbing solutions have been out there for a while. They are growing but at a slower rate. And so you have a slower rate of growth on a good-sized chunk of the $2.2 billion. And so that's why you don't see security as a whole growing at 20% or 30%. It's growing in double digits, but we're looking more like 10% for now. Now as you see API security and micro segmentation get bigger, then that 30% plus growth rate has more of an impact on the whole number.

Great. And maybe just as a follow-up. With your AI commentary, what kind of opportunity are you seeing there? And how do your solutions maybe compare with some of your major competitors that are really focusing on AI security and infrastructure?

Yes. So we have a leading capability, very early days, of course, for AI firewall. Now of course, the first thing, there's a lot of new applications out there, which need regular security protection, API security and web app firewall. And so that's helping certainly the AI security business.

But a firewall -- AI, in particular, needs extra firewall capabilities to keep adversaries from successful prompt injection attacks to keep the AI from doing something that it's not supposed to do. And so we've developed a very compelling capability there, just released, it's very early to market and very good interest, strong dozens of proofs of concept underway now and very positive customer feedback. And so it's really kind of -- it's unique in the marketplace to protect the customer-facing, the user-facing AI application against those kinds of attacks.

The next question comes from Sanjit Singh with Morgan Stanley.

This is Jon Eisenson on for Sanjit. Great to see the solid results this quarter. And sorry if I missed this, but can you talk about the -- how much Edgio contributed to your revenue in the quarter and how that's tracking relative to the $85 million to $105 million range you gave previously?

Yes, this is Ed. So we -- it gets a lot harder to track the exact contribution from Edgio just given that there's a lot of customer overlap. So as you have some of your larger customers that are growing, we saw a great traffic growth in video and software download, which drove upside in traffic. Hard to say how much of that is related to Edgio versus what's related to Akamai. But I would say, in general, the Edgio acquisition is tracking just as we had hoped. And obviously, just a category of overall delivery is doing better. So you could probably assume we're doing a little bit better kind of on the higher end of that range, perhaps. But we're also starting to see some upsell of some of the new customer logos that we acquired as well.

So I would say the thesis that we had in doing that acquisition is playing out just like we had hoped. We are seeing better trends in the industry, as Tom mentioned, both with pricing and with traffic growth. So again, I don't have an exact number for you because it gets very hard to track the exact number, but I'd say it's tracking along just as we had hoped, maybe even a little bit better.

The next question comes from Jeff Randy with Craig Hallum.

This is Daniel Hibshman on for Jeff Van Rhee. Just on the delivery, another great quarter and another question on that. Just to set the stage, I think on delivery, we haven't had a sequential growth quarter, other than, obviously, Q4s show growth seasonally. But we haven't had outside of Q4s, a sequential growth quarter since, as I see, Q2 2020. So now Q1 '25, Q2 '25, we had 2 sequential growth quarters, really great to see that trajectory, very, very different from what we've seen for years. I'm trying to understand a little bit better. I mean, I assume on Q1 25, you have a full quarter of Edgio. So that's the driver. But for this quarter, is there anything about Edgio leading into Q2 inorganically that's benefiting the quarter? I mean anything in terms of the market landscape in really a more significant way to call out. Or is there something onetime about what we're seeing here?

Yes. So I'd say it's a couple of things. One, it's not an Edgio onetime item or anything like that because you're correct, we migrated that traffic very, very quickly. So that was one of the benefits of that. We were able to migrate that over very, very quickly in the first quarter actually by January or mid-January, we were done. So you don't have any sort of inorganic contribution per se related to Edgio.

Really, the -- if I look at the traffic growth, that was surprising to us. It was higher than expected and not quite back to what we used to see sort of pre-pandemic, but much healthier traffic growth. And it was across a couple of different verticals. And I called out software downloaded video. And video is the biggest category of traffic. So that was good to see.

And then we do track a pricing metric where we look at our overall pricing as a whole, looking at our traffic revenue over our traffic, and that has continued to moderate. It's still declining, as Tom mentioned, but it's not declining as rapidly as it has. And those are the 2 ingredients you need for a healthier delivery business. So it could be just the industry in general is going through a better time in terms of popularity of content, that sort of thing. There is a little bit less competition out there now, obviously. But I'd say it's more of a healthier market than we've seen in the last, say, year or 2.

The next question comes from Rudy Kessinger with D.A. Davidson.

This is Andres Miranda for Rudy. I just have a quick one. What would have been compute revenue growth if we adjust for the headwind from the legacy compute revenue that you guys transfer to partners? Is that something you can quantify for this quarter?

Yes. So it wouldn't make a significant difference because if you look at the -- just in aggregate, we broke that revenue out for you at the end of the year. It's down slightly. So it would have a very minimal impact.

This concludes our question-and-answer session. The conference now has concluded. Thank you for attending today's presentation. You may now disconnect. Thank you.

Hello, everyone, and thank you for joining us for our growth stock conference in today's session with Akamai. My name is Jonathan Ho, and I'm the cybersecurity analyst for William Blair & Company. Our speaker today is Ed McGowan, who is the Chief Financial Officer of the company and he's been with Akamai -- and is with Akamai.

Before we begin, I'm required to inform you that a complete list of research disclosures or conflicts of interest is available at our website at www.williamblair.com.

Ed, could I maybe have you start us off with a little bit of a level set discussion on the Akamai story for those who are less familiar with the company, maybe we can dive into a little bit of Q&A after that to go through the business.

Sure. Well, thank you, Jonathan, for having us today. Really appreciate it. Good to see everyone out here. So how many of you are familiar with Akamai, show of hands, okay? So a few new folks to the name. So Akamai was founded 25 years ago, designed to solve what was called the worldwide wait program -- problem, which essentially is the Internet wasn't designed for performance. So lots of choke points in the Internet. The original start -- the reason for the company's being was to essentially solve the performance problem the Internet. And how we did that was distributing servers all around the world close to where the end users are. So if you're requesting to watch a movie or have a banking experience or a shopping cart experience, the concept was to deliver that as close to where the user is as possible, even though the origin maybe thousands of miles away.

It also enables companies to scale. So think of big live streaming events. The NCA tournament was probably the first time we saw the massive demand for users coming online and wanting to watch television on the Internet. And it wouldn't have been possible if it wasn't for us because we could deliver that experience close to where the user is outside of the choke points on the Internet. So that was our first evolution of the business. We call that content delivery. So we originally formed as a what's called a CDN or Content Delivery Network. That business is today about 1/3 of our revenue. So we've evolved quite a bit from those early findings. And I think the key to the CDN business is finding ways to monetize the platform outside of just serving content.

And we've been very successful in doing that. A lot of you may know us as a cybersecurity company. So the second evolution of the company was leveraging the platform that we had and all the data that we see. We see every Internet user multiple times a day. We know where all the bad actors are. We have some unique capabilities by being so distributed to solve some very challenging security problems on the Internet. So we have today about a $2 billion security business that's growing about 10% a year. Our primary solution are about $1.8 billion of our $2 billion of revenue comes from what's called web security.

So that is basically protecting websites and web applications from all sorts of different security challenges. For example, denial of service attacks is one way that bad actors will try to extort money from our customers by flooding the origin with a tremendous amount of traffic with using infected devices. So I'm sure you guys have seen e-mails, phishing attacks, texts, et cetera. Oftentimes, users will click on those unknowingly and become part of what's called a bot army. And a bot army is something that can be turned on and all the the devices will go attack one particular site and try to take it down.

So we've developed a number of solutions, including capabilities to help protect the websites from defament or from people trying to steal information, it's called a web application firewall. We've also developed some technology to help our customers understand what bots are coming to their sites. So a lot of the traffic on the Internet today isn't actually human, it's machines. So it's things like price scraping bots or search bots that are trying to index the Internet, malicious bots that are trying to do things like credential stuffing where they may have a bunch of stolen user names and passwords and they go to a website and just keep continually trying to put those in to try to see if they can get a hit.

So we've developed technology that enables our customers to understand what those bots are, block them if they're bad, do different things, maybe it's a price-scraping bot, you want to give it disinformation. And that business has grown tremendously over the last 10 years. So we've essentially evolved the company from which 10 years ago was about 85% CDN to now today, about 52% of our revenue comes from security. So that was a big and growing business for us. We've also evolved from just protecting websites and web applications to now working with the CISOs on protecting their employees and the applications that they run behind the firewall.

So we have some capabilities to replace a VPN. We also have capabilities to do micro segmentation, which essentially will segment out your network and then enable you to get great visibility of what's going on in your network. So if something does get in, you can stop it from spreading, you can find things that get through all of your other types of protections that you may have, you might have endpoint security, e-mail security, et cetera. And sometimes things get in, this enables you to be able to stop that before it becomes a big problem. That part of our business is growing extremely fast. It's growing at about 30% a year right now -- 35%, excuse me.

So a great part of the business that's expanding. We recently acquired a company that gives us the ability to protect APIs. So API right now is one of the most exploited areas of weakness for our customers in terms of protection. Most modern applications, almost every modern application, both web and non-web use APIs. So we have hired a company that was a market leader in that field, and we expect that to be extremely a large business for us over time. So we're very excited about our security business, especially with our -- some of our newer security offerings.

The last thing that I want to talk about and where the other portion of our business comes from is called compute. So we've always been in and around compute in terms of leveraging our platform to do what we call edge computing. So our customers would come to us and want to run sort of lighter weight applications, say, for example, a waiting room application. You might go to a website, let's say they're selling tickets. Sale goes on at 10:00, everybody hits the website at the same time. And rather than showing a bad experience, meaning the site either crashes or you show some kind of an error message, you can develop a nice waiting room where you can tell you are in the cube, et cetera.

We could do AB testing, show an ad to one person, show a different another, see how they're performing. Usually, these applications were run using JavaScript or WebAssembly. We've recently moved into full stack computing competing against the big hyperscalers. So we have full stack computing capabilities that came through an acquisition we did about 3 years ago, a company called Linode, which was essentially focused on small, medium business. We acquired that company. We've added about 20 core locations, we've enabled our network now to run -- you can run containers in any one of our 4,000 locations.

So we're very differentiated from the hyperscalers in terms of being more distributed. We're a lot cheaper and it performs much better. So that business is growing extremely fast for us. We are -- it's going to grow about 15% this year. The sort of business -- the legacy business is about half of the revenue today, and that's -- we were exiting some of that, but we're really focused on the -- what we call our compute infrastructure services, and that business is growing about 40%, 45%, a couple of hundred million dollars. Very excited about that. If I'm up here 10 years from now talking about the business, I would expect that would be the biggest part of our business.

So with that, I'll go back to Jonathan for Q&A.

Excellent. Excellent. Thanks for the overview, Ed. A lot has changed with Akamai over the past few years with the Blood acquisition, a critical element to help you move from largely a CDN and security-focused provider to now include core cloud computing. Can you put it all together for us and maybe help us understand the grand vision of how all of these parts fit together?

Yes. So one of the most attractive things about Akamai is our business model, right? So we've -- recurring revenue customers buy multiple products from us. As a matter of fact, 70% of our customers today are both CDN and security customers. So -- and we've got about 1/3 of our customers are buying more than one security product. So we're very successful in terms of leveraging that platform and building new capabilities on top of it. Our services all run on the same platform. So for example, I might be serving a video to Jonathan's house and blocking an attack at his neighbor's house, right? So the same server can do both things. We can apply the web application firewall rules at the same time on delivering a banking transaction or shopping transaction.

So there's an awful lot of leverage in the model. Now in terms of the compute business, we've enabled our network to now be able to run code in any location. So you now can run things like we talk about Apple Private Relay. They came to us several years ago with a problem wanting to offer a solution where you can essentially surf and privately, if you will, but you didn't want to introduce latency into the equation. So if that slows you down, customers wouldn't adopt it. So they tried doing it with a hyperscaler, it didn't work, came to us, we now run that in hundreds of locations and enabled this to work so that the end user doesn't realize that there's a lot of compute going on behind the scenes.

Fantastic, fantastic. And maybe similarly from a financial perspective, can you help us understand sort of the constituent components of the business? And what does that margin profile sort of look like over time? What are the growth rates look like for those businesses.

Yes. So there's an enormous amount of operating leverage in the business itself. So if I think about the sales force, my sales force sells to all products to all customers. We do have some small overlay sales. We do leverage the channel, about 1/3 of our business comes to the channel. I expect that number to increase over time, security, for example, most of our Guardicore sales, almost all of them, all of our sales for micro segmentation go through the channel. A lot of our API sales will go through the channel.

So we should get some significant leverage there. We also get leverage in engineering. So the same team that builds the CDN platform deploys the servers, also those servers run security but also our compute locations are built by the same team, so I get some significant leverage there, also leveraged with our engineering teams. And in terms of the cost people are our biggest cost. So labor is by far the biggest cost. The next cost is the cost to run the network. One of the secrets to Akamai is we started off in the early days really embracing a partnership with the big carrier networks. So our business is very critical to have good relationships with the networks.

And as a result, we deploy our machines in their networks oftentimes in many locations. And by doing so, we help the performance for their end users and also save them an enormous amount of money so that they don't have to build out infrastructure to go get content that the customers are requesting. A lot of that lives locally on our network. And as a result, we get free bandwidth in some cases, free colocation and free power. So about 80% of our bandwidth today is free. So we're able to get enormous profits from our CDN business despite the fact that it is a pretty competitive business.

In terms of the gross margins, we run cash gross margins in the low 70s. Our operating margins are around 30%. And as I talked about with the operating leverage, with the growth of security and compute, we believe that our operating margin will improve over time. We're still in an investment mode now where we're investing -- we're a little bit off that -- last quarter, we were 30%. We guided to just slightly under that this quarter, but we believe that we can -- as those products begin to grow, our mark just can expand over time.

Excellent, excellent. I don't think we can have any discussion at this conference without talking about AI. So I think, first of all, help us understand how does the AI opportunity fit within Akamai? And what do you need to do potentially from an investment standpoint to help, I guess, realize this opportunity and how do you monetize.

Yes. So a couple of different ways. I won't get into the internal use of AI in terms of cost savings and scale and stuff like that. I'll focus more on what we're doing with customers. So we use AI today with our security products it's something that we've been using for a while. Obviously, determining how to make security decisions is critical with leveraging AI. So that's something that we've been doing and we'll continue to do. We just announced a product, what we call AI security for basically large language models.

And if you think about a customer that's using a large language model, there's a couple of potential problems. One is it's a significant cost to run one of those. So if you were ever hit with a denial of service attack, you could potentially have millions of requests and we run up your bill and that could be a problem. But also, you worry about potential of leaking sensitive information or personal identifiable information. So being able to understand the request that's coming in that it's a legitimate question, a legitimate user. And then the answer that comes back out is something that you would think of as a one, not leaking sensitive information, but also a lot of these models do what's called hallucinate, whether he might give you a crazy answer, and it could do some serious brand damage.

So basically, we enable the customer to put in essentially a firewall effectively to make sure that the questions coming in are legitimate questions that you're not going to hit with denial service attacks and then also the answers going out and not leaking out sensitive information. That's just an example of innovation in creating a new product line for us. In terms of compute, if you think about one of the value propositions we have around low latency and being massively distributed, when you run some of these lighter weight inference models being close to the user and being able to not have to proxy traffic back to a central server and introduce latency is critical. So things like voice to text or ad decisioning. So you might have an ad decisioning model that's running very close to where the user is, you can deliver that experience cost effectively as well as with a higher performance.

So we think that with -- AI creates an enormous opportunity for us from both product innovation, also with security, security becomes a lot more challenging. The more sophisticated these AI models get with some of the Deepfakes and things like that just creates a much more challenging environment for our customers. So it just gives us a lot of runway in terms of new security offerings and things like that.

That makes a ton of sense, and we're rapidly heading into a brave new world. So I think there's a ton of opportunity for companies to help secure that. Maybe digging a little bit deeper into the security market, micro segmentation and API security have been 2 of the biggest growth drivers for your security business. Can you talk a little bit about these opportunities, why they've been growing? And maybe the role you could play in a Zero Trust World.

Yes. So I'll start with segmentation. Traditionally, segmentation has been one of the more challenging things for people to do. And typically, it was done either physically segmenting your environment or using machines and a lot of equipment. It was very challenging and very costly to do it. We have an agent approach where we basically run agents on your machines or your cloud instances, et cetera. So it's very easy to deploy going back to your AI question, we actually developed a large language model to help our customers to do the deployment and do the investigation in terms of segmenting out their environment.

So it's -- if you think about from a security perspective, it's probably one of the smartest things you can do as a CISO because no matter how good your perimeter security is something always gets in and especially now going back to the AI point, with AI, the fakes are getting much. So the likelihood that even though your employee is smart and this whole Zero Trust thing is don't trust any device, don't trust any person is about, somebody is inevitably going to click on a bad link and stuff is going to get in. What segmentation does is it limits the damage. So it can identify malware in the environment, and you can shut it down before it becomes a headline grabbing problem. And before -- and a lot of times, people just weren't doing it because it was very difficult to do. We've taken the difficulty out of it. We've been able to scale. We've got some massive scale with some of our customers. Today, that's a -- bought the company about $30 million. We've grown this to well over $100 million. We expect that to be a very significant contributor to revenue over time.

Excellent. And maybe combining the last 2 topics together, this notion of AI and security together. When I look at the Akamai platform, you have both the edge, so the ability to deliver performance, you have security, you have also now the ability to link back to the core compute. So when we look at sort of the evolution of the space where we're going to see a Agenetic AI come out, MCP, we're going to see all these evolutions happening at a rapid pace. How does Akamai maybe serve as a potential platform for that to take place?

Yes. So one area that's started to get a lot of traction is use of GPU. So today, the platform handles GPU. So that's a potential area for us to expand and grow. The advantages there is being so massively distributed. We can run GPU pretty much anywhere. We also think you could use CPU to, in some cases, with some of these inference engines that don't require as much memory and compute, they're not as compute intensive. So that's another advantage to us. So -- there's enormous opportunity there. Also just as inferencing becomes a bigger part of day-to-day life, those models are critical in terms of latency.

You can't introduce latency into any experience. Otherwise, users will get frustrated and not leverage the application. So I think that could be a potential game changer for us and being as distributed as we are, I think we have a significant advantage there.

Got it. Got it. Maybe switching to the core cloud opportunity. We do get a lot of questions in terms of what are the use cases that customers are using Akamai the most for? And how often do you sort of have the ability to win at hyperscalers?

Yes. So it's -- first of all, we're more cost effective. We do see a lot of customers come to us in some of the early days where they have applications that are very chatty or their -- access very frequently. So you might store your user compute at say, AWS and use AWS as your origin or any one of the hyperscalers. And there's some hitting charges in there, including what's called egress fees. So that means every time you access the data and you pull it out, you're paying a fee. We have customers in the CDN business that might use a hyperscaler as an origin and we might get 98% offload, meaning 9.8 out of 10 requests can be served off the CDN, and we never have to go back at the origin, you think, wow, that's phenomenal.

In some cases, our customers will say that 2% miss is more than my CDN bill. So it's really expensive when you put your data in to get it out. So we have customers coming to us. We don't charge for egress fees because we've connected our compute locations with our backbone. We serve hundreds of terabits per second a day. So it doesn't cost us anything to serve the traffic. There's not a lot of traffic that typically goes with these applications, but it's very expensive. So that's one area. Low latency is another one. We actually had a customer who was trying to comply with Apple Pay, which had a 60 millisecond latency requirement couldn't get that done in a hyperscale, they came to us, we were able to comply with that.

We are seeing a lot of -- I'm impressed with what I'm seeing across the board. I had originally assumed we would be very strong in media, and we are doing pretty well there. But -- we've got customers in manufacturing, in retail, banking across the board. So we've done a good job penetrating a lot more verticals. We're cheaper than the hyperscalers. We don't compete with our customers. and we perform better. So that's really the main value proposition.

Excellent. Excellent. And then when it comes to having both cloud and edge, can you help us understand where having both sides of the equation, potentially along with security and now these AI capabilities, and putting it all together, what are the strengths here? And then how does that become beneficial to the customer?

Yes, I'd say performance and reliability are probably the 2 biggest strengths. You get a lot of redundancy built into the network and the platform performance is a big one for us. Cost is another. This -- leverage that we have across all of our different products, we do pass a lot of that savings on to our customers. So it's a very attractive financial proposition for our customers.

Got it. Got it. So we can't, unfortunately, not talk about the CDN business. So just to maybe hit on some of the pricing pressure and slower growth that have impacted the business over the past few years. You've also reallocated resources away from the business to drive higher profitability. Is there a light at the tunnel now? Is there -- in terms of the business stabilizing, particularly given the exit of some of the smaller players in the space?

Yes. So the CDN business, if I want to draw -- I've been at the company for 25 years. And if I were to draw 2 lines, one would be up into the right and the other one would be down to the right. Down to the right is unit pricing, up into the right is traffic growth. And really, the business is that simple. It's all about your unit pricing and your traffic growth. And historically, the Internet was growing 30% plus. And for, probably the first 15 years of our existence, our traffic was doubling every year. We got the point after the pandemic where we saw massive growth during the pandemic, but traffic started to moderate quite a bit.

We saw -- there wasn't a lot of new streaming services, gaming was kind of weak. So traffic growth moderated more than we had expected. Therefore, we saw a decline in the business. Now pricing started to moderate some, but unit prices still keep coming down. We have seen a lot of our CDN competitors go out of business. They generally compete on pricing because it's been about 4, 5 that have exited the market. We've been a benefactor of that by buying some of those contracts from these players that have exited the market. So you do have a little bit less competition, but we are starting to see traffic pick up again, which is good. So we far exceeded expectations last quarter on CDN still declining, but we're getting down into the sort of mid- to low single digits in terms of declines.

We think that, that business ultimately is kind of flattish to down a couple of points. is really a strategic asset for us. It produces a lot of cash. As Jonathan mentioned, we were able to move about 1,000 people out of the CDN business into compute. So some of the engineers and the folks that build the platform. So we're able to get some better profitability out of that business. And as I talked about, we've run multiple services on our machines. So having the economic advantage you get by carrying a lot of traffic, the data that you get powers the businesses for security.

So it's very strategic. And also, if you're going to be in the compute business, all of the hyperscalers have some type of CDN, right? So think about you're now taking applications from on-premise to putting them in a cloud you're introducing latency. So therefore, you need some way of trying to deliver a performance application to your end users. And so having a CDN as part of a compute business is mission-critical.

Yes. Just on that last point around your CDN coverage, I mean, aren't many of the hyperscalers also Akamai customers?

They are. Yes. As a matter of fact, we -- the nice thing about our business is we don't have any 10% customers. We have -- I think there's 8 customers that are 1% of revenue or greater. And of those, the hyperscalers are in that bucket. So not all of them, but some of them are very big customers of ours, yes.

Fantastic, fantastic. Why don't we open it up to the audience for questions. We have a couple of minutes left. Anyone have any questions for Ed. Don't be shy. Okay. I won't keep everybody from lunch. And thank you so much.

Thank you.