Cloud, Cybersecurity And Edge Computing Will Unlock Digital Opportunities

Key Takeaways

• Expanding AI, edge, and security offerings position Akamai to capture greater enterprise demand, outpace analyst growth forecasts, and improve long-term recurring margins.
  
• Market consolidation, regulatory-driven demand, and rising video and IoT traffic support stronger delivery revenues, increased customer retention, and enhanced pricing power.
  
• Intensifying competition, commoditization, technological shifts, and execution risks in new ventures threaten Akamai's revenue growth, margins, and long-term profitability.

Catalysts

Engages in the provision of security, delivery, and cloud computing solutions in the United States and internationally.

• Analyst consensus expects 40–45 percent ARR growth for cloud infrastructure services in 2025, but recent large contract wins with firm minimum commitments, a swiftly expanding AI use case pipeline, and accelerating customer migrations indicate that growth could not only be sustained but also substantially exceed current forecasts, driving both higher long-term revenue and recurring margins above street expectations.
  
• While analysts broadly see double-digit security growth, rising enterprise reliance on Akamai's Zero Trust, micro-segmentation, and API security amid headline-grabbing cyberattacks, combined with early leadership in AI security firewalls, suggests the company could capture outsized share-potentially boosting the security segment's growth to 15 percent or higher on a $2.2 billion base and improving consolidated operating margins as high-value, higher-margin solutions scale.
  
• With four major pre-pandemic CDN competitors now gone and sector consolidation accelerating, Akamai is poised to capitalize on reduced price competition and expand margins across its core delivery platform as global video consumption and high-bandwidth internet traffic surge, leading to more stable-and ultimately rising-delivery revenues than the market currently prices in.
  
• The proliferation of ultra-low-latency, real-time AI applications and IoT devices worldwide will increasingly favor Akamai's edge platform, as hyperscalers face architectural limits for distributed workloads; this underappreciated shift positions Akamai's unique globally-distributed infrastructure to win substantial new enterprise workloads and meaningfully lift revenue per customer.
  
• Heightening regulatory pressure around data sovereignty is likely to accelerate the need for regionally compliant and secure infrastructure, uniquely benefitting Akamai's expansive, geographically-dispersed network, making the company a preferred partner for global enterprises and leading to durable, high-retention, premium-priced contracts that enhance both revenue visibility and blended net margin.

Akamai Technologies Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Akamai Technologies compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Akamai Technologies's revenue will grow by 8.2% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 11.3% today to 15.4% in 3 years time.
• The bullish analysts expect earnings to reach $786.0 million (and earnings per share of $5.37) by about August 2028, up from $452.7 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 29.7x on those 2028 earnings, up from 24.1x today. This future PE is greater than the current PE for the US IT industry at 27.7x.
• Analysts expect the number of shares outstanding to decline by 3.51% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 10.2%, as per the Simply Wall St company report.

Akamai Technologies Future Earnings Per Share Growth

Risks

• Margin compression remains a significant risk as Akamai faces intensifying competition from hyperscale cloud providers such as AWS, Azure, and Google Cloud, with management acknowledging continued price declines in the delivery business, which could weigh on gross margins and reduce net income growth.
  
• Akamai's legacy CDN and delivery product lines are mature and have become increasingly commoditized, with management guiding for mid-single-digit declines and expecting slow or flat growth in these segments, threatening top-line revenue and placing earnings under pressure if new initiatives do not offset this stagnation.
  
• Shifts toward decentralized web architectures, open-source, and cloud-native solutions increase the likelihood that large enterprises and digital platforms could bypass or reduce reliance on Akamai's centralized infrastructure, shrinking the addressable market and undermining long-term revenue growth.
  
• Akamai's pivot into higher-growth cybersecurity and edge computing exposes the company to execution risk, as significant investments in sales capacity and new product launches may not deliver anticipated scale or margins, potentially putting return on invested capital and EBITDA at risk if customer adoption lags expectations.
  
• Consolidation among major cloud and IT players, coupled with rising geopolitical and data sovereignty barriers, may lead to fewer potential large customers, greater bargaining power among buyers, and increased compliance costs, restricting Akamai's pricing power and increasing operating expenses, thus impacting overall profitability.

Valuation

• The assumed bullish price target for Akamai Technologies is $133.04, which represents two standard deviations above the consensus price target of $98.52. This valuation is based on what can be assumed as the expectations of Akamai Technologies's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $135.0, and the most bearish reporting a price target of just $63.0.
  
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $5.1 billion, earnings will come to $786.0 million, and it would be trading on a PE ratio of 29.7x, assuming you use a discount rate of 10.2%.
  
• Given the current share price of $74.76, the bullish analyst price target of $133.04 is 43.8% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.