Executive Summary / Key Takeaways

• Strategic Transformation Accelerates: Akamai is successfully executing a multi-year pivot from a content delivery network (CDN) pioneer to a cybersecurity and cloud computing powerhouse, with security now contributing the majority of its revenue and cloud infrastructure services (CIS) demonstrating accelerating growth.
• Dual Growth Engines Drive Performance: The company's Q2 2025 results showcased robust performance, with total revenue up 7% year-over-year to $1.043 billion and non-GAAP EPS rising 9% to $1.73, driven by strong demand for its market-leading Guardicore segmentation and API security solutions, alongside impressive 30% year-over-year growth in CIS revenue.
• Technological Moat in Edge Computing and AI: Akamai's massively distributed global edge network, spanning over 4,300 points of presence in 700+ cities, provides a unique competitive advantage for low-latency, high-throughput AI inference and secure application delivery, offering superior performance and cost efficiencies compared to traditional hyperscalers.
• Outlook Signals Continued Momentum: Management projects full-year 2025 revenue of $4.135 billion to $4.205 billion and non-GAAP EPS of $6.60 to $6.80, underpinned by expected 40-45% ARR growth in CIS and 30-35% ARR growth in combined Zero Trust and API security, with a long-term vision for double-digit total revenue growth and operating margins exceeding 30% by the decade's end.
• Navigating Headwinds with Strategic Investment: Despite macroeconomic uncertainties, geopolitical tensions, and a large customer's DIY strategy, Akamai is proactively investing in go-to-market capabilities, new product development (e.g., Firewall for AI), and strategic partnerships to capitalize on emerging opportunities and maintain its competitive edge.

Akamai's Strategic Evolution and Core Strengths

Akamai Technologies, Inc. (NASDAQ:AKAM) has undergone a profound transformation, evolving from its origins as a content delivery network (CDN) pioneer in 1998 into a formidable cybersecurity and cloud computing leader. This strategic pivot, now well into its second decade, leverages a foundational asset: its massively distributed global edge network. This network, comprising over 4,300 points of presence (POPs) across approximately 130 countries and 700+ cities, is not merely a delivery mechanism but a powerful, integrated platform for security, content delivery, and cloud computing.

This unique edge platform provides substantial competitive advantages. It enables Akamai to achieve significant cost synergies by utilizing the same physical servers for multiple services, driving operational efficiency. The platform's unparalleled scale and proximity to end-users deliver superior performance, low latency, and high throughput, which are critical for modern applications and emerging technologies like AI. Unlike hyperscalers, Akamai often avoids direct competition with its customers, offering a compelling value proposition for enterprises seeking high-performance, cost-effective, and secure digital experiences without supporting a rival. This differentiated technology and strategic positioning are central to Akamai's investment thesis, allowing it to capitalize on broad industry trends such as accelerating digital transformation, escalating cyber threats, and the burgeoning demand for edge-native cloud and AI solutions.

The Dual Engines of Growth: Security and Cloud Computing

Akamai's strategic transformation is most evident in the ascendance of its Security and Cloud Computing segments, which together accounted for 69% of total revenue in Q1 2025. These segments are the primary drivers of the company's future growth and profitability.

Security Segment: Fortifying the Digital Frontier

Akamai's journey into cybersecurity began over a decade ago with its web application firewall (WAF) as a cloud service. Today, it boasts a comprehensive security portfolio that protects infrastructure, applications, APIs, and enterprise networks. This segment achieved a significant milestone in 2024, surpassing $2 billion in annual revenue, making it the majority contributor to Akamai's total revenue.

The growth is fueled by market-leading solutions addressing critical enterprise needs. Guardicore Segmentation, a cornerstone of Akamai's Zero Trust offering, achieved an Annualized Revenue Run Rate (ARR) of $190 million by year-end 2024, growing 31% year-over-year. This solution is vital for ransomware defense and compliance, offering unified control over on-prem and hybrid environments. In Q2 2025, Akamai secured a $9 million contract with a leading insurance provider and a $5 million deal with a major financial services company for Guardicore, demonstrating its ability to displace competitors and deliver "fastest time to policy." Forrester recognized Akamai as the "only vendor to be named Customer Favorite" in its Q3 2025 Zero Trust Platforms report, highlighting its segmentation and control, pricing flexibility, and supporting services.

API Security is another rapidly expanding area, with its ARR soaring from nearly zero at the end of 2023 to $57 million by year-end 2024. This solution addresses the pervasive vulnerability of APIs, which attackers increasingly target. Akamai's API Security discovers, audits, and monitors APIs, detecting undocumented instances and vulnerabilities. Q2 2025 saw significant wins, including a $2 million component within a $15 million agreement with a real estate fintech company and a $1.4 million portion of a $2.3 million deal with an Indian life insurance provider. KuppingerCole recognized Akamai as a "leader" in API security and management.

Emerging from Akamai's R&D efforts is the new Firewall for AI, introduced in Q1 2025. This innovative solution provides multilayered protection for AI agents, applications, large language models (LLMs), and AI-driven APIs against novel threats like prompt injection, model compromise, and data leaks. It is "unique in the marketplace" for its ability to secure AI applications at the edge, where Akamai also deploys its bot and abuse solutions. This technology directly addresses the escalating threat landscape, where generative AI is increasingly used by nefarious actors to create more sophisticated attacks.

While mature products like Web Application Firewall (WAF) and Prolexic DDoS mitigation continue to provide robust protection and contribute substantial revenue, their growth rates are moderating due to high market penetration. Akamai's WAF was named a "leader" in The Forrester Wave™: Web Application Firewall Solutions, Q1 2025 report, scoring highest in 11 criteria. Prolexic has thwarted "two of the largest DDoS attacks ever seen," underscoring Akamai's critical role in maintaining online resilience. The company's extensive threat intelligence and expert managed services further differentiate it from competitors, fostering deep trust with enterprise customers.

Looking ahead, Akamai expects security revenue to grow approximately 10% in constant currency for FY 2025. The combined ARR for Zero Trust Enterprise and API Security solutions is projected to increase by 30% to 35% year-over-year in 2025. This sustained growth, driven by newer, high-demand offerings, positions Akamai to achieve a security revenue CAGR of about 10% over the next three to five years, aiming for over $3 billion by the end of the decade.

Cloud Computing: The Edge of Innovation

Akamai's expansion into cloud computing, significantly bolstered by the 2022 acquisition of Linode, is rapidly transforming its growth profile. The cloud computing portfolio generated $630 million in revenue in 2024, growing 25% year-over-year. This segment is bifurcated into Cloud Infrastructure Services (CIS) and Other Cloud Applications (OCA).

Cloud Infrastructure Services (CIS) is the high-growth engine, with revenue reaching $71 million in Q2 2025, up 30% year-over-year. CIS ARR stood at $259 million by year-end 2024, growing 35% year-over-year, and is projected to accelerate to 40% to 45% ARR growth in constant currency by the end of 2025. This acceleration is driven by customers seeking compute instances closer to end-users for improved scalability, performance, and cost reduction, a trend particularly relevant for new Gen AI applications. In Q2 2025, Akamai signed significant CIS deals, including a 3-year $16 million renewal with a leading AI company and a 2-year $28 million agreement with a global travel company. A major milestone was the signing of a multi-year contract committing over $100 million in Q4 2024, validating Akamai's enterprise-grade cloud capabilities.

Akamai's technological differentiators in cloud computing are compelling. Its edge-native platform allows for compute instances in thousands of POPs across hundreds of cities, a capability unmatched by competitors. The new Akamai Cloud Inference solution, launched in Q1 2025, offers a superior architecture for AI applications and data-intensive workloads, achieving "30% faster response times" and "2.5x faster response times with 3x higher throughput and significant cost savings" compared to hyperscalers in proof-of-concepts. Akamai is also the "first and only provider to offer video processing units (VPUs) in the cloud," delivering "up to 20x greater throughput than CPU solutions" for media companies. Its upgraded object storage boasts "5x increase in scalability and a 10x increase in performance" with "much lower egress fees." These innovations, combined with the Akamai App Platform (from the Red Kubes acquisition) and a growing ecosystem of 23 ISV partners, position Akamai as a formidable alternative to hyperscalers, particularly for applications requiring performance, cost efficiency, and proximity to users. IDC recognized Akamai as a "major player" in public cloud IaaS, and Gartner named it an "emerging leader for Gen AI specialized infrastructure."

Other Cloud Applications (OCA), encompassing more mature products like image and video manager, cloudlets, and legacy NetStorage, generated $100 million in Q2 2025, growing 4% year-over-year. Akamai is strategically migrating some of these older applications to ISV partners, such as Cloudinary for Video Manager, to focus internal resources on high-growth CIS. This transition is expected to result in relatively flat OCA revenue for the remainder of 2025, with a one-time dip in Q3 due to a prior deferred revenue release. Despite this near-term flattening in OCA, the accelerating growth of CIS is expected to reaccelerate overall cloud computing revenue growth to a CAGR of at least 20% over the next three to five years, aiming to make it Akamai's third $1 billion product line by 2027.

The Enduring Foundation: Delivery

While the spotlight is on security and cloud computing, Akamai's delivery business remains an "important generator of profit" and cash flow, which is strategically reinvested into the faster-growing segments. In Q2 2025, delivery revenue was $320.1 million, down 3% year-over-year, performing "well above expectations." This improvement reflects "continued improvements in both pricing and traffic growth" observed in the first half of the year.

The delivery market has seen significant consolidation, with several major competitors from the pre-pandemic era no longer active, contributing to a "better pricing environment." Akamai's acquisition of select customer contracts from Edgio (EGIO) in December 2024 further consolidated its position. Although traffic growth remains moderated compared to prior years, management is encouraged by stabilizing trends and expects the year-over-year decline in delivery revenue to shrink to about 10% in 2025, with further moderation and eventual stabilization in 2026 and beyond.

The delivery business is deeply synergistic with Akamai's security and compute offerings. Its unique edge platform provides the underlying infrastructure for all three, enabling cost efficiencies, massive scale, and superior performance. This integrated approach allows for seamless bundling, cross-selling opportunities, and strong customer retention, as enterprises value the combined performance, security, and compute capabilities from a single, trusted vendor.

Financial Performance and Capital Allocation

Akamai's Q2 2025 financial results underscore its strategic progress. Total revenue reached $1.043 billion, marking a 7% year-over-year increase (6% in constant currency). Non-GAAP operating margin stood at 30%, and non-GAAP diluted EPS was $1.73, up 9% year-over-year. This strong bottom-line performance was driven by higher-than-expected revenue, lower bandwidth costs, increased interest income from recent debt issuance, and a reduced share count due to buyback activity. A one-time $5 million benefit from bandwidth and colocation credits also positively impacted Q2 gross margin.

For the full year 2025, Akamai projects revenue between $4.135 billion and $4.205 billion, representing 3% to 5% growth in constant currency. Non-GAAP operating margin is estimated at approximately 29%, with non-GAAP EPS in the range of $6.60 to $6.80. Management anticipates a slight dip in operating margins in the second half of 2025 due to planned go-to-market investments, including increased sales rep hunting capacity and specialized sales teams for security and compute.

Akamai maintains a robust liquidity position, with approximately $1.6 billion in cash, cash equivalents, and marketable securities as of June 30, 2025. The company strategically managed its debt, repaying $1.15 billion in convertible senior notes in May 2025 and subsequently issuing $1.725 billion in new convertible senior notes due 2033. The net proceeds of approximately $900 million from this offering have been invested in highly liquid marketable securities, currently yielding around 4%.

Capital allocation prioritizes offsetting dilution from employee equity programs and opportunistic M&A and share repurchases. Akamai spent $800 million year-to-date 2025 to buy back approximately 10 million shares, with $1.2 billion remaining on its current $2 billion repurchase authorization. Capital expenditures are expected to be approximately 20% of total revenue for FY 2025, an increase from 2024, driven by investments for increased traffic from the Edgio acquisition and geo-specific infrastructure builds for large compute contracts, with some CapEx pulled forward to mitigate potential tariff risks.

Risks and Challenges

Despite its strong strategic execution, Akamai faces several pertinent risks. Macroeconomic and geopolitical conditions, including inflation, foreign exchange volatility (a negative $18 million revenue impact and 30 basis points on non-GAAP operating margin for FY25 from USD strength), and political instability (e.g., the Israel-Hamas war impacting its workforce in Israel), can affect customer spending and operational efficiency.

A significant headwind stems from a large social media customer (TikTok) pursuing a "do-it-yourself" (DIY) strategy and navigating political challenges in the U.S. This is expected to create a 1% to 2% annual revenue headwind for the next couple of years, although a five-year minimum commitment secured in Q4 2024 mitigates some of this exposure.

Competitive intensity remains high across all segments. Hyperscalers like Amazon Web Services (AWS) (AMZN), Microsoft Azure (MSFT), and Google Cloud (GOOGL) possess substantially greater financial and technical resources, posing a challenge in cloud computing. Smaller, more nimble competitors, such as Cloudflare (NET) and Fastly (FSLY), can offer specialized solutions or aggressive pricing. Akamai's competitive factors include technology differentiation, global presence, solution quality, reliability, and technical expertise. While Akamai's integrated offerings and global reach provide a strong moat, it must continuously innovate to counter competitors' agility and specialized features. Equinix (EQIX), a data center and interconnection provider, represents an indirect competitor in infrastructure, with its AI-driven expansion plans potentially impacting Akamai's cost structures. F5 Networks (FFIV) competes in application delivery and security, where Akamai's edge-centric approach offers different advantages.

Execution risk is inherent in Akamai's transformation. The go-to-market overhaul, while necessary, carries potential for disruption as new sales teams ramp up. Developing new products, especially in AI, requires significant R&D and navigating an uncertain supply chain for server hardware. Cybersecurity risks, exacerbated by AI-driven attacks, are a constant threat, and integrating acquired technologies like Linode requires continuous security enhancements. The Q3 2024 restructuring, which eliminated 2.5% of roles to redeploy resources, also presents short-term operational challenges.

Outlook and Investment Implications

Akamai's updated guidance for FY 2025 and its long-term vision paint a picture of a company poised for accelerated growth. Management anticipates double-digit total revenue growth by the end of the decade, driven by the rapid expansion of its security and cloud computing businesses and a stabilizing delivery segment. Operating margins are targeted to exceed 30%, with strong non-GAAP EPS growth expected from 2026 onwards. This outlook is predicated on the successful execution of its go-to-market transformation, continued technological leadership in edge AI and security, and disciplined capital allocation.

The investment thesis for Akamai centers on its successful pivot to high-growth markets, leveraging its unique global edge platform as a strategic differentiator. The company's ability to offer superior performance, enhanced security, and cost efficiencies for cloud and AI workloads, particularly compared to hyperscalers, positions it favorably. While near-term macroeconomic and competitive pressures exist, Akamai's proactive investments in R&D, sales specialization, and strategic partnerships are designed to capture significant market opportunities. Investors should monitor the continued acceleration of Cloud Infrastructure Services ARR, the adoption of new security offerings like Firewall for AI, and the effective management of its go-to-market transformation as key indicators of its long-term value creation potential.

Conclusion

Akamai Technologies is in the midst of a profound and successful transformation, shedding its legacy as a pure-play CDN provider to emerge as a critical cybersecurity and cloud computing partner for global enterprises. The company's unique, massively distributed edge platform is not just a technological marvel but a strategic asset, enabling it to deliver unparalleled performance, security, and cost advantages in an increasingly interconnected and AI-driven world. This foundational strength, coupled with aggressive investments in high-growth areas like Guardicore segmentation, API security, and Cloud Infrastructure Services, positions Akamai to capitalize on significant market tailwinds.

Despite facing macroeconomic headwinds, intense competition, and the complexities of its own strategic evolution, Akamai's management has demonstrated a clear vision and a disciplined approach to execution. The company's robust financial performance, strategic capital allocation, and ambitious long-term targets for revenue growth and margin expansion underscore its potential. For discerning investors, Akamai represents an opportunity to participate in the growth of essential digital infrastructure, where technological leadership and a trusted brand are paramount to securing and powering the future of online business.