Piper Sandler analysts believe Akamai will need to increase its capital expenditure to meet market demand for its compute business, but argue these investments will ultimately yield long-term growth returns for the company.
The investment bank has raised its rating on the stock from Neutral to Overweight, though it trimmed its price target to $125. That target still implies roughly 15% upside from Monday's closing price. Analyst James Fish wrote in a Monday research note that the compute segment is approaching an inflection point that could accelerate its trajectory.
"The compute business is about to hit a substantial turning point with faster growth, and earnings expectations for the segment have finally been sufficiently revised downward," Fish noted. "Order commitments exceeding $2.8 billion provide meaningful revenue visibility, and the project pipeline remains robust. Akamai's newly added compute capacity could exceed our current model by approximately 100 megawatts."
Fish also highlighted that conservative consensus revenue estimates, sustained demand for application security, and higher contract renewal pricing could serve as additional catalysts for the stock. In pre-market trading Tuesday, shares edged up nearly 1%.
Akamai's real-time quote on NASDAQ shows the stock at $106.58, down $2.05 or 1.88%, as of 12:02 PM Eastern Time.
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