A quarter's margin, spent on GPUs

Akamai Technologies — which secures, routes and delivers websites, applications and programming interfaces from servers embedded inside internet providers' networks in more than 130 countries — spent the June quarter turning AI contracts into hardware. Capital expenditure reached $347m, against 21% of revenue a year earlier and 32% now. Management guided full-year spending to roughly 40% of revenue, with the September quarter as high as 43-46%.

That build shows up immediately in the cost line and only later in the revenue line. June-quarter revenue rose 5.4% to $1.100bn while gross profit slipped 0.5% to $613.8m, gross margin falling 3.3 points to 55.8%. GAAP operating income nearly halved to $80.3m. The shares fell 6.4% on 7 August as next-quarter guidance came in below consensus and the full-year adjusted earnings forecast was cut.

The underlying mix is not the problem. Security revenue reached $604m in the quarter, up 10%, and Cloud Infrastructure Services — the compute arm that hosts AI inference — grew 39% to $99m. Delivery, the original content-distribution business, fell 6% to $396m and is deflating at roughly 5-7% a year as hyperscalers commoditize it. Security plus compute is now 64% of revenue, a clear majority. Akamai's edge is 4,400-plus points of presence placing workloads within a single network hop of most internet users, architecture no AI startup can rent into existence.

The round trip

Price per dollar of trailing gross profit is the cleanest lens here, because reported earnings are distorted by the depreciation of assets bought ahead of the revenue they will carry. On that measure Akamai has gone nowhere and back: 6.54x on 20 February, 9.26x on 18 May after the Anthropic contract, and 6.58x today. Trailing gross profit was about $2.44bn at all three dates. Every move was multiple.

The shares gapped 27.8% higher on 8 May, peaked at $161.14 on 3 June, and now trade at $110.42 — below the $115.62 close that preceded the announcement. Management says its GPU capacity is sold out, that typical large contracts carry 60-70% cash gross margins, and that 2027 revenue should grow in the low teens against 6-8% this year. None of that is in the price. The buyback was suspended after $616m of repurchases, $3.5bn of zero-coupon convertible notes were issued, and the diluted share count still rose 5.8% to 153.7m. Two customers — Anthropic and an unnamed robotics developer on a $600m-plus deal — now anchor years of economics.

The counter-cases

F5, which sells BIG-IP application-delivery appliances and software to enterprises and governments, did the opposite. June-quarter revenue rose 10.9% to $865m and gross profit grew faster still, up 12.6%, with margin at 82.2%. Guidance was raised to 9-10% growth and the shares gained 4.0% that session. Notably, this is the company that a year ago warned of damage from a breach in which nation-state actors held access to its product-development environment for at least twelve months and stole source code; it guided to 0-4% growth at disclosure. The feared churn never printed. The caution is composition: systems revenue grew 32% while software grew 7% and subscriptions 9%, and management expects mid-to-high single-digit systems growth from here. F5 now costs 7.98x trailing gross profit, up 26% in six months against 6.3% gross-profit growth.

A10 Networks, the smallest name, is the control that spoils the tidy story. Revenue accelerated for a third straight quarter, up 15.5% to $80.1m, and full-year guidance was raised. The shares fell 9.2% anyway and are down about a quarter in a month. The objection is leverage, not demand: operating income fell 12.5% as margin dropped to 11.3%, and A10 deepened its dependence on a single hyperscaler, Microsoft.

Cloudflare, the member the market has already re-rated as an AI serving layer, grew revenue 36% to $696.1m with net retention at 120%. It is the expensive one; the incumbents are the cheap ones.

All four fell together on 17-20 August, when the 30-year Treasury yield topped 5.33%, a 19-year high — Akamai worst at -10.4%. Trend has broken in the incumbents: F5 slipped out of its strongest uptrend on 28 July, A10 on 7 August after 122 sessions. The common thread is not delivery being repriced. It is that this quarter the market paid for gross profit already earned, and Akamai converted the most backlog into capital spending and the least into margin.

The setup

Where it stands — Akamai's AI compute backlog is worth roughly nothing in the share price, because gross profit has not moved in a year. Would confirm — September-quarter Cloud Infrastructure Services revenue above $120m with gross margin stabilizing near 56%. Would invalidate — Gross margin below 54% in the September quarter with capex still above 40% of revenue. Watch next — Third-quarter results in early November, and the first 2027 revenue guide against the "low teens" framing. Valuation — 6.58x trailing gross profit and 16.4x forward earnings, against 9.26x gross profit in May and 38.9x trailing.