Morgan Stanley maintains its $165 price target on Akamai, citing long-term AI infrastructure potential despite recent stock declines and near-term revenue uncertainty. Investors are watching for signs the $1.8 billion deal will boost future earnings.
Wall Street is keeping a close watch on Akamai Technologies as the company pivots deeper into artificial intelligence infrastructure following a record-setting customer deal earlier this year. Morgan Stanley has reiterated its "Overweight" rating on Akamai (AKAM), maintaining a $165 price target-about 48% above the stock's July 28 closing price of $111. This comes as Akamai's market capitalization stands at $16.1 billion, with shares down roughly 31% from their all-time high, according to reporting by TheStreet.
Morgan Stanley analysts Sanjit Singh and Adam Wood argue that Akamai's multi-year growth narrative remains intact, even as they caution that the upcoming second-quarter results may not deliver the upside some investors expect. The firm's latest research note, released ahead of Akamai's Q2 earnings, highlights the company's expanding focus on AI-driven cloud infrastructure and cybersecurity as key to its future revenue streams.
AI Deal Reshapes Growth Outlook
Akamai's strategic shift accelerated in May when CEO Tom Leighton announced a seven-year, $1.8 billion contract with a leading AI model developer-the largest customer agreement in the company's history. This follows a $200 million cloud infrastructure deal signed earlier in the year. Akamai's Cloud Infrastructure Services segment, which includes its AI compute business, posted 40% year-over-year growth in the first quarter, reaching $95 million in revenue. Total company revenue for the quarter was $1.074 billion, up 6% from the prior year, while security revenue climbed 11%. The company's legacy content delivery business, however, continued to contract as expected.
Leighton has described a heightened sense of urgency among chief information security officers, driven by concerns that AI could accelerate the pace at which cyber attackers discover new vulnerabilities. This urgency is fueling demand for Akamai's security offerings, though the company acknowledges that some products, such as its Guardicore network segmentation tool, are seeing mixed feedback as customers prioritize other security needs.
Short-Term Uncertainty, Long-Term Ambition
Despite the excitement around the $1.8 billion AI deal, Morgan Stanley is tempering expectations for the near term. The analysts forecast Cloud Infrastructure Services revenue of $99 million for the second quarter, representing 39% growth-below the 43% consensus estimate. Akamai has told investors that the new customer contract will begin contributing meaningful revenue in the fourth quarter, with an expected $20 million to $25 million recognized during that period. As a result, the bulk of the financial impact from the deal will not be visible until late 2024, leaving Q2 and Q3 to reflect more typical business trends.
To meet its full-year target of at least 50% growth in Cloud Infrastructure Services, Akamai would need to achieve approximately 67% segment growth in the fourth quarter. Morgan Stanley notes that, excluding the two major disclosed contracts, the underlying business would only need to grow about 26% in that period-a target the analysts view as achievable given current momentum. The firm has slightly reduced its 2026 revenue estimate for Akamai to $4.48 billion, citing ongoing pricing pressure and competition in the legacy delivery segment.
Valuation Scenarios and Analyst Sentiment
Morgan Stanley's base case assumes Akamai trades at 24 times projected 2027 earnings per share of $6.72, supporting the $165 price target. The bull case envisions Cloud Infrastructure Services reaching $5 billion in revenue by 2027, which could push the stock to $205. The bear case, with a $99 target, assumes slower revenue recognition and a steeper decline in the delivery business. Wall Street consensus forecasts Akamai's adjusted earnings per share rising from $6.72 in 2026 to $9.88 by 2030. If the stock trades at its 10-year average forward earnings multiple of 19.4, it could deliver a 73% return over the next four years, though this is not guaranteed.
Among 21 analysts covering Akamai, 13 rate the stock a "Buy," seven recommend "Hold," and one suggests "Sell." The average price target is $163, about 46% above the current share price. Industry checks indicate steady demand for Akamai's web application firewall, bot management, and zero trust security products, though some security categories are seeing shifting customer priorities. For investors, the key message is that the next phase of Akamai's growth story is likely to materialize in the latter half of 2026 and beyond, as the company works to convert its AI infrastructure pipeline into recurring revenue.
For a broader look at how AI-driven market moves are affecting investor sentiment and sector performance, see this analysis of the risks facing the current rally in technology stocks: AI stock rally faces real risks beyond bubble fears.
In the first quarter of 2024, Akamai reported $1.074 billion in total revenue, with its Cloud Infrastructure Services segment growing 40% year over year to $95 million. The company's market capitalization as of July 28 stood at $16.1 billion, and its stock price closed at $111, down 31% from its all-time high. Security revenue increased 11% in the same period, while the legacy delivery business continued to contract.
Cloud infrastructure is becoming a central battleground for technology companies as demand for AI computing power accelerates. Unlike traditional content delivery networks, AI infrastructure requires specialized hardware, high-speed connectivity, and robust security to support large-scale machine learning workloads. Companies like Akamai are betting that their experience in distributed networks and cybersecurity will help them capture a share of this fast-growing market. For investors, understanding the difference between legacy delivery services and next-generation AI infrastructure is critical, as each segment faces distinct competitive pressures, pricing dynamics, and growth trajectories.
