Key statistics for theaction Rackspace
- Current price: 3,52
- Target price (average): ~$4.50
- Objective of the Scholarship: 2,17
- Potential total return (average): ~28%
- TRI annual (moyen) : ~5% / an
- Réaction aux bénéfices : +55.07% (May 7, 2026)
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What happened?
Rackspace Technologies (RXT) just pulled off one of the most unusual benefit sessions in recent memory. On May 7, 2026, Rackspace Technology stock jumped 55.07% to close at $3.52, after the company simultaneously reported higher revenue than the first quarter and announced a memorandum of understanding with AMD to build infrastructure Governed enterprise AI for regulated industries. The stock previously crashed -77.66% from peak to trough, reaching its lowest level on February 12, 2026.
Optimists see a company that is finally implementing a credible artificial intelligence strategy. “Bears” point out that the memorandum of understanding is not binding, that earnings per share missed estimates and that the stock is now trading well above the consensus target of 2.17 dollars set by three analysts, all rated “Hold”.
What the AMD deal actually means
The AMD MOU is not a chip supply agreement. It is a framework for building a complete managed AI stack, from silicon to outcomes, for customers who cannot use the public cloud due to compliance requirements.
CEO Gajen Kandiah explained this logic during the Q1 2026 earnings conference call: “Production inference is heterogeneous. Frontier models run on GPU, small language models, ML “Classic embeddings and many domain-specific workloads run more efficiently on CPU. AMD is the partner that brings together Instinct GPUs and EPYC CPUs in an integrated architecture, allowing us to route each workload to the right ECU.”
The MoU establishes four integrated capabilities: a fully managed Enterprise AI Cloud for private, public and sovereign environments; an enterprise inference engine that maintains domain knowledge across queries; inference as a service as a governed alternative to commodity GPU rental; and Bare Metal Accelerated Compute for deterministic training and inference workloads. The goal is to create a single responsible operator for regulated clients in healthcare, financial services and sovereign governments.
The main caveat: the memorandum of understanding is not binding. No definitive agreement has been reached, no financing is assured, and CFO Mark Marino confirmed on the call that the AMD deal is “not something we have materially factored into our FY26 guidance.” Investors counting on immediate AMD revenue are getting a head start on the facts.
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1st quarter results: Progress, but with a downside
Total GAAP revenue was $678 million, up 2% year over year, beating the Wall Street consensus of $660.83 million by 2.61%. Adjusted EBITDA reached $71.2 million, beating estimates of $68.57 million by 3.83%. Non-GAAP operating profit reached $31 million, up 20% from the prior year.
The catch: Non-GAAP earnings per share came in at -$0.06, missing the estimate of -$0.03. GAAP net income increased to $8.3 million from $71.5 million the previous year, but that improvement included a $55.8 million gain on debt extinguishment (a unique accounting benefit related to repurchasing debt at less than its value). nominal). The underlying business is not yet consistently profitable under generally accepted accounting principles (GAAP).
Sector results were mixed. Public Cloud revenue increased 7% to $443 million, with services revenue up 10%, reflecting a deliberate push toward higher value engagements. Cloud computing revenue fell 6% to $235 million due to the timing of integration of large contracts in the healthcare sector. Private Cloud segment operating margin improved 30 basis points to 24.7%, demonstrating cost discipline despite lower revenue.
The company ended the first quarter with $94 million in liquidity and $295 million in total liquidity. Rackspace repurchased approximately $96 million of debt at a discount during the quarter, advancing its deleveraging strategy ahead of the debt due in 2028. Net debt remains above $3 billion.
Management reaffirmed its full-year 2026 guidance: $2.6 billion to $2.7 billion in revenue, $160 million to $170 million in non-GAAP operating income, and $305 million to $315 million in adjusted EBITDA.
The strategy is based on concrete successes with customers
The transcript of the earnings call details specific successes that lend credibility to the AI pivot beyond AMD stock. In healthcare, Rackspace has expanded its relationship with AdventHealth, already a top five Epic EHR (electronic health record) deployment globally, by adding over 400 additional workloads to Rackspace Private Cloud. The company also signed a multi-year agreement with a UK-based NHS Foundation Trust for a sovereign healthcare cloud.
For sovereign cloud, BT has chosen Rackspace as the basis for BT Sovereign Cloud, the first comprehensive suite of sovereign services hosted and operated entirely in the UK, with security-cleared operations teams. These are long-term, compliance-focused contracts, not pilot projects.
The partnership with Palantir is also progressing. Rackspace closed its first joint contract in 41 days with a US manufacturer of solar tracking systems. Forward Deployed Engineers (FDE), which integrate directly into customer environments, deployed AI workflows on Palantir Foundry and reduced the customer’s 16.5-day quote cycle by 94%. The commitment has extended to the EMEA region.
Comment RXT se compare à ses pairs
RXT trades at 1.49x NTM EV/Revenue and 12.71x NTM EV/EBITDA, above the IT services peer group median of 1.26x EV/Revenue and 6.95x EV/EBITDA. The closest structurally comparable companies, Kyndryl (KD) and DXC Technology (DXC), trade at 0.37x and 0.40x EV/Revenue, and 2.13x and 2.90x EV/EBITDA, respectively. These two companies present similar recovery profiles, with significant debt, without comparable AI infrastructure.
RXT’s premium over these peers is only justified if the partnership with AMD concludes under favorable conditions and the commitments of Palantir and Uniphore result in significant revenues. At current prices, the market is betting that this will be the case.
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Analysis you model advanced TIKR
- Current price: 3,52
- Target price (average): ~$4.50
- Potential total return (average): ~28%
- TRI annual (moyen) : ~5% / an
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The TIKR model uses the average assumption as a basis, projecting a revenue CAGR of around 1% through 2030. The two main growth drivers are the expansion of public cloud services (already growing at 10% annually) and the gradual stabilization of private cloud as healthcare and sovereign contracts are fully posted online. The margin driver is operating expense leverage: non-GAAP operating profit is already growing 20% annually on modest revenue, and the model assumes this trajectory continues as higher-value AI engagements replace lower-margin infrastructure work.
The average assumption yields a total return of about 28%, or about 5% on an annual basis, which is modest for a company that has more than $3 billion in net debt and negative GAAP margins. Free cash flow of $243.55 million provides real deleveraging capacity and supports the high-case timeline.
The high case calls for approximately $6.96 by 12/31/30, a total return of approximately 98%, and an annualized IRR of approximately 8%. This assumes that the AMD transaction is concluded on favorable terms and that the Palantir and Uniphore partnerships generate significant revenues by 2027 to 2028.
The disadvantages are just as obvious. The lowest case implies around $2.84 by 12/31/30, a loss of around 19% from current prices, if revenues flatline and the MOU with AMD does not become a binding agreement. Given that RXT is already trading well above the consensus target of $2.17, any turnaround regarding AMD would likely send the stock back towards that level quickly.
Conclusion
The key metric to watch in Rackspace’s next earnings release (expected around August 2026) is Private Cloud revenue for the second quarter of 2026. Management reaffirmed Private Cloud growth prospects for the full year and cited signed commitments with AdventHealth, Seattle Children’s and a Database-as-a-Service partner undergoing integration through the end of the year. A sequential recovery in turnover in the second quarter would confirm that the dynamics of the first half calendar were real. A continued decline would raise the question of whether the AI pivot is generating actual contract flow or is simply strategic noise.
Rackspace is building a specific niche: a governed enterprise AI infrastructure for regulated and sovereign clients, with a select set of partners and a single responsible operator model. The first quarter results and AMD’s announcement support this thesis. At $3.52, the stock has already priced a version of that success.
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Disclaimer:
Please note that TIKR articles are not intended as financial or investment advice from TIKR or our content team, nor do they constitute recommendations to buy or sell any stock. We create our content based on TIKR Terminal investment data and analyst estimates. Our analysis may not include recent company news or important updates. TIKR has no position in the stocks mentioned. We thank you for reading and wish you happy investments!
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