Akamai Technologies Inc (AKAM) — Q3 2025 Earnings Call Transcript

Good afternoon, everyone, and thank you for joining Akamai's Third Quarter 2025 Earnings Call. Speaking today will be Tom Leighton, Akamai's Chief Executive Officer; and Ed McGowan, Akamai's Chief Financial Officer. Please note that today's comments include forward-looking statements, including those regarding revenue and earnings guidance. These forward-looking statements are based on current expectations and assumptions that are subject to certain risks and uncertainties and involve a number of factors that could cause actual results to differ materially from those expressed or implied. The factors include, but are not limited to, any impact from macroeconomic trends, the integration of any acquisition, geopolitical developments, and other risk factors identified in our filings with the SEC. The statements included on today's call represent the company's views on November 6, 2025, and we assume no obligation to update any of these forward-looking statements. As a reminder, we'll be referring to certain non-GAAP financial metrics during today's call. A detailed reconciliation of GAAP to non-GAAP metrics can be found under the financial portion of the Investor Relations section of akamai.com. With that, I'll now hand the call off to our CEO, Dr. Tom Leighton.

Thanks, Mark. I'm pleased to report that Akamai had a strong third quarter with results coming in above expectations for revenue, margin, and earnings per share. Revenue grew to $1.055 billion, up 5% year-over-year as reported and up 4% in constant currency. Non-GAAP operating margins improved to 31%, and non-GAAP earnings per share was $1.86, up 17% year-over-year as reported and in constant currency. Our business performed well across the spectrum of our portfolio with accelerating momentum for our Cloud Infrastructure Services or CIS, continued strong demand for our high-growth security products, and continued stabilization of our delivery revenue. We're especially pleased with the greater recognition of the strength of our distributed platform and differentiated strategy among customers and industry analysts. For investors who may be less familiar with how we have transformed Akamai's business model from the CDN pioneer to a leader in cloud security and distributed cloud computing, I encourage you to read the new report on Akamai from IDC, titled, Akamai: Navigating the Cloud Frontier - A Transformation from CDN to Distributed Cloud Provider. It offers an objective third-party perspective of how Akamai has evolved our strategy and our key differentiators in security and distributed cloud computing for AI inferencing at the edge. You can find the report on our website. As a great proof point for the advantages offered by Akamai's uniquely distributed compute capabilities, the top three cloud providers in the U.S. are all now using Akamai Cloud Infrastructure Services. And in Q3, one of them signed an expanded multiyear renewal that solidifies Akamai's position to be their premier distributed cloud computing provider. This customer has a dominant position at the core of the Internet and uses our widely distributed managed container service to get their business logic closer to end users for superior performance. Our revenue for cloud infrastructure services in Q3 was $81 million, up 39% year-over-year as reported and in constant currency. That's an acceleration from the 30% growth rate we had in Q2. We signed many new and expanded contracts for our Cloud Infrastructure Services in Q3, including with a major global appliance and consumer electronics manufacturer in South Korea, a multinational financial services company in Singapore, a leading U.S. developer of analytics software, a U.S.-based supply chain planning software vendor, a European cybersecurity provider, a major U.S. airline, a leading American video game company, a leading media and entertainment company in India, and one of the largest media companies in the world. Also, a multinational gaming company in Japan contracted for our Cloud Infrastructure Services as part of a larger $37 million 2-year renewal for an array of Akamai products and services. Last week, I was with our team at the AI Industry Conference, NVIDIA GTC, where Akamai took a major step towards the future with the launch of Akamai Inference Cloud, our platform to support the growing demand to scale AI Inference on the Internet. With the rise of AI, the Internet is undergoing a fundamental shift in architecture. The Internet we're building today is driven by AI, where human intelligence is supported and augmented by intelligent systems powered by AI Inference. Akamai is positioned to power inference the way we power the web by bringing inference physically close to users. This will enable faster performance and global scale to support intelligent applications worldwide. When the web was first taking hold, the need for performance and scale is what catalyzed Akamai's founding. Akamai helped to end what was known as the World Wide Wait, enabling the Internet to scale to provide real-time services to billions of people around the world. Subsequently, we introduced web security as a cloud service, enabling the web to be used safely for myriad critical applications such as banking and commerce. We see the same need for performance, scale, and security playing out again with AI inference today. By combining highly scaled GPU and compute capacity with Akamai's unparalleled global reach and security at the edge, Akamai Inference Cloud enables intelligence to run instantly, securely, and exactly where it's needed, right next to the user, agent, or device. This is how Akamai can power the new generation of AI applications, conversational, personalized, and agentic. All designed to scale in real time to meet unprecedented demand. As we look at AI investment cycles, we see the market at a transition point. Until now, the AI story has largely focused on training, the initial creation of AI models from massive amounts of underlying data. To train foundation models, AI pioneers have relied on hyperscale clouds and their centralized data centers with their enormous concentrations of compute, power, and capital. We believe that AI Inference or the execution of queries against a trained model is the new frontier, one that requires purpose-built infrastructure to enable distributed low-latency, globally scalable inference at the edge, with response times measured in a few tens of milliseconds. As AI systems are adopted at scale, we expect the growth of Inference will drive enormous demand to this new intelligent layer of the Internet. And we're not the only ones who see it coming. Fortune Business Insights noted in a report on the rising global AI Inference market that due to rising demand for real-time low-latency AI processing near data sources, Edge Inference leads the market and is projected to grow at the highest CAGR of all AI inference models. And as NVIDIA's Founder and CEO, Jensen Huang said: When we launched Akamai Inference Cloud at GTC, 'Inference has become the most compute-intensive phase of AI, demanding real-time reasoning at planetary scale. Together, NVIDIA and Akamai are moving Inference closer to users everywhere, delivering faster, more scalable generative AI, and unlocking the next generation of intelligent applications.' Akamai Inference Cloud brings together Akamai's globally distributed architecture and expertise with NVIDIA's Blackwell AI infrastructure to provide the computing needed to unlock AI's true potential. The service is available today with 17 locations around the world, and we're building out more points of presence as customer demand grows. One of our initial customers, Monks, the European digital-first marketing technology services and consulting company said, 'With Akamai Inference Cloud, we will accelerate the delivery of key capabilities, including identifying players and plays and delivering tactical insights to coaches while the game is still happening. That's only possible by distributing advanced GPUs to the edge, and we believe it will transform how we approach sports broadcasting and immersive fan experiences.' Another customer, Harmonic, whose technology helps to distribute video content for television and the Internet said, 'Akamai Inference Cloud will allow us to run larger parameter, more capable models locally, expanding the number of functions we can deliver cost-effectively within the same compute instance to deliver fast response times, sophisticated personalization and more enriching video content.' At Akamai, we believe the technology ecosystem that enables the AI revolution will require multiple providers of AI infrastructure: the hyperscalers, NVIDIA, and also Akamai with our unique distributed capabilities and our unparalleled expertise at the edge. We are very excited about what lies ahead. The edge, of course, is also where Akamai deploys our security solutions. And as customers speak with us about their plans for AI inferencing, they tell us they see valuable synergy between Akamai's security and delivery product lines and our cloud computing capabilities and how they trust Akamai to help make the Internet faster, more reliable, and secure for their businesses. Akamai security growth in Q3 continued to be driven by strong demand for our market-leading segmentation solution and by rapidly growing customer adoption of our API security solutions. Combined, these high-growth security products grew revenue 35% year-over-year as reported and 34% in constant currency. Our segmentation wins in Q3 included a $3 million expansion contract to give one of North America's largest healthcare technology companies the visibility and control they didn't have before, a $1 million contract with a European insurance group that is also a net new Akamai customer, a multiyear contract with a large insurance company in Korea, and an expansion contract with a large bank in Mexico to extend their initial deployment across their operations in Latin America. In Q3, we also continued to see growing interest in our market-leading API security solution. As organizations shift towards an API-first strategy and expand their use of AI applications that rely on APIs in a fundamental way, they need to adopt tools that enable them to discover and monitor deployed APIs and to manage risk, comply with stricter data protection regulations, especially in Europe, and respond to public reports of API-related breaches that have raised awareness and increased the stakes for financial and reputational loss. Akamai API security wins in Q3 included a $7 million contract for API security with one of Europe's most important banks. As part of a $31 million multiyear commitment for security and compute, adoption of API security as part of a $20 million expansion contract with one of the world's largest airlines, an expansion of API security as part of a $42 million contract across the breadth of our portfolio with one of the world's largest software companies, a $2.6 million contract with one of the largest life insurance groups in Asia, the displacement of a competitor at a FinTech payments provider in Brazil, and we also signed several seven-figure contracts for API security with two of the ten largest financial institutions in the U.S. and one of the largest banks in Canada. We're also pleased to note that for the sixth straight year, Akamai has been named Customers' Choice in Gartner's latest Voice of the Customer report for cloud web application and API protection. Akamai was also recognized as Customers' Choice in Gartner's Voice of the Customer report on online fraud detection. Before I turn the call over to Ed, I'd like to express my gratitude to our employees for their great work in Q3, and for making Akamai a great place to work. In recognition of your efforts, Glassdoor named Akamai as one of their top 50 best led companies of 2025. Now I'll turn the call over to Ed to say more on our Q3 results and our outlook for Q4 and the year.

Thank you, Tom. I'm pleased to report that we delivered strong third quarter results with total revenue of $1.055 billion, up 5% year-over-year as reported and 4% in constant currency. We also had another quarter of very strong bottom line performance with non-GAAP EPS of $1.86 per share, up 17% year-over-year as reported and in constant currency. Our strong EPS results were driven by higher-than-expected revenue and strong execution across the board. Moving now to revenue. Compute revenue, which is comprised of the fast-growing Cloud Infrastructure Service or CIS solutions that Tom mentioned earlier, and our other cloud applications, or OCA was $180 million, up 8% year-over-year as reported and up 7% in constant currency. As a reminder, in Q3 2024, we recorded a $7 million one-time benefit related to the release of some deferred revenue in conjunction with the expiration of a long-term legacy compute contract. This revenue was part of our other cloud application products, and it had a 5 percentage point impact on a year-over-year total compute revenue growth rate. Total compute revenue was driven by continued strength in CIS. For Q3 2025, CIS revenue was $81 million, accelerating to 39% growth year-over-year as reported and in constant currency, a nice step up from approximately 30% growth last quarter. As a result, we continue to expect CIS ARR year-over-year growth in the range of 40% to 45% in constant currency at year-end. Security revenue was $568 million, up 10% year-over-year as reported and 9% in constant currency. Revenue from our high-growth security products, by that, I mean, API security and Zero Trust Enterprise Security was $77 million, an increase of 35% year-over-year, and 34% in constant currency. Given the continued strength in our API security business, we now expect to exit 2025 with a run rate of approximately $100 million for that product line on both an as-reported and constant currency basis. Finally, we continue to expect the combined ARR for our high-growth security solutions to increase by 30% to 35% year-over-year in constant currency for 2025. Moving to delivery. Revenue was $306 million, down 4% year-over-year as reported and in constant currency. This result was slightly better than expected, marking another quarter of improved trends in our delivery business. International revenue was $525 million, up 9% year-over-year or up 8% in constant currency, representing 50% of our total revenue in Q3. Foreign exchange fluctuations had a positive impact on revenue of $4 million on a sequential basis and a positive $8 million on a year-over-year basis. Moving to profitability. In Q3, we generated non-GAAP net income of $269 million or $1.86 of earnings per diluted share, up an impressive 17% year-over-year as reported and in constant currency, and $0.20 above the high end of our guidance range. Finally, our Q3 CapEx was $224 million or 21% of revenue as we continue to invest in our fast-growing CIS business. Moving to cash and our capital allocation strategy. As of September 30, our cash and cash equivalents and marketable securities totaled approximately $1.8 billion. During the third quarter, we did not repurchase any shares. As a reminder, year-to-date, we spent $800 million to buy back approximately 10 million shares, marking the largest annual buyback in our history. As it relates to our use of capital, our intentions remain the same to continue buying back shares over time, to offset dilution from employee equity programs, and to be opportunistic in both M&A and share repurchases when market and business conditions warrant. Before I provide our Q4 and full-year 2025 guidance, I want to touch on some housekeeping items. First, as in prior year, seasonality plays a significant role in determining our financial performance for the fourth quarter. Typically, we see higher than normal traffic from our large media customers and a pickup in seasonal online retail activity from our e-commerce customers. However, both are difficult to predict. Second, regarding Q4 operating expenses, as is typical for our business, we expect it to be higher than in Q3. The main driver is the seasonal jump in sales commissions as our most successful reps achieve their annual quota accelerators. Finally, on July 4, 2025, the One Big Beautiful Bill Act was signed into law, introducing significant provisions, such as the permanent extension of certain expiring Tax Cuts and Jobs Act provisions, international tax framework modifications, and it restored some business tax benefits. This new legislation, however, has not had a material impact on our tax rate in 2025. With those factors in mind, I'll move to our Q4 guidance. For Q4, we are projecting revenue in the range of $1.065 billion to $1.085 billion, up 4% to 6% as reported and up 3% to 5% in constant currency over Q4 2024. At current spot rates, foreign exchange fluctuations are expected to have a negative $5 million impact on Q4 compared to Q3 levels, and a positive $11 million impact year-over-year. And for the full year, at current spot rates, our guidance assumes foreign exchange will have a positive $13 million impact on revenue in 2025 on a year-over-year basis. At these revenue levels, we expect cash gross margins of approximately 72% to 73%. Q4 non-GAAP operating expenses are projected to be $322 million to $331 million. We expect Q4 EBITDA margin to be approximately 42% to 43%. We expect non-GAAP depreciation expense to be between $143 million to $145 million, and we expect non-GAAP operating margin of approximately 28% to 30% for Q4. Moving on to CapEx. We expect to spend approximately $171 million to $181 million. This represents approximately 16% of our total projected revenue. Based on our expectations for revenue and costs, we expect Q4 non-GAAP EPS in the range of $1.65 to $1.85. This non-GAAP guidance assumes taxes of $57 million to $60 million based on an estimated quarterly non-GAAP tax rate of approximately 18% to 19%. It also reflects a fully diluted share count of approximately 147 million shares. Our complete guidance for the full year 2025 is available in today's press release, but let me walk you through the highlights for now. For the full year, we expect total revenue to grow 4% to 5% in constant currency. Non-GAAP operating margin of approximately 29% to 30%, and EPS in the range of $6.93 to $7.13. In closing, we continue to be very pleased with the performance of our Cloud Infrastructure Service and high-growth security solutions. We are very excited about the potential of the Akamai Inference Cloud as we extend AI to the edge. With that, I'll wrap things up. And Tom and I are happy to take your questions.

Congrats on the solid quarter and the execution you're talking to. I just wanted to come back to the segment commentary real quick and just to make sure that I'm understanding the guidance on the various components properly. For security or compute, are we at this point reiterating the growth that we had spoken to last quarter? I think you were looking for computing the magnitude of 15%, call it, security around 10%. Can you provide any final parameters there? And then I do have a follow-up.

Mike, this is Ed. Yes. So with security, we're calling for about 10%. We don't give guidance by quarter. So for the full year, we obviously reiterated our ARR guidance. So that hasn't changed. And as we said before, with compute, will be maybe a touch under 15% for the year as some of the bigger contracts ramped up a little bit later in the year than we had expected, but definitely picking up momentum in CIS though.

Great. And one more for Tom, but just to add before I leave it there. Are there any indicators or guardrails you can give us as we're thinking about 2026, just given how 2025 has played out at this point?

No. So we'll give you guidance in 2026 in the February call. The only thing I would say is that the momentum that we're seeing in CIS, especially with the new AI Inference Cloud, we're getting a tremendous amount of activity and demand for that. So there's a very good chance we could accelerate growth in our CIS business next year.

That's excellent. And that actually feeds right into my next question beautifully then. For Tom, I know you spent a good chunk of your prepared comments on Akamai Inference Cloud, which has to be intentional, right? But you spoke to a couple of different initial customers, Harmonic being one of them. You spoke to the 17 locations, and this being available on a global basis. Can you just help us think about where we are in that inference curve, right? We've been in frontier pioneer model world for a couple of years now. It feels like things are happening at the inference level, but what's the boots on the ground view that you have today?

Yes, first inning of a very exciting game. There's just so many customers that want to adopt AI applications and do inference for applications that need to be fast for real users. An example would be a commerce company, and they want to present the right products, personalized images to the user and then if the user is interested in something, they really want to show not only the product, but the user wearing the product and not just in a picture, but in a video. And in the video, they want to show the user in a context and environment that makes sense for the user. We've got customers with AI-powered toys. Customers with that want to do robotics and they need really fast control and response. And so they need to do the compute, the inference close to the end user at the end. Media Workflow, people are going to see different versions of games, different versions of movies. It will all be personalized. And this needs something like the NVIDIA Blackwell 6000, which is very powerful, but also well suited to run at our edge. And that's why the partnership with NVIDIA makes so much sense. So we're in the first inning. We're just launching the service in the last couple of weeks, but we're seeing a very strong amount of interest among our customer base. This is exactly what they want.

This is Lawrence Vensko on for John DiFucci. You've communicated your initiatives related to the go-to-market strategy with the hiring of hunters and experienced specialists to support new business sales and security and compute. Can you just walk us through how you're thinking about the hiring of additional reps for the remainder of this year? And how should we think about the ramp period of these sales reps before they become fully productive?

We have made significant progress in transforming our go-to-market strategy, and this will continue into early next year. By Q2, we expect a large portion of the transformation to be completed. We will also continue to hire during the first half of next year to enhance our sales capacity in both security and compute. While the transformation process is ongoing, we anticipate it will be mostly finished by early next year.

It's great to hear about the momentum, especially in computing. I have a couple of questions. First, Tom, you mentioned some deals with hyperscalers where they're leveraging you for more edge inferencing. However, we also know that all hyperscalers are facing capacity constraints and are trying to find resources as they look to advance AI in both training and inferencing. Could you explain what gives you confidence that Akamai will still be well positioned to benefit from this situation, regardless of how long the constraints last? Additionally, is there a concern that some hyperscalers or partners might consider bringing these capabilities in-house as opportunities arise, especially with edge inferencing and increased capacity? I also have a quick follow-up.

Yes. Akamai has a unique platform. Nobody is like us. We have over 4,000 points of presence. We're already in 700-plus cities. And that's unique. And we already support our Edge Worker solution, our function of the service in every location. In fact, one of the hyperscalers is using us for ad market, to get their ad logic a lot closer to users, another hyperscaler using us for API orchestration again, needs to be fast and close to users. We talked about our managed container service. A third hyperscaler is using our managed container service for their media workflow, and again, because it's closer to users. So it's not a capacity constraint issue. It's not that the hyperscalers have run out of capacity. Certainly, that's not the case. It's because our platform is different and we can make their logic, their compute logic run faster for users because it's closer. And obviously, we compete with their cloud businesses to win that business, but it's because of our better performance. And the good news is we don't have to go deploy 4,000 new regions or start new deployments in 700 cities because we already have this distributed platform. We're augmenting several of the regions that we've talked about with the new Blackwell 6000, and that's pretty exciting. And we will continue to do that as we scale that business.

Yes, I understand. That's helpful. Now, shifting to the API Security business, you've had success there. As we consider the changing landscape of applications, especially with the shift towards agents and multi-agent systems, we're seeing an increase in approaches like MCP and A2A to integrate these elements. Are there possibilities to expand your current API security efforts into these new types of Agentic protocols?

Absolutely, and we're already making progress in that area. For instance, we are focused on API security by identifying APIs and recognizing the new AI agents and applications that enterprises may be running without their knowledge. Additionally, we aim to safeguard this with our new AI firewall service. This enthusiasm for our API security business stems from our ability to protect not only legacy APIs but also the emerging Agentic web and to identify and secure all those new inference applications.

Interesting stuff on the compute side. But how should we think about the required CapEx for inferencing here and the relationship you have now with NVIDIA? Has that evolved over the last year or so? And for you on that point, how should we think about compute gross margins here moving forward over the next year to two?

Jim, those are great questions. We've started an initial deployment with NVIDIA in approximately 17 cities, and that is already operational. This deployment was included in our Q4 capital expenditures and will be shaped by demand. Initially, we are seeing some customers approach us with significant requests. Therefore, the capital expenditures will closely correlate with revenue, influenced by demand. We indicated before that every dollar of capital expenditure correlates with about one dollar of revenue, and this situation is similar; it might improve based on utilization. Regarding margins, they should be quite comparable. I anticipate that as we proceed with deployments, such as receiving orders for $50 million or $100 million, we may incur more capital expenditures for future projects. Initially, this may create some inefficiencies, but as we scale, I expect our gross margins to be similar to what we see in computing, possibly even better due to market scarcity. There is a chance for slightly improved margins, and we also anticipate achieving solid operating leverage and scalability. As we grow, I expect this will positively impact the overall gross margin of the company as we reach larger scales.

Got it. And going back to the go-to-market side of things. This quarter did seem to have a lot of callouts around, I'll say, cross-sell or packaging across all three segments. Is there a way to understand what incentives you're giving to your sales team? Or what percentage of the business is whatever you want to call it, ELAs, others call it pool of funds? What percentage of customers are using all three segments at this point?

Yes, that's a good question. One thing we've implemented this year is incentivizing longer-term deals, which has led to an increase in the average contract length for our customers. We're seeing more longer-term and larger deals, which will be reflected in the RPO metric we’ll release tomorrow. Additionally, while we do have some larger deals, they are not primarily from pool of funds or ELAs, which are not major drivers. We're observing a notable increase in compute adoption among our installed base. I don’t have specific metrics on the percentage of customers using all three segments, but we do have a significant number of compute-only customers. Most of our customers, approximately 74% to 75%, are engaged in both security and delivery services, which has remained fairly consistent over the years and may have slightly increased. However, we don’t have many of those pool of funds deals or ELAs that involve large commitments without specific product inclusion or volume tied to particular product lines.

I wanted to follow up exactly where the prior commentary left off. So in terms of the potential phases of inference deals, Ed, I think you mentioned offhand there in the order of magnitude, $50 million to $100 million. I'd just love to hear a little bit more about that. Do you think that the pipeline can support or does the pipeline already show deals of that sort of order of magnitude because I could see how that could be a meaningful contributor to your growth algorithm into next year?

What I was saying is that if you had a large deal, you would likely need to increase your capital expenditures to match the increased demand. For instance, if I were looking at an order size around $50 million to $100 million, I would probably need to invest more in CapEx to accommodate that demand. We are indeed seeing some customers approaching us with significant deal sizes that exceed what we usually encounter in our compute business. So, it's clear that we can expect larger deals moving forward.

Yes, super interesting. The follow-up I have, either for yourself or for Tom is on the delivery business. You're putting up the stabilization and the growth rates that you've been talking about for a couple of quarters now. Remind us, is there idiosyncratic opportunities when the cohorts come up for refresh, depending on the year that help influence those pricing dynamics and remind us why pricing is more stable now than it has been in the past?

Yes, that's a great question. Currently, we have six customers contributing at least 1% to our revenues, which means we don't face significant concentration risk. However, when these six customers or our top ten are up for renewal within a quarter or six-month timeframe, it can impact revenue. This year, we didn't experience that, and we don't anticipate it next year either, as we have the usual revenue renewal cycles. We are encouraging our sales representatives to negotiate longer contracts, and we're seeing positive results, especially with some of our larger customers. Regarding pricing dynamics, we are noticing stabilization in larger media deals, where the greatest revenue impact occurs. There is still some price pressure in the broader market, but it's not unusual and, in fact, it's somewhat better than in the past. The driving factor appears to be a decline in competition, as many competitors have exited the industry or ceased operations if they were part of larger companies not focusing solely on delivery. This may contribute to the improved pricing environment.

So it's been a pretty good year for delivery overall. Anything really driving that and anything early that you see in the trends in Q3, to give us an indication of how that seasonality is shaping up. And then with the larger contract deals you're getting from customers, any risk to the sales cycle along dates?

Yes. Generally, for longer contracts, it doesn’t extend the sales cycle with existing customers. With new customers, the sales cycle is a bit longer, but that’s not the case with existing customers. Regarding the dynamics of the business, Q3 is usually a bit slower for delivery due to factors like content dynamics, sports seasons, and vacations. We observed a typical pattern there. The main driver is traffic growth, and pricing declines have consistently moderated throughout the year. It’s really a combination of these two factors.

Congratulations on the solid results. I wanted to revisit the compute business, and it's encouraging to see CIS accelerating. Regarding the additional $100 million in that segment, I know there are challenges surrounding the storage aspect and some video optimization transitions to your partner. When do you expect those challenges to cease being a hindrance to overall growth? I would appreciate an update on that area.

Yes. Those would be in our other cloud compute applications segment. And that's not really the focus of the business. There's still some more that will happen there, but more or less that was flat quarter-over-quarter. It's not where we're investing, not where we'll see the growth. I think you want to focus on the CIS, the Cloud Infrastructure Services, that's where all the excitement is and where all the future potential growth is. And so in fact, going forward, we may even just separate the two and report on CIS because OCA is pretty small, pretty stable. And the big driver of our future growth is Cloud Infrastructure Services. And that's where we have our products like Edge Workers for Function as a Service, and 4,000 POPs, manage container service that was being used by a hyperscaler for their media workflow and AI. So Akamai Inference Cloud with huge potential growth. And that's all part of Cloud Infrastructure Services. So probably that's what you want to be thinking about when you think about Akamai Compute.

Yes. I'm interested in understanding when the revenue challenges might start to ease. Regarding the Inference Cloud opportunity, what are your thoughts? Is there a potential for security integration with Akamai Inference Cloud? I would like to know how you perceive the security aspects related to Akamai Inference.

Yes, absolutely. And that's a great question because as you're putting these applications and models out there, they have to be secured. In fact, they have even greater vulnerabilities than a normal application or API would have. And so you're going to need API security, you're going to need like an AI firewall. And those are things that we have market-leading solutions for. So that we can build that around your inference engines and your models that are on Optimize Cloud.

Tom, I wanted to ask you a broader question. As we consider the traffic mix that goes through your network, how do you view the balance between traditional video delivery, OTT, enterprise, and potentially AI-driven applications? I'm interested in your thoughts on the current traffic composition in light of the growth of AI and bots, and how you anticipate this will evolve over the next few years in relation to your delivery and CIS business. I would appreciate your insights on this, and then I have a follow-up for Ed.

Yes, that's an interesting question. Currently, the majority of traffic is from video, whether on-demand or live, as well as software downloads. Looking towards the future, you're correct that commerce sites, which may not have used much video before, are now considering ways to create a more immersive experience with video. For example, when you visit a page, it might start with a video showcasing you in clothing they think you'll want to purchase, which can increase traffic. Additionally, traditional videos like live sports are evolving. We have a customer where the feed I see while watching a game differs from what you see; it will be customized for each viewer. AI will be utilized even in traditional video to enhance the personalized experience. If augmented reality devices become widespread, that could generate significant new traffic. Therefore, I believe you're right that there is a strong possibility that as AI becomes more widespread, it will positively influence the traditional delivery business for Akamai.

And Ed, this is a back to basics question, piggybacking on some of what you discussed earlier. But could you just walk us through the relative high-level gross margin and gross profit profile of the business from a segmentation perspective? And really, the spirit of the question is you've seen very nice operating leverage in the business in spite of the fact that I would have thought that the delivery business is perhaps got the most inferior gross margin profile relative to the other segments or revenue segments rather. So I would love to kind of get a quick recap of the relative gross margin profiles and some of the puts and takes, especially as it relates to some of the CIS business and the CapEx requirements that you talked about earlier.

Sure. A couple of years ago, we observed varying gross margins across our three segments. Security was in the high 80s, compute in the low 70s, and delivery around the high 60s, if I recall correctly. These figures are likely still in that range. Overall, we expect the business to maintain low 70% gross margins, although this could decrease by a point or two as we scale up. There is a timing challenge with demand, revenue, and infrastructure development; particularly with AI Inference, where we'll be making larger colocation purchases. This might lead to some unfavorable accounting, resulting in a potential dip in gross margins for compute temporarily. However, we believe we can reach those low 70s margins. From a capital expenditure standpoint, especially with our AI Inference offerings, the dollar of revenue to dollar of CapEx ratio we are observing seems reasonable. It may improve slightly due to the scarcity of GPU services, which currently has a strong market price. Additionally, we anticipate strong operating leverage from our sales team structure, where specialists will complement our general sales force. This means we will achieve good operating leverage not just from delivery, but from all three product segments.

With CIS, are these mostly sort of new compute and capacity deals that you're winning? Or is there also sort of growth coming from existing workloads that are being migrated onto CIS? And related to that, is there maybe an opportunity to benefit from outages at AWS and Azure as customers look for greater resiliency?

It's a combination. But the outages you raise is a really important point. And people don't think about it very much. And this is important whether you're buying compute, delivery, or even security. In fact, maybe even more important in security. Our goal at Akamai is to have five 9s of reliability. That means that over 2 years, the site or the app is down less than 10 minutes collectively from all causes, including attacks. And we’re achieving that today, and we know that because some of the world's major banks, the regulators want to see Five9. We put a tremendous amount of investment into our platform to make sure that when we update metadata or software or a customer updates their metadata, it doesn't have some unintended consequence that blows up the platform. And we see what happens with our competitors who don't make that investment. For example, in security companies that we compete with, where some of them, they're down for an hour every quarter, and that’s just a disaster for a bank. They can't survive like that in today's world. So reliability is critical. And that's an area that really is a strength for Akamai. And so I think that's super important. That's a great call out.

And just maybe as a follow-up. When we think about your security business, can you talk a little bit about the penetration rates for opportunities such as segmentation and as well as how your AI security products are doing?

Yes. So there's a lot of room for growth, segmentation, and API security. And also, as we talked about earlier with API security, we have a whole new market around the AI Inference engines and models and agents that are going to need special security. Obviously, it's early days on our specific protection for AI firewall, but very strong interest in the customer base, hundreds of prospects, and lots of proofs of concept and starting to get the first customers now adopting the solution. I think that will be a pretty quickly evolving landscape in terms of protecting the models, the inference engines, and the agents.

Okay. Great. I guess two questions. Tom, maybe starting with you. I guess it would be great. I know you've touched on this a fair amount. As I think about the Akamai Inference Cloud and the NVIDIA partnership, I wonder if you could just speak to the medium, longer-term strategic importance of it. Is it principally access to black well GPUs? Or are there other parameters and facets of the partnership to be aware of anything on the go-to-market side, etc.? Then I have a question for Ed.

I think the really important thing is it's providing very strong compute capabilities to support AI close to the users, the data, the devices, the robots, and the agents, and that's what's unique about the offer. So you're combining Akamai's distributed platform, which is the most distributed by far in the world with leading GPU capability. The new 6000 series are very powerful. You can support models with hundreds of billions of variables. They can do very cool things that weren't possible before, literally like showing a user who comes to the site in the site in a video. Very cool stuff. And that's unique, I think, with Akamai. And we do have a good relationship with NVIDIA, and we are working together in terms of commercializing the capability with customers and the ecosystem.

Okay. Great. And I guess, Ed, nice upside on operating margin performance and it sounds like largely expecting that to continue into Q4. So I'd just be great to get any color as to kind of what's driving the upside relative to prior expectations. And kind of this 30% adjusted operating margin level, is that kind of the right framework to think about as we kind of move into next year?

Yes. We will provide guidance for next year in February. Execution has been important, as I mentioned earlier in the call. This has contributed to increased revenue and, alongside our development efforts and labor capitalization, serves as a good measure of productivity. Our productivity was notably higher this quarter. The team has excelled in procurement, achieving better pricing with some of our vendors. We are modernizing parts of our back office by retiring older systems and consolidating onto a single platform, such as Oracle. Our team is also performing well in building out the network, securing better pricing for co-location and bandwidth. Overall, we are seeing strong execution throughout the organization.

I guess one quickly for Dr. Tom and then one to Ed, if possible. So Dr. Tom, I guess, my question for you in regards to the NVIDIA partnership, there was some releases last year and Akamai introducing NVIDIA GPUs out of the Edge. So just help us understand what is new this year in late 2025 versus last year with this NVIDIA partnership.

It's much deeper. And now we're deploying the Blackwell 6000, and that's a huge leap from where we were with the 4000 in terms of capabilities, and we're deploying them much more broadly and a much stronger partnership and relationship. So it's a world of difference, and that enables the Inference Cloud and all the applications that we talked about.

Okay. Crystal clear. And congratulations on that exciting partnership. Ed, if I may, just a numbers question. I mean, the first caller kind of asked you about your soft guidance for the different business lines. I think your answer, if I was not mistaken, was 10% for security, just under 15% for Compute. So if I understood that rightly, that implies that delivery probably takes a leg back down again in 4Q. Am I thinking about that the right way? And if so, is that conservatism? Or is there something that we should know about as to why growth in delivery would inflect back down?

We provided a broad estimate, and predicting delivery in the fourth quarter is challenging. This shouldn't be interpreted as anticipating any negative trends in delivery. The seasonal factors for this quarter typically start to reveal themselves around Thanksgiving, making it difficult to gauge the retail season or the end-of-year media season as new devices become available. There are several possible outcomes for the quarter. As for our projections, I mentioned we expect around 10% for Security and just under 15% for Compute. This is actually a positive sign for next year, as it relates mostly to timing, with delivery being a secondary factor. Depending on how you adjust your model within that range, you will see varying outcomes for delivery.

This is Andres Miranda for Rudy. Coming back to the beginning of the call, you said that you have now the three larger cloud providers using CIS. That implies to us that that wasn't the case before. Can you just confirm that? And if that's the case, did you just sign one this quarter? And what is the upside moving forward? How should we think about the three large cloud providers?

I didn't completely get the question. Can you repeat the question that you're asking?

Yes. So like at the beginning of the call, you said you had the three larger cloud providers now using CIS. Does that imply that that wasn't the case before? So did you just sign one of them in the quarter? Or what is the upside moving forward for CIS?

We just signed the third one, and the first one has a much larger contract now. So one has expanded significantly, and we have a new one as well. Now we have all three. Is that what you're asking?

I actually want to go back to Security and talk about the demand you're seeing there. If I take the commentary from some of your peers, they're talking about an acceleration in the underlying demand environment, but when I look at your trends, you've kind of been growing 9% to 10% the last few quarters and you called out 10% for the year. So I just wanted to see kind of the puts and takes of what you're seeing in terms of demand and how you're thinking about that as you go into next year.

We want to emphasize that there is significant demand for our API Security and Guardicore Zero Trust platform products. Specifically, regarding API Security, we completed our acquisition of Noname in June, marking the first quarter of full organic year-on-year growth, which more than doubled, leading us to a run rate of about $100 million. The demand for API security remains strong, along with continued interest in Guardicore. As Tom mentioned, with the developments in API security and the potential from the Agentic Web, there is substantial opportunity for future growth. The penetration rate within our customer base for both products is still relatively low, but we have a proven track record for achieving high penetration. While some of our longer-standing products are growing at a slower pace, it would be a mistake to focus solely on the overall numbers. Instead, attention should be given to the two fast-growing products, the underlying demand for them, and our strong market position, which features leading products.

This is Daniel Hibshman representing Jeff Van Rhee. Congratulations on the quarter. To start, could you share your insights on the delivery trajectory and expectations moving forward? Do you anticipate that the growth rate will continue to fluctuate based on yearly market dynamics, or do you believe we are settling into a trend of single-digit growth or decline that we should expect in the long term? I'm interested in your perspective on how you see this evolving over time.

Yes. Good question. So there's always seasonality just in the trends on traffic on the Internet. Q4 is always a larger seasonal quarter. You've got the return of college football and the NFL and you've got new content for new TV shows and that sort of stuff. So that always drives more traffic with new devices coming online. Typically, Q1 might be a little bit lower than what you saw in Q4. Q2 generally in line with Q1. And then Q3 tends to be a little bit seasonally softer just traditionally because of not as much sports going on. You don't have new shows coming out, and people are on vacation, not using the Internet as much. So I don't see any change in that sort of general trend on the Internet. As Tom talked about, with these AI agent applications could create more video traffic, just more API traffic. So there's a possibility for a leg up there. We've had weak gaming over the last couple of years. Some big titles are in the backlog. That actually helps console recycle refreshes help as well. So we're due for one of those in the next year or two. So I think the demand trends could get better over time. But we've been pretty cautious with delivery because we occasionally can get surprised. But we're very pleased with what we're seeing, and we are kind of getting back to that where we had projected the business to be kind of flat to down single digits is certainly what we've delivered this year. And if the trends remain constant in terms of what we saw this year, it's possible we could do that again.

The international versus the U.S. script has slipped a little bit here in the last couple of quarters. Just curious which segments were strong or maybe stronger than you expected in the international segment? And just traditionally, when we see international strength versus U.S., which segments should kind of be flagged in our minds?

Yes, good question. And you're right, it did slip a little bit. One thing that did aid to the U.S. growth last year or the '25 was some of the Edgio contracts were more concentrated in the U.S. So those are not starting to anniversary. So that's a piece of it. But internationally, I would say in APJ in particular, we are seeing that sales team really embraced compute in a way that they're sort of leading the charge as far as signing up a lot of large compute deals and embracing security as well. So it's kind of strength across the board there. APJ, in general, has been very, very strong for us. EMEA has been strong. Some of the country growth that I've seen across Western Europe was a little bit surprising in terms of a bit healthier than we've normally seen. So I'd just say, across the board, international has always been good for us. We're seeing it sort of pick back up again. And I would say compute and APJ is probably the one thing that I would call out in terms of strength.

Okay, great. I wanted to follow up on the Inference Cloud. You mentioned, Tom, that you're close to the robots and the user, which I get. I'm just curious if there are other factors beyond what I consider the Internet of Things use case that could also increase inference at the edge. For example, if there were a rise in small language models or a wider variety of silicon. Are there any key developments we should consider as positive indicators for the Inference Cloud when they occur?

Yes. Everything is going to be powered by AI, and the way the web functions is set to evolve. Interactions will become model-based, leading to applications that people haven't even envisioned yet. Particularly in scenarios involving bots performing critical tasks, such as navigating cars or human interactions, real-time responsiveness is essential, ideally within tens of milliseconds. This requires proximity, meaning that relying on distant data centers with large-scale models isn’t ideal for specific tasks. Consequently, we’ll likely see an increase in small- to medium-sized models tailored to user needs. This shift is why industry leaders are recognizing Inference as the next significant advancement, potentially surpassing the impact of large models and core Internet capabilities, shaping the future of the web.