Rackspace Technology Cuts 2026 Outlook as $250M Stock Sale Fuels AI Push

Key Points

• Rackspace is doubling down on enterprise AI infrastructure, launching a $250 million at-the-market equity offering to fund GPU-related growth and positioning itself as an operator of the “full enterprise AI stack.” Management said the strategy emphasizes private cloud, regulated and sovereign deployments, and AI partnerships such as Palantir, AMD, VMware, Rubrik and Uniphore.
• The company cut its 2026 outlook after exiting lower-margin public and private cloud revenue streams, with full-year revenue now expected at $2.45 billion to $2.55 billion and EBITDA at $285 million to $295 million. Rackspace said the near-term hit reflects investing ahead of AI growth, with benefits from new deployments expected in 2027.
• Rackspace outlined a multiyear GPU expansion plan that includes a first AMD-based deployment of nearly 2 megawatts by end-2026 and a target of 15 megawatts by end-2027 and 30 megawatts by end-2028. Management expects revenue of $15 million to $20 million per megawatt on average, with EBITDA margins above 50%.

Rackspace Technology NASDAQ: RXT said it is accelerating its push into enterprise artificial intelligence infrastructure, announcing a $250 million at-the-market equity offering and updated 2026 financial outlook as it moves away from lower-margin revenue streams.

On a conference call, Chief Executive Officer Gajen Kandiah said the company is working to become “the operator of the full enterprise AI stack,” with a focus on governed enterprise AI deployments for regulated industries and sovereign markets. He said the company’s strategy centers on private cloud infrastructure, partnerships across the AI technology stack and Rackspace’s Forward Deployed Engineers, who work within customer environments after deployments go live.

Chief Financial Officer Mark Marino said the offering is “100% primary” and is intended primarily to fund growth capital tied to Rackspace’s GPU initiatives. Marino noted that any equity raised through the ATM program will depend on market conditions and that new shares would affect per-share metrics before the expected revenue and EBITDA benefits from AI-related deployments arrive in future periods.

Rackspace Details AI Infrastructure Plans

Kandiah said Rackspace has spent the past six months building a partner ecosystem across enterprise AI infrastructure and applications. He highlighted an expanded operating framework with Palantir, under which Rackspace is positioned as a preferred deployment and operations partner for regulated and sovereign environments.

According to Kandiah, Rackspace employees have earned more than 400 Palantir certifications since the companies entered a strategic partnership in February to build Palantir-certified Forward Deployed Engineering capabilities across Foundry and AIP. He also said the companies’ first joint deployment, for a U.S.-based manufacturer of solar tracking systems, closed in 41 days and reduced quote cycle times by 94% through engineering design optimization and the elimination of manual processes.

Kandiah also pointed to partnerships with Uniphore, VMware and Rubrik. He said Uniphore supports enterprise AI applications running in Rackspace’s private cloud, VMware serves as the control plane for virtualization and workload portability, and Rubrik provides cyber resilience across hybrid and multi-cloud environments.

Rackspace also provided more detail on its agreement with AMD. Kandiah said the company has secured financing and placed purchase orders for the first deployment under that agreement, which is expected to be nearly 2 megawatts and targeted for completion by the end of 2026. Capital expenditures for the first deployment are expected to be approximately $75 million.

The company said it aims to reach 15 megawatts of cumulative capacity by the end of 2027 and 30 megawatts by the end of 2028. Marino said Rackspace currently expects $15 million to $20 million of revenue per megawatt of deployed GPU capacity on average, with a floor of $10 million per megawatt for the initial deployment. The company expects the revenue stream to generate EBITDA margins above 50%.

Guidance Lowered as Company Exits Lower-Margin Revenue

Rackspace lowered its full-year 2026 revenue and EBITDA outlook, citing a strategic decision to exit certain low-margin businesses and redeploy capacity and capital toward AI infrastructure.

Kandiah said the company is reducing its fiscal 2026 revenue outlook by $150 million and its EBITDA outlook by $20 million. He said the reduction reflects exited revenue across both public cloud and private cloud, as well as investments in AI compute capacity.

Marino said the updated total revenue expectation for fiscal 2026 is $2.45 billion to $2.55 billion, compared with prior guidance that implied a smaller decline. The new outlook represents a 7% decline at the midpoint, versus a prior expectation of a 1% decline at the midpoint. Updated EBITDA targets are now $285 million to $295 million, compared with prior guidance of $305 million to $315 million.

In public cloud, Rackspace now expects 2026 revenue of $1.45 billion to $1.50 billion, down $125 million from its prior outlook. Marino said the reduction is tied to the company moving away from low-margin infrastructure resale revenue and focusing instead on higher-value services-led opportunities with hyperscaler partners.

In private cloud, Rackspace reduced its 2026 revenue outlook by $25 million to a range of $1.0 billion to $1.05 billion. Marino said the decrease reflects the company’s decision to step away from colocation and basic hosting revenue and redirect capacity and capital toward higher-yielding AI deployments.

Marino said the EBITDA reduction reflects a near-term mismatch between exiting lower-margin revenue streams, investing ahead of AI-related growth and costs associated with a previously announced workforce realignment. He said benefits from new AI revenue and the workforce realignment are expected in 2027.

Preliminary Second-Quarter Results Provided

Rackspace also shared preliminary unaudited ranges for the second quarter ended June 30, 2026. Marino cautioned that the figures remain subject to financial close procedures and could differ from final reported results.

• Total revenue is expected to be between $641 million and $649 million, down 3.1% at the midpoint.
• Public cloud revenue is expected to be between $399 million and $403 million.
• Private cloud revenue is expected to be between $242 million and $246 million.
• EBITDA is expected to be between $58 million and $62 million.

The company said it will provide more details when it reports full second-quarter results in August.

Customer Demand and Deployment Mix

During the question-and-answer portion of the call, David Paige of RBC Capital Markets asked about expected GPU deployment demand in 2027 and 2028.

Marino said Rackspace is not disclosing specific customer names but expects a “large portion” of the GPU demand to come from new customers. Based on the current outlook, he characterized expected demand as roughly two-thirds new customers and one-third existing customers.

Kandiah added that early demand may include infrastructure as a service, inference as a service and raw compute. He said Rackspace is seeing interest in raw compute demand in the near term, but the company is building for infrastructure-as-a-service offerings for enterprise customers in regulated environments over the longer term.

Kandiah closed the call by saying the company is investing ahead of revenue to build a new growth engine while focusing on higher-return work. He said the updated near-term outlook reflects “the cost of entry into a larger, higher-margin business” as Rackspace puts more capital and focus behind its AI strategy.

About Rackspace Technology NASDAQ: RXT

Rackspace Technology NASDAQ: RXT is a leading provider of managed multi-cloud solutions and services, specializing in the deployment, management and optimization of public and private cloud environments. The company helps organizations design and operate applications across platforms such as Amazon Web Services (AWS), Microsoft Azure, Google Cloud and its own private cloud infrastructure. Rackspace's core offerings include cloud migration, application modernization, data protection, security services and 24x7x365 operational support.

Beyond cloud hosting, Rackspace offers a range of professional services designed to accelerate digital transformation initiatives.

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