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On Friday, Craig-Hallum analyst Jeff Van Rhee downgraded Akamai Technologies (NASDAQ:AKAM) stock from Buy to Hold, setting a new price target of $90.00. The stock, currently trading at $83.53, has seen a year-to-date return of 2.49% despite broader market challenges. According to InvestingPro analysis, the company is currently trading at a P/E ratio of 28.3x, suggesting a premium valuation relative to its near-term earnings growth potential. The downgrade was driven by several factors expected to impact the company’s performance in 2025. Among the concerns cited were a significant loss of business from TikTok as it moves to a do-it-yourself model, a slowdown in the security segment, particularly in the Web Application Firewall (WAF) area, and an unexpected exit of approximately $30 million in annual legacy revenue from the compute segment. Despite these challenges, InvestingPro data shows Akamai maintains strong profitability with $504.92 million in net income over the last twelve months, and a healthy gross profit margin of 59.39%.
In addition to these challenges, Akamai Technologies announced a comprehensive restructuring of its sales organization, aiming to shift focus towards acquiring new customers. This transition is anticipated to cause some disruption throughout 2025 and into 2026. The analyst also noted that foreign exchange fluctuations and reduced interest income are expected to adversely affect net income, leading to operating margins falling well below the 30% target by the end of the year.
The original rating was based on the expectation of organic revenue growth and margin expansion for Akamai. However, with the current developments, the outlook has become less clear. The analyst believes these issues will likely result in the stock not experiencing significant movement in 2025.
Despite the downgrade, there is a silver lining mentioned by the analyst. Akamai’s new growth initiatives within the compute segment, which represents a third of the company’s focus, are reportedly seeing strong adoption. This positive note suggests that there are still areas within the company that are performing well, even as it faces various headwinds. InvestingPro analysis reveals the company has achieved 4.7% revenue growth and maintains a FAIR Financial Health Score of 2.25. Subscribers can access the comprehensive Pro Research Report, which provides detailed insights into Akamai’s growth trajectory and financial stability metrics among 1,400+ top US stocks.
In other recent news, Akamai Technologies reported its fourth-quarter earnings, with revenue reaching $1,019.9 million and earnings per share (EPS) of $1.66, surpassing analysts’ expectations of $1,015.4 million and $1.52, respectively. The company’s Security and Compute segments showed significant growth, contributing to 69% of the total revenue, with Security alone surpassing 50% of the full-year revenue for the first time. However, Akamai’s guidance for 2025 revenue fell below street expectations, with anticipated growth of 2-3% impacted by foreign exchange headwinds and a loss of TikTok revenue. Analysts from Scotiabank (TSX:BNS), BofA Securities, Raymond (NSE:RYMD) James, and Evercore ISI have adjusted their price targets, reflecting cautious optimism about the company’s future. Scotiabank and Raymond James maintained an Outperform rating, setting new price targets at $107 and $110, respectively. In contrast, BofA Securities and Piper Sandler downgraded Akamai to Neutral, with a price target of $100, citing limited near-term growth catalysts and a need for increased capital expenditures. Despite these challenges, Akamai’s strategic focus on high-growth areas like API security and Cloud Infrastructure Services is seen as a positive direction. The company’s ability to navigate these transitions and capitalize on emerging opportunities remains a key focus for investors.
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