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Investing.com - Morgan Stanley (NYSE:MS) downgraded Akamai Technologies (NASDAQ:AKAM), a $11 billion market cap technology company, from Equalweight to Underweight on Tuesday, while lowering its price target to $85.00 from $90.00. According to InvestingPro data, the company has been profitable over the last twelve months, with management actively buying back shares.
The investment bank cited expectations that Akamai’s top-line growth will remain in single digits with limited margin expansion opportunities over the next 12 to 18 months, potentially making the stock a relative underperformer in its coverage universe. Current revenue growth stands at 3.5%, with the company maintaining a healthy gross profit margin of 59%. Investors should note that Akamai is scheduled to report earnings in just two days, which could provide more clarity on these metrics.
Morgan Stanley noted that Akamai faces near-term challenges despite its transition to becoming a public cloud provider. The content delivery business, representing approximately 33% of revenue, is expected to show flat to negative year-over-year growth due to slowing traffic volumes, despite nominal pricing improvements anticipated in 2025.
The security business, accounting for about 50% of Akamai’s revenue, has decelerated from high-teens to 20% growth to approximately 10% as core solutions in infrastructure and web security appear increasingly penetrated, according to the research note.
While Morgan Stanley expressed optimism about the long-term growth opportunity in Akamai’s Cloud Computing segment, which represents roughly 16% of revenue, it concluded this business lacks sufficient scale to overcome growth headwinds in other parts of the company.
In other recent news, Akamai Technologies reported its Q1 2025 earnings, exceeding Wall Street projections with a non-GAAP earnings per share of $1.70, compared to the expected $1.57. The company also reported revenue of $1.02 billion, slightly surpassing the anticipated $1.01 billion. Akamai announced a strategic partnership with Cloudinary to enhance its Video Manager solution by integrating Cloudinary’s AI-powered video technology. In addition, Akamai plans to offer $1.35 billion in convertible senior notes due in 2033, aimed at qualified institutional buyers, with an option for initial purchasers to acquire an additional $202.5 million in notes. The company also approved an increase of 8 million shares to its stock incentive plan during its annual meeting. Furthermore, Akamai appointed Janaki Akella and Bas Burger to its Board of Directors, bringing experience from companies like Google (NASDAQ:GOOGL) and McKinsey & Company. These developments reflect Akamai’s ongoing efforts to strengthen its market position and financial strategies.
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