Rackspace Technology (NASDAQ:RXT) reported second-quarter revenue of $670 million, up 1% from a year earlier, as the company outlined an expanded enterprise AI infrastructure strategy built around managed compute, inference and sovereign AI deployments.
Chief Executive Officer Gajen Kandiah said the company aims to become an “accountable provider and operator of the full enterprise AI stack from core to cloud to edge,” emphasizing governance, security, sovereignty, resilience and operational accountability for enterprise customers.
AMD deployment plan targets 30 megawatts
Rackspace said it entered a definitive agreement with AMD to deploy an initial 30-megawatt footprint of AMD-based compute capacity across Rackspace data centers in phases from late 2026 through 2028. The planned architecture will use AMD Instinct GPUs and EPYC CPUs.
The first deployment, expected to be nearly 2 MW, is targeted for completion by the end of 2026 and is expected to require about $75 million of capital expenditures. Rackspace’s goal is to reach cumulative capacity of 15 MW by the end of 2027 and 30 MW by the end of 2028.
The company expects revenue to average $15 million to $20 million per megawatt deployed, with results varying based on CPU, GPU and customer mix. At 30 MW, that range would equate to $450 million to $600 million in annual revenue. Rackspace expects enterprise AI EBITDA margins to exceed 50%.
Chief Financial Officer Mark Marino said Rackspace is evaluating a mix of OEM financing, equipment financing and other asset-backed credit facilities to fund a significant portion of the compute hardware investment. The anticipated financing would be collateralized by newly acquired hardware.
Kandiah said early demand signals include inbound inquiries, interest from Rackspace’s enterprise customer base and sales activity from partners. He also said Rackspace has placed its initial order for AMD GPUs and CPUs and believes its existing infrastructure, power, cooling and talent provide an advantage amid long lead times for data-center projects.
Palantir relationship gains traction
Rackspace also said it strengthened its relationship with Palantir, whose platforms connect AI applications with enterprise data and operational workflows while incorporating security permissions and governance. Kandiah said Rackspace’s forward-deployed engineers work in customer environments on use cases and remain accountable after implementation.
During the question-and-answer session, Kandiah said the Palantir partnership has gained traction over the past four to five months. He said engagements typically begin with “bootcamp to agent camp” activities and an initial production use case, after which the company aims to scale deployments more quickly.
He cited renewable energy, packaging, specialty chemicals and healthcare among industries represented in early wins. Kandiah added that customer discussions increasingly center on “institutional sovereignty,” including where models operate and how data is maintained across private and public environments.
Rackspace completed the production release of RackAI, its inference and fine-tuning platform that allows customers to integrate AI into workloads and applications through an API. The company said it plans to add capabilities such as intelligent model routing and access to customized model harnesses.
Private Cloud results lifted by contract timing
Private Cloud revenue totaled $263 million, up 5% year over year and above the company’s previously stated outlook of $242 million to $246 million. Marino said the result benefited from the timing of revenue recognition associated with an embedded lease in a long-term managed hosting contract, treated similarly to a hardware sale.
Rackspace said the timing item pulls revenue forward from future periods, including the second half of 2026, and does not alter its full-year guidance. Private Cloud non-GAAP gross margin was 32.3%, down 460 basis points from a year earlier, reflecting the same revenue item as well as somewhat higher customer license and data-center costs. Segment non-GAAP operating margin was 21.8%, down about 280 basis points.
The company highlighted several Private Cloud customer engagements, including a five-year agreement with AdventHealth to host and manage infrastructure supporting a reduced on-premises data-center footprint. The project includes the migration of roughly 366 applications, 2,300 virtual machines and 283 database servers, with disaster-recovery failover.
Rackspace also signed a multiyear agreement with a U.K. banking firm to deploy and manage a cyber recovery cloud built on Rubrik, along with managed backup and managed Kubernetes services.
Public Cloud revenue declines while margins improve
Public Cloud revenue was $407 million, down 2% from the prior-year quarter, reflecting lower infrastructure and services revenue. The result was modestly above Rackspace’s outlook of $399 million to $403 million due to higher reported consumption from hyperscaler partners than anticipated.
Public Cloud non-GAAP gross margin rose about 10 basis points to 9.7%, while segment non-GAAP operating margin increased 80 basis points to 4.7%, which Marino attributed to workforce-reduction savings and improved operating-expense efficiency.
Rackspace said it is shifting Public Cloud toward higher-value, services-led work, including data and AI enterprise transformation, AI operations-driven managed services and forward-deployed engineering. New offerings launched during the quarter included partner-funded entry-point engagements focused on AWS optimization and modernization, Microsoft Copilot adoption, managed network security and data readiness.
Guidance maintained; company expects positive full-year free cash flow
For 2026, Rackspace maintained its guidance for GAAP revenue of $2.45 billion to $2.55 billion, representing a 7% year-over-year decline at the midpoint. The company said most of the expected reduction reflects its decision to exit low-margin Public Cloud revenue over time.
- Private Cloud revenue is expected to be $1 billion to $1.05 billion, up 4% at the midpoint.
- Public Cloud revenue is expected to be $1.45 billion to $1.5 billion, down 13% at the midpoint.
- Non-GAAP operating profit is projected at $125 million to $135 million.
- Adjusted EBITDA is forecast at $285 million to $295 million.
- Full-year free cash flow is expected to be positive $50 million to $70 million.
Second-quarter non-GAAP operating profit was $27 million, unchanged from a year earlier, while non-GAAP loss per share widened to $0.08 from $0.06. Cash flow from operations was negative $32 million and free cash flow was negative $48 million. Rackspace ended the quarter with $111 million in cash and $202 million in total liquidity.
During the quarter, the company repurchased $11.2 million in aggregate principal amount of senior notes under a previously established plan. Marino said Rackspace expects free-cash-flow generation to accelerate in the second half as seasonal cash uses subside.
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.
