SAN ANTONIO, August 11, 2026, 06:18 EDT
- Second-quarter revenue came in at $670.1 million, exceeding the preliminary range provided in July.
- Sales in Private Cloud increased by 5.5%, while Public Cloud sales declined 2.3%.
- Gross margin decreased by 230 basis points, while operating cash flow shifted to negative.
- Management maintained its lowered forecast for 2026 revenue and adjusted EBITDA.
Rackspace Technology NASDAQ:RXT posted second-quarter revenue that topped its initial guidance range. However, the cloud firm maintained its previously lowered forecast from July. The outcome puts investors in a position to balance an earlier-than-expected sales gain with expenses tied to its move towards enterprise AI.
Revenue increased 0.6% to $670.1 million, surpassing the upper end of the preliminary forecast by $21.1 million. Gains were largely driven by Private Cloud, as Public Cloud continued to fall.
| Second-quarter measure | 2026 | 2025 | Change |
|---|---|---|---|
| Revenue | $670.1 million | $666.3 million | up 0.6% |
| Private Cloud revenue | $263.3 million | $249.7 million | increased 5.5% |
| Public Cloud revenue | $406.8 million | $416.6 million | down 2.3% |
| Gross margin | 17.1% | 19.4% | fell 230 basis points |
| Net loss | $67.5 million | $54.5 million | Loss grew 23.9% |
The breakdown by segment is significant. Private Cloud represents 39.3% of quarterly revenue, an increase from 37.5% the previous year. It underpins Rackspace’s managed AI infrastructure. Public Cloud remains at 60.7% of sales, but its share declined after the company exited lower-margin resale business.
Chief Executive Gajen Kandiah stated, “Enterprises in regulated industries are moving AI from experimentation into production, and they are choosing partners who can be accountable for it.” He added that the company introduced its Managed Compute and Inference Platform in the quarter. Full release text and CEO comments
The quarter outperformed management’s July guidance by a wide margin. All operational metrics listed below reached or exceeded the upper end of the indicated range. Private Cloud delivered the biggest positive dollar variance.
| Measure | Q2 actual | July preliminary range | Versus favorable end |
|---|---|---|---|
| Total revenue | $670.1 million | $641-$649 million | $21.1 million higher |
| Private Cloud revenue | $263.3 million | $242-$246 million | $17.3 million higher |
| Public Cloud revenue | $406.8 million | $399-$403 million | $3.8 million higher |
| Non-GAAP operating profit | $27 million | $19-$23 million | $4 million higher |
| Non-GAAP loss per share | $(0.08) | $(0.11)-$(0.08) | At favorable end |
The earnings beat did not improve the cash situation. Operations consumed $32 million in the quarter, a shift from $8 million generated in the previous year. Cash was at $111 million. Overall liquidity reached $202 million, compared to $414 million a year earlier.
Margins declined during the period. Gross profit dropped 11.1% to $114.8 million despite higher sales. Interest costs surged 60.6% to $34.2 million. As a result, the net loss for the quarter widened to $67.5 million, greater than the loss recorded a year earlier.
Management maintained the lower full-year ranges provided on July 9. The midpoint projects revenue of $2.50 billion and adjusted EBITDA of $290 million. Rackspace has not reconciled these non-GAAP outlooks to GAAP due to uncertainty regarding certain adjustments.
| 2026 outlook | Low | High | Midpoint |
|---|---|---|---|
| Total revenue | $2.45 billion | $2.55 billion | $2.50 billion |
| Private Cloud revenue | $1.00 billion | $1.05 billion | $1.025 billion |
| Public Cloud revenue | $1.45 billion | $1.50 billion | $1.475 billion |
| Non-GAAP operating profit | $125 million | $135 million | $130 million |
| Adjusted EBITDA | $285 million | $295 million | $290 million |
| Non-GAAP loss per share | $(0.30) | $(0.25) | $(0.275) |
The steady outlook follows a turbulent month. In July, Rackspace lowered its previous revenue projection by $150 million and trimmed adjusted EBITDA expectations by $20 million. The company intends to shift investment away from core hosting and cloud resale, focusing more resources on enterprise AI initiatives.
The initiative incorporates processors provided by Advanced Micro Devices NASDAQ:AMD along with software from Palantir Technologies NASDAQ:PLTR. Rackspace aims to reach two megawatts of AI capacity by the end of the year, targeting 15 megawatts by the close of 2027 and 30 megawatts by the close of 2028. According to management, each deployed megawatt could generate $15 million to $20 million in yearly revenue, with adjusted EBITDA margins topping 50%. These numbers are projections and have not yet been secured by contract.
Wall Street adopts a careful stance. Recent broker recommendations range from Buy to Sector Perform, with price targets set from $4 to $5.70. The range highlights how much of the company’s valuation depends on a business that has yet to achieve scale.
| Broker | Recommendation | Price target | Latest cited context |
|---|---|---|---|
| UBS | Hold | $5.70 | AI potential counterbalanced by funding and execution concerns |
| BMO Capital | Buy | $5.00 | May 2026 report |
| RBC Capital | Sector Perform | $4.00 | Target raised in June 2026 |
UBS maintained a Hold rating following results, raising its price target to $5.70. RBC kept its Sector Perform rating and set its target at $4. BMO remained at Buy with a $5 target.
Risks: Rackspace faces significant debt levels, negative equity, and operates an at-the-market share issuance program. Increased interest expenses and additional share offerings may reduce gains from operations. A pending investor lawsuit related to previous AI disclosures introduces further legal risk.
U.S. regular trading had ended at the time of publication, while premarket activity was ongoing. The upcoming earnings call on Tuesday serves as the next major catalyst. Investors now look for proof that the $21.1 million beat in quarterly revenue can occur alongside steady margins and sustained AI capacity funding.
