Q3 2025 Earnings Call Transcript

Good day, and welcome to the Third Quarter 2025 Akamai Technologies, Inc. Earnings Conference Call. [Operator Instructions] Please note, today's event is being recorded. I would now like to turn the conference over to Mark Stoutenberg, Head of Investor Relations. Please go ahead, sir.

Good afternoon, everyone, and thank you for joining Akamai's Third Quarter 2025 Earnings Call. Speaking today will be Tom Leighton, Akamai's Chief Executive Officer; and Ed McGowan, Akamai's Chief Financial Officer. Please note that today's comments include forward-looking statements, including those regarding revenue and earnings guidance. These forward-looking statements are based on current expectations and assumptions that are subject to certain risks and uncertainties and involve a number of factors that could cause actual results to differ materially from those expressed or implied.

The factors include, but are not limited to, any impact from macroeconomic trends, the integration of any acquisition, geopolitical developments and other risk factors identified in our filings with the SEC. The statements included on today's call represent the company's views on November 6, 2025, and we assume no obligation to update any of these forward-looking statements. As a reminder, we'll be referring to certain non-GAAP financial metrics during today's call. A detailed reconciliation of GAAP to non-GAAP metrics can be found under the financial portion of the Investor Relations section of akamai.com.

With that, I'll now hand the call off to our CEO, Dr. Tom Leighton.

Thanks, Mark. I'm pleased to report that Akamai had a strong third quarter with results coming in above expectations for revenue, margin and earnings per share. Revenue grew to $1.055 billion, up 5% year-over-year as reported and up 4% in constant currency. Non-GAAP operating margins improved to 31%, and non-GAAP earnings per share was $1.86, up 17% year-over-year as reported and in constant currency.

Our business performed well across the spectrum of our portfolio with accelerating momentum for our Cloud Infrastructure Services or CIS, continued strong demand for our high-growth security products and continued stabilization of our delivery revenue. We're especially pleased with the greater recognition of the strength of our distributed platform and differentiated strategy among customers and industry analysts. For investors who may be less familiar with how we have transformed Akamai's business model from the CDN pioneer to a leader in cloud security and distributed cloud computing, I encourage you to read the new report on Akamai from IDC, titled, Akamai: Navigating the Cloud Frontier - A Transformation from CDN to Distributed Cloud Provider.

It offers an objective third-party perspective of how Akamai has evolved our strategy and our key differentiators in security and distributed cloud computing for AI inferencing at the edge. You can find the report on our website. As a great proof point for the advantages offered by Akamai's uniquely distributed compute capabilities, the top three cloud providers in the U.S. are all now using Akamai Cloud Infrastructure Services. And in Q3, one of them signed an expanded multiyear renewal that solidifies Akamai's position to be their premier distributed cloud computing provider.

This customer has a dominant position at the core of the Internet, and uses our widely distributed managed container service to get their business logic closer to end users for superior performance. Our revenue for cloud infrastructure services in Q3 was $81 million, up 39% year-over-year as reported and in constant currency. That's an acceleration from the 30% growth rate we had in Q2. We signed many new and expanded contracts for our Cloud Infrastructure Services in Q3, including with a major global appliance and consumer electronics manufacturer in South Korea, a multinational financial services company in Singapore, a leading U.S. developer of analytics software, a U.S.-based supply chain planning software vendor, a European cybersecurity provider, a major U.S. airline, a leading American video game company, a leading media and entertainment company in India, and one of the largest media companies in the world.

Also, a multinational gaming company in Japan contracted for our Cloud Infrastructure Services as part of a larger $37 million 2-year renewal for an array of Akamai products and services. Last week I was with our team at the AI Industry Conference, NVIDIA GTC, where Akamai took a major step towards the future with the launch of Akamai Inference Cloud, our platform to support the growing demand to scale AI Inference on the Internet. With the rise of AI, the Internet is undergoing a fundamental shift in architecture. The Internet we're building today is driven by AI, where human intelligence is supported and augmented by intelligent systems powered by AI Inference.

Akamai is positioned to power inference the way we power the web by bringing inference physically close to users. This will enable faster performance and global scale to support intelligent applications worldwide. When the web was first taking hold, the need for performance and scale is what catalyzed Akamai's founding. Akamai helped to end what was known as the World Wide Wait, enabling the Internet to scale to provide real-time services to billions of people around the world.

Subsequently, we introduced web security as a cloud service, enabling the web to be used safely for myriad critical applications such as banking and commerce. We see the same need for performance, scale and security playing out again with AI inference today. By combining highly scaled GPU and compute capacity with Akamai's unparalleled global reach and security at the edge, Akamai Inference Cloud enables intelligence to run instantly, securely and exactly where it's needed, right next to the user, agent or device. This is how Akamai can power the new generation of AI applications, conversational, personalized and Agentic.

All designed to scale in real time to meet unprecedented demand. As we look at AI investment cycles, we see the market at a transition point. Until now, the AI story has largely focused on training, the initial creation of AI models from massive amounts of underlying data. To train foundation models, AI pioneers have relied on hyperscale clouds and their centralized data centers with their enormous concentrations of compute, power and capital.

We believe that AI Inference or the execution of queries against a trained model is the new frontier, one that requires purpose-built infrastructure to enable distributed low-latency, globally scalable inference at the edge, with response times measured in a few tens of milliseconds. As AI systems are adopted at scale, we expect the growth of Inference will drive enormous demand to this new intelligent layer of the Internet. And we're not the only ones who see it coming. Fortune Business Insights noted in a report on the rising global AI Inference market that due to rising demand for real-time low-latency AI processing near data sources Edge Inference leads the market and is projected to grow at the highest CAGR of all AI inference models.

And as NVIDIA's Founder and CEO, Jensen Huang said: When we launched Akamai Inference Cloud at GTC, "Inference has become the most compute-intensive phase of AI, demanding real-time reasoning at planetary scale. Together, NVIDIA and Akamai are moving Inference closer to users everywhere, delivering faster, more scalable generative AI, and unlocking the next generation of intelligent applications." Akamai Inference Cloud brings together Akamai's globally distributed architecture and expertise with NVIDIA's Blackwell AI infrastructure to provide the computing needed to unlock AI's true potential.

The service is available today with 17 locations around the world, and we're building out more points of presence as customer demand grows. One of our initial customers, Monks, the European digital-first marketing technology services and consulting company said "with Akamai Inference Cloud, we will accelerate the delivery of key capabilities, including identifying players and plays and delivering tactical insights to coaches while the game is still happening. That's only possible by distributing advanced GPUs to the edge, and we believe it will transform how we approach sports broadcasting and immersive fan experiences." Another customer, Harmonic, whose technology helps to distribute video content for television and the Internet said, "Akamai Inference Cloud will allow us to run larger parameter, more capable models locally, expanding the number of functions we can deliver cost effectively within the same compute instance to deliver fast response times, sophisticated personalization and more enriching video content." At Akamai, we believe the technology ecosystem that enables the AI revolution will require multiple providers of AI infrastructure, the hyperscalers, NVIDIA and also Akamai with our unique distributed capabilities and our unparalleled expertise at the edge.

We are very excited about what lies ahead. The edge, of course, is also where Akamai deploys our security solutions. And as customers speak with us about their plans for AI inferencing, they tell us they see valuable synergy between Akamai's security and delivery product lines and our cloud computing capabilities. and how they trust Akamai to help make the Internet faster, more reliable and secure for their businesses. Akamai security growth in Q3 continued to be driven by strong demand for our market-leading segmentation solution and by rapidly growing customer adoption of our API security solutions.

Combined, these high-growth security products grew revenue 35% year-over-year as reported and 34% in constant currency. Our segmentation wins in Q3 included a $3 million expansion contract to give one of North America's largest health care technology companies the visibility and control they didn't have before. A $1 million contract with a European insurance group that is also a net new Akamai customer, a multiyear contract with a large insurance company in Korea. And an expansion contract with a large bank in Mexico to extend their initial deployment across their operations in Latin America.

In Q3, we also continued to see growing interest in our market-leading API security solution. As organizations shift towards an API-first strategy and expand their use of AI applications that rely on APIs in a fundamental way, adopt tools that enable them to discover and monitor deployed APIs and to manage risk. Comply with stricter data protection regulations, especially in Europe, and respond to public reports of API-related breaches that have raised awareness and increase the stakes for financial and reputational loss. Akamai API security wins in Q3 included a $7 million contract for API security with one of Europe's most important banks.

As part of a $31 million multiyear commitment for security and compute. Adoption of API security as part of a $20 million expansion contract with one of the world's largest airlines. An expansion of API security as part of a $42 million contract across the breadth of our portfolio with one of the world's largest software companies. A $2.6 million contract with one of the largest life insurance groups in Asia.

The displacement of a competitor at a FinTech payments provider in Brazil. And we also signed 7-figure contracts for API security with 2 of the 10 largest financial institutions in the U.S. and one of the largest banks in Canada. We're also pleased to note that for the sixth straight year, Akamai has been named Customers' Choice in Gartner's latest Voice of the Customer report for cloud web application and API protection. Akamai was also recognized as Customers' Choice in Gartner's Voice of the Customer report on online fraud detection.

Before I turn the call over to Ed, I'd like to express my gratitude to our employees for their great work in Q3, and for making Akamai a great place to work. In recognition of your efforts, Glassdoor named Akamai as one of their top 50 best led companies of 2025. Now I'll turn the call over to Ed to say more on our Q3 results and our outlook for Q4 and the year. Ed?

Thank you, Tom. I'm pleased to report that we delivered strong third quarter results with total revenue of $1.055 billion, up 5% year-over-year as reported and 4% in constant currency. We also had another quarter of very strong bottom line performance with non-GAAP EPS of $1.86 per share, up 17% year-over-year as reported and in constant currency. Our strong EPS results were driven by higher-than-expected revenue and strong execution across the board.

Moving now to revenue. Compute revenue, which is comprised of the fast-growing Cloud Infrastructure Service or CIS solutions that Tom mentioned earlier, and our other cloud applications, or OCA was $180 million, up 8% year-over-year as reported and up 7% in constant currency. As a reminder, in Q3 2024, we recorded a $7 million onetime benefit related to the release of some deferred revenue in conjunction with the expiration of a long-term legacy compute contract. This revenue was part of our other cloud application products, and it had a 5 percentage point impact on a year-over-year total compute revenue growth rate.

Total compute revenue was driven by continued strength in CIS. For Q3 2025, CIS revenue was $81 million, accelerating to 39% growth year-over-year as reported and in constant currency, a nice step up from approximately 30% growth last quarter. As a result, we continue to expect CIS ARR year-over-year growth in the range of 40% to 45% in constant currency at year-end. Security revenue was $568 million, up 10% year-over-year as reported and 9% in constant currency.

Revenue from our high-growth security products, by that, I mean, API security and Zero Trust Enterprise Security was $77 million, an increase of 35% year-over-year, and 34% in constant currency. Given the continued strength in our API security business, we now expect to exit 2025 with a run rate of approximately $100 million for that product line on both an as-reported and constant currency basis. Finally, we continue to expect the combined ARR for our high-growth security solutions to increase by 30% to 35% year-over-year in constant currency for 2025. Moving to delivery. Revenue was $306 million, down 4% year-over-year as reported and in constant currency.

This result was slightly better than expected, marking another quarter of improved trends in our delivery business. International revenue was $525 million, up 9% year-over-year or up 8% in constant currency, representing 50% of our total revenue in Q3. Foreign exchange fluctuations had a positive impact on revenue of $4 million on a sequential basis and positive $8 million on a year-over-year basis. Moving to profitability. In Q3, we generated non-GAAP net income of $269 million or $1.86 of earnings per diluted share, up an impressive 17% year-over-year as reported and in constant currency, and $0.20 above the high end of our guidance range.

Finally, our Q3 CapEx was $224 million or 21% of revenue as we continue to invest in our fast-growing CIS business. Moving to cash and our capital allocation strategy. As of September 30, our cash and cash equivalents and marketable securities totaled approximately $1.8 billion. During the third quarter, we did not repurchase any shares.

As a reminder, year-to-date, we spent $800 million to buy back approximately 10 million shares, marking the largest annual buyback in our history. As it relates to our use of capital, our intentions remain the same to continue buying back shares over time, to offset dilution from employee equity programs, and to be opportunistic in both M&A and share repurchases when market and business conditions warrant. Before I provide our Q4 and full year 2025 guidance, I want to touch on some housekeeping items. First, as in prior year, seasonality plays a significant role in determining our financial performance for the fourth quarter.

Typically, we see higher than normal traffic from our large media customers and a pickup in seasonal online retail activity from our e-commerce customers. However, both are difficult to predict. Second, regarding Q4 operating expenses, as is typical for our business, we expect it to be higher than in Q3. The main driver is the seasonal jump in sales commissions as our most successful reps achieve their annual quota accelerators. Finally, on July 4, 2025, the One Big Beautiful Bill Act was signed into law, introducing significant provisions, such as the permanent extension of certain expiring Tax Cuts and Jobs Act provisions, international tax framework modifications and it restored some business tax benefits.

This new legislation, however, has not had a material impact on our tax rate in 2025. With those factors in mind, I'll move to our Q4 guidance. For Q4, we are projecting revenue in the range of $1.065 billion to $1.085 billion, up 4% to 6% as reported and up 3% to 5% in constant currency over Q4 2024. At current spot rates, foreign exchange fluctuations are expected to have a negative $5 million impact on Q4 compared to Q3 levels, and a positive $11 million impact year-over-year. And for the full year, at current spot rates, our guidance assumes foreign exchange will have a positive $13 million impact on revenue in 2025 on a year-over-year basis.

At these revenue levels, we expect cash gross margins of approximately 72% to 73%. Q4 non-GAAP operating expenses are projected to be $322 million to $331 million. We expect Q4 EBITDA margin to be approximately 42% to 43%. We expect non-GAAP depreciation expense to be between $143 million to $145 million, and we expect non-GAAP operating margin of approximately 28% to 30% for Q4. Moving on to CapEx.

We expect to spend approximately $171 million to $181 million. This represents approximately 16% of our total projected revenue. Based on our expectations for revenue and costs, we expect Q4 non-GAAP EPS in the range of $1.65 to $1.85. This non-GAAP guidance assumes taxes of $57 million to $60 million based on an estimated quarterly non-GAAP tax rate of approximately 18% to 19%. It also reflects a fully diluted share count of approximately 147 million shares.

Our complete guidance for full year 2025 is available in today's press release, but let me walk you through the highlights for now. For the full year, we expect total revenue to grow 4% to 5% in constant currency. Non-GAAP operating margin of approximately 29% to 30%, and EPS in the range of $6.93 to $7.13. In closing, we continue to be very pleased with the performance of our Cloud Infrastructure Service and high-growth security solutions. We are very excited about the potential of the Akamai Inference Cloud as we extend AI to the edge.

With that, I'll wrap things up. And Tom and I are happy to take your questions. Operator?

[Operator Instructions] Today's first question comes from Mike Cikos at Needham & Company.

Congrats on the solid quarter and the execution you're talking to. I just wanted to come back to the segment commentary real quick and just to make sure that I'm understanding the guidance on the various components properly. For security or compute, are we at this point reiterating the growth that we had spoken to last quarter? I think you were looking for computing the magnitude of 15%, call it, security around 10%.

Can you provide any final parameters there? And then I do have a follow-up.

Mike, this is Ed. Yes. So with security, we're calling for about 10%. We don't give guidance by quarter.

So for the full year, we obviously reiterated our ARR guidance. So that hasn't changed. And as we said before, with compute, will be maybe a touch under 15% for the year as some of the bigger contracts ramped up a little bit later in the year than we had expected, but definitely picking up momentum in CIS though.

Great. And one more for Tom, but just to add before I leave it there. Are there any [ tea leaves ] or guardrails you can give us as we're thinking about '26, just given how '25 has played out at this point?

No. So we'll give you guidance in '26 in the February call. The only thing I would say is that the momentum that we're seeing in CIS, especially with the new AI Inference Cloud, we're getting a tremendous amount of activity and demand for that. So there's a very good chance we could accelerate growth in our CIS business next year.

That's excellent. And that actually feeds right into my next question beautifully then. For Tom, I know you spent a good chunk of your prepared comments on Akamai Inference Cloud, which has to be intentional, right? But you spoke to a couple of different initial customers, Harmonic being one of them.

You spoke to the 17 locations, and this being available on a global basis. Can you just help us think about where we are in that inference curve, right? We've been in frontier pioneer model world for a couple of years now. It feels like things are happening at the inference level, but what's the boots on the ground view that you have today?

Yes, first inning of a very exciting game. There's just so many customers that want to adopt AI applications and do inference for -- applications that need to be fast for real users. An example would be a commerce company, and they want to present the right products, personalized images to the user and then if the user is interested in something, they really want to show not only the product, but the user wearing the product and not just in a picture, but in a video. And in the video, they want to show the user in a context and environment that makes sense for the user.

We've got customers with AI-powered toys. Customers with -- that want to do robotics and they need really fast control and response. And so they need to do the compute, the inference close to the end user at the end. Media Workflow, people are going to see different versions of games, different versions of movies.

It will all be personalized. And this needs something like the NVIDIA Blackwell 6000, which is very powerful, but also well suited to run at our edge. And that's why the partnership with NVIDIA makes so much sense. So we're in the first inning.

We're just launching the service in the last couple of weeks, but we're seeing a very strong amount of interest among our customer base. This is exactly what they want.

Our next question today comes from John DiFucci with Guggenheim Securities.

This is Lawrence Vensko on for John DiFucci. You've communicated your initiatives related to the go-to-market strategy with the hiring of hunters and experienced specialists to support new business sales and security and compute. Can you just walk us through how you're thinking about the hiring of additional reps for the remainder of this year? And how should we think about the ramp period of these sales reps before they become fully productive?

Yes. We've made a lot of progress in the go-to-market transformation, and that will be continuing through the early part of next year. I would say by the time we get into Q2, a lot of the transformation will be done. There will be continued hiring from now through at least the first half of next year to have increased sales capacity for hunting, both in security and obviously also in compute.

So that's an ongoing effort, but the transformation part will be largely done by the beginning -- towards the beginning of next year.

And our next question comes from Rishi Jaluria with RBC.

Wonderful. Great to hear. So a lot of the momentum, especially on the compute side. Maybe two questions from me.

I wanted to first start with -- you talked, Tom, about some of the deals that you're signing with the hyperscalers and where they're using you for more edge inferencing. At the same time though, as we know from all the hyperscalers, everyone is suffering through capacity constraints right now and everyone is trying to find any resources wherever they can as we think about just advancing AI on both the training and inferencing/reasoning side. So maybe help me understand what gives you confidence that as we get through this capacity constrained era, regardless of how long it lasts, that Akamai will still be well positioned to benefit from that.

And that's not something that some of the hyperscalers or partners might think about bringing in-house as the opportunity materializes itself, especially with edge inferencing and more capacity gets built out? And then I've got a quick follow-up.

Yes. Akamai has a unique platform. Nobody is like us. We have over 4,000 points of presence.

We're in -- already in 700-plus cities. And that's unique. And we already support our Edge Worker solution, our function of the service in every location. In fact, one of the hyperscalers is using us for ad market, to get their ad logic a lot closer to users, another hyperscaler using us for API orchestration again, needs to be fast and close to users.

We talked about our managed container service. A third hyperscaler is using our managed container service for their media workflow, and again, because it's closer to users. So it's not a capacity constraint issue. It's not that the hyperscalers have run out of capacity.

Certainly, that's not the case. It's because our platform is different and we can make their logic, their compute logic run faster for users because it's closer. And obviously, we compete with their cloud businesses to win that business, but it's because of our better performance. And the good news is we don't have to go deploy 4,000 new reasons or start new deployments in 700 cities because we already have this distributed platform.

We're augmenting several of the regions that we've talked about with the new Blackwell 6000, and that's pretty exciting. And we will continue to do that as we scale that business.

Yes. Understood. No, that's helpful. And then maybe if I then shift to -- just thinking about the API Security business.

Obviously, you've done well with that. In addition, just as we think about kind of the evolving paradigm in applications, right, shifting to agents and multi-agentic systems. And obviously, we're seeing the rise of things like MCP and A2A as a way to bring those altogether. Are there opportunities to take what you're doing in API security today and start to extend it now into these new kind of Agentic protocols?

Absolutely, and we're already doing that. For example, of API Security and detecting the APIs, detecting the new AI agents and apps that the shadow AI that enterprises have running and don't know. And then, of course, to protect that with our new AI firewall service. And this is one of the reasons that we're so excited about our API security business.

So not just to protect the legacy APIs, but the new Agentic web and to protect -- and to identify and protect all those new inferencing applications.

And our next question today comes from James Fish with Piper Sandler.

Interesting stuff on the compute side. But how should we think about the required CapEx for inferencing here and relationship you have now with NVIDIA? Has that evolved over the last year or so? And for you on that point, how should we think about compute gross margins here moving forward over the next year to 2?

Jim, good questions. So we've done an initial deployment with NVIDIA. We're in about 17 cities or so, and we've got that up and running. That was in our Q4 CapEx.

It will be informed by demand. And what we're seeing is initially some customers coming to us with some pretty large request. So the CapEx will very closely be followed by revenue, and it will be informed by demand. So we had given you sort of a metric of about $1 of CapEx as a $1 of revenue.

It's about the same here. It could be a little better depending on utilization. As far as margins go, it will be very similar. I would expect obviously, as we do a deployment, let's say, we get some orders for $50 million, $100 million, whatever it may be, and you're putting out a little bit more CapEx for further down the line -- pipeline stuff.

It'll be a little inefficient at first. But once it gets to scale, I would expect to see similar gross margins to what we see in compute and maybe even a little bit better just given the scarcity in the marketplace. So you could potentially have slightly better margins. But we also expect to get pretty good operating leverage and scale out of it as well.

So as we get -- as we scale up, I expect us to get -- help the overall gross margin of the company as we get to scale.

Got it. And going back to the go-to-market side of things. This quarter did seem to have a lot of callouts around, I'll say, cross-sell or packaging across all 3 segments. Is there a way to understand what incentives you're giving to your sales team?

Or what percentage of the business is whatever you want to call it, ELAs, others call it pool of funds. What percentage of customers are using all 3 segments at this point?

Yes. Good question. So I would say one of the things we did and what we're seeing in the field this go around here this year is we incented longer-term deals. So we're definitely seeing an elongation of our sales cycle, which is good -- not sales cycle, but our customer average length, which is good.

So we're seeing longer-term deals, larger deals, et cetera. And you'll see that reflect in the RPO metric that will come out tomorrow in the queue. So that's one of the drivers. We're also seeing larger deals, not necessarily pool of funds or ELAs.

We do have a few of those, but those are necessarily drivers. We are seeing the adoption of compute definitely pick up in the installed base. So I don't have a metric to give you today on what the percentages that use all three, there's a decent amount of customers. I'd say we have some compute-only customers, but largely speaking, most of the customers are either a security customer or a compute customer.

About 74%, 75% of our customers are both security and delivery customers. So that's been pretty consistent over the years, maybe come up a little bit. But yes, we don't have those -- necessarily those pool of funds deals or ELAs where you've got a big commitment without product specifically addressed or volume against a particular product line.

And our next question today comes from Gabriela Borges with Goldman Sachs.

I wanted to follow up exactly where the prior commentary left off. So in terms of the potential phases of inference deals, Ed, I think you mentioned off hand there in the order of magnitude, $50 million to $100 million. I'd just love to hear a little bit more about that. Do you think that the pipeline can support or does the pipeline already show deals of that sort of order of magnitude because I could see how that could be a meaningful contributor to your growth algorithm into next year?

Yes. What I was saying there was, let's say, if you had a large -- because we have had some -- interested in some fairly large deals. If you had a deal of that size that you would buy more CapEx than that. So let's say, if I got it in order for 50 to 100 or something along those lines, I'd probably be buying more CapEx because there's more demand to follow.

But the point I was trying to make there is that we are seeing some customers reach out to us for some pretty sizable deal sizes in terms of larger than what we typically see in compute today. So it would be -- I'd say, just in general, just going to be larger deals to start for sure.

Yes, super interesting. The follow-up I have, either for yourself or for Tom is on the delivery business. You're putting up the stabilization and the growth rates that you've been talking about for a couple of quarters now. Remind us, is there idiosyncratic opportunities when the cohorts come up for refresh, depending on the year that help influence those pricing dynamics and remind us why pricing is more stable now than it has been in the past?

Yes. So good question. We will call out generally when we have -- we've got today now six customers that are 1% or greater of our revenues. So we don't have a ton of concentration risk.

But when those 6 or our top 10 as they come up for renewal in 1 quarter or within a 6-month period, that will definitely have an impact on revenue. We don't -- we didn't have that this year. We don't expect that next year. We just have the normal revenue renewal cycles that we typically have.

We are pushing and incenting our sales reps for longer -- longer contract length and we are seeing that, which is good, including with some of our larger customers, which is good as well. As far as the pricing dynamics go, we have seen some stabilization in the larger media deals where you see probably the biggest impact on revenue. Still some price pressure in sort of the larger base, if you will, but nothing that's out of the ordinary as a matter of fact, it's a little bit better than what we've seen historically. And in terms of what the drivers are of that, I think it's just -- there are fewer competitors in the marketplace.

A lot of them have gone out of business or in some cases, just exited the business if they're an existing different company that's not just focused on delivery. So that it may have something to do with it as well.

And our next question comes from Frank Louthan with Raymond James.

So it's been a pretty good year for delivery overall. Anything really driving that and anything early that you see in the trends in Q3, to give us an indication of how that seasonality is shaping up. And then with the larger contract deals you're getting with customers, any risk to the sales cycle along dates?

Yes. Usually -- so on longer sales -- sorry, I keep saying cycles -- I mean longer contracts, no, it doesn't necessarily elongate the sales cycle with existing customers. With newer customers, obviously, your sales cycle is a bit longer, but not with existing customers, no. In terms of the dynamics of the business, Q3 typically is a little bit lighter on the seasonal quarter for delivery, just given the dynamics of content, sports seasons, vacations, that sort of stuff.

So we saw kind of a normal pattern there. But traffic growth is probably the biggest driver coupled secondarily with the pricing declines have moderated consistently throughout the year. So it's really a combination of the two.

And our next question today comes from Sanjit Singh with Morgan Stanley.

Congrats on the solid results. I wanted to go back to the compute business, and it's great to see CIS accelerating. In terms of that other $100 million in that portion of the business, I know there's headwinds around the storage piece and some -- I think there were some video optimization close that you guys were transitioning to our partner. In terms of when does that potentially stop being a headwind to overall growth?

Just to have an update on that portion of the reference.

Yes. Those would be in our other cloud compute applications segment. And that's not really the focus of the business. There's still some more that will happen there, but more or less that was flat quarter-over-quarter.

It's not where we're investing, not where we'll see the growth. I think you want to focus on the CIS, the Cloud Infrastructure Services, that's where all the excitement is and where all the future potential growth is. And so the -- in fact, going forward, we may even just separate the two and report on CIS because OCA is pretty small, pretty stable. And the big driver of our future growth is Cloud Infrastructure Services.

And that's where we have our products like Edge Workers for Function as a Service, and 4,000 POPs, manage container service that was being used by a hyperscaler for their media workflow and AI. So Akamai inference Cloud with huge potential growth. And that's all part of Cloud Infrastructure Services. So probably that's what you want to be thinking about when you think about Akamai Compute.

Yes. So -- and that's what we're looking at as well. I just want to get a sense of when -- maybe when some of the revenue headwinds start to fade. But fair enough.

On the Inference Cloud opportunity, what do you sort of envision? Is there a security attach opportunity associated with Akamai Inference Cloud and love to see -- care about how you're thinking about the security attached to Akamai Inference.

Yes, absolutely. And that's a great question because as you're putting these applications and models out there, they got to be secured. In fact, they have even greater vulnerabilities than a normal application or API would have. And so you're going to need API security, you're going to need like an AI firewall.

And those are things that we have market-leading solutions for it so that we can build that around your inference engines and your models that are on Optimize Cloud.

And our next question today comes from Fatima Boolani with Citi.

Tom, I wanted to ask you a big picture question. As we think about the mix of traffic and let's just call it your traffic estate that runs through your pipe. When you think about the mix between classic video delivery and OTT versus enterprise, but now maybe even AI and some consumerized AI applications potentially driving uplift there. I'm curious how you're thinking -- well, what the state of affairs is today from a traffic mix perspective with the rise of AI and bots.

And how should that modulate over the next couple of years and thinking about how that dovetails into your delivery and CIS business. Would love your perspective on that. And then I have a follow-up for Ed, please.

Yes. Interesting question. Today, the vast majority of the traffic would be video, either on-demand or live and software downloads. Now as you think about the future, you're right, sites that -- by commerce sites that might not have had any video or much video in the past, they're already thinking about how to make the entire experience be immersive with video.

So that as you go to a page, it starts with a video of you wearing something they think you'll like to buy. And that does increase the traffic. Also, even the traditional video, live sports. As we talked about, we already have a customer that -- the feed that I see when I'm watching the game is going to be different than the feed you see or things -- it will be customized to the person.

And so AI is going to be used even to watch traditional video to give a better, more personalized experience. And who knows if you ever get people wearing devices that give you augmented reality, well, that drives a lot of new traffic. So I do think that you're right that there is a reasonable prospect that as AI becomes more prevalent that it will impact the traditional delivery business in a way that will be favorable to Akamai.

And Ed, this is a back to basics question, piggybacking on some of what you discussed earlier. But could you just walk us through the relative high-level gross margin and gross profit profile of the business from a segmentation perspective. And really, the spirit of the question is you've seen very nice operating leverage in the business in spite of the fact that I would have thought that the delivery business is perhaps got the most inferior gross margin profile relative to the other segments or revenue segments rather. So I would love to kind of get a quick recap of the relative gross margin profiles and some of the puts and takes, especially as it relates to some of the CIS business and the CapEx requirements that you talked about earlier.

Yes, sure. So I'd say, we had shown some margin back a couple of years in terms of the 3 segments with security. And from a gross margin perspective, kind of high 80s. Compute was in the low 70s and delivery is probably high 60s, if I'm remembering it correctly.

It's probably still in that sort of ballpark. And I think the business in general will run in the kind of low 70% gross margins might be down a point or 2 as we're building out scale for -- you got a little bit of a timing issue between the demand and the revenue and the build-out because you have 2 pieces of the build-out. You've got the colocation where you're -- especially with AI Inference will be buying more -- larger colo buys, so you have some unfavorable accounting potentially. So you might have a little down trend in gross margin and compute for a bit.

But we do think you can get to that sort of low 70s gross margin. We are seeing from a CapEx perspective, even with the AI Inference and what we're selling with the AI Inference Cloud, that dollar of revenue to dollar of CapEx is a reasonable proxy for what we're seeing. And like I said, it could be a little bit better with the GPU as a service because there is a scarcity there. So there's a pretty decent market price set for that today, but that could be a little bit better.

So I do think that, overall, you get good leverage because our sales force, the way we're going to be designed, you've got some specialists, but it's reasonable in terms of the specialists and our sales force will be able to sell everything and bring specialists and so we should get good operating leverage across the entire business. So it's not just delivery that gives you good operating leverage, which it does, but it's all 3 products that will give you good operating leverage.

And our next question today comes from Jonathan Ho with William Blair & Company.

With CIS, are these mostly sort of new compute and capacity deals that you're winning? Or is there also sort of a growth coming from existing workloads that are being migrated onto CIS? And related to that, is there may be an opportunity to benefit from outages at AWS and Azure as customers look for greater resiliency?

It's a combination. But the outages you raise is a really important point. And people don't think about it very much. And this is important whether you're buying compute or delivery or even security.

In fact, maybe even more important in security. Our goal at Akamai is to have five 9s of reliability. And that means that over 2 years, the site or the app is down less than 10 minutes collectively from all causes, including attacks. And we're achieving that today, and we know that because some of the world's major banks, the regulators, want to see Five9. And we put a tremendous amount of investment into our platform to make sure that when we update metadata or software or a customer updates their metadata, it doesn't have some unintended consequence that blows up the platform.

And we see what happens with our competitors who don't make that investment. And for example, in security companies that we compete with where some of them, they're down for an hour every quarter, and that's just a disaster for a bank. They can't survive like that in today's world. So reliability is critical.

And that's an area that really is a strength for Akamai. And so I think that's super important. That's a great call out.

And just maybe as a follow-up. When we think about your security business, can you talk a little bit about the penetration rates for opportunities such as segmentation and as well as how your AI security products are doing?

Yes. So there's a lot of room for growth, a segmentation and API security. And also, as we talked about earlier with API security, get a whole new market around the AI Inference engines and models and agents that are going to need special security. Obviously, it's early days on our specific protection for AI firewall, but very strong interest in the customer base, hundreds of prospects and lots of proofs of concept and starting to get the first customers now adopting the solution.

And I think that will be a pretty quickly evolving landscape in terms of protecting the models, the inference engines and the agents.

And our next question today comes from Will Power at Baird.

Okay. Great. I guess two questions. Tom, maybe starting with you.

I guess it would be great. I know you've touched on this a fair amount. As I think about the Akamai Inference Cloud and the NVIDIA partnership, I wonder if you could just speak to the medium, longer-term strategic importance of it. Is it principally access to black well GPUs?

Or are there other parameters and facets of the partnership to be aware of anything on the go-to-market side, et cetera? Then I have a question for Ed.

I think the really important thing is it's providing very strong compute capabilities to support AI close to the users, the data, the devices, the robots and the agents, and that's what's unique about the offer. So you're combining Akamai's distributed platform, which is the most distributed by far in the world with leading GPU capability. The new 6,000 are very powerful. You can support models with hundreds of billions of variables.

They can do very cool things that weren't possible before, literally like showing a user who comes to the site in the site in a video. Very cool stuff. And that's unique, I think, with Akamai. And we do have a good relationship with NVIDIA, and we are working together in terms of commercializing the capability with customers and the ecosystem.

Okay. Great. And I guess, Ed, nice upside on operating margin performance and it sounds like largely expecting that to continue into Q4. So I'd just be great to get any color as to kind of what's driving the upside relative to prior expectations. And kind of this 30% adjusted operating margin level, is that kind of the right framework to think about as we kind of move into next year?

Yes. So we'll give you guidance for next year in February. I'd say execution, I mentioned that at the top of the call. Some of that's driving additional revenue.

Some of it is just -- even with our development efforts and the capitalization of labor is a good gauge for productivity. That was a bit higher this quarter. So we were more productive there. The team has done a nice job even in procurement with our -- some of our vendors in terms of getting better pricing.

We're modernizing some of our back office, so we're able to retire some older systems and consolidate on to one. Oracle is a good example of where we're consolidating on to. We've got great execution with our team that's building out the network in terms of getting better pricing on co-location and bandwidth and that sort of stuff. So I'd say it's just good execution across the board.

And our next question today comes from Patrick Colville at Scotiabank.

I guess one quickly for Dr. Tom and then one to Ed, if possible. So Dr. Tom, I guess, my question for you in regards to the NVIDIA partnership, there was some releases last year and Akamai introducing NVIDIA GPUs out of the Edge. So just help us understand what is new this year in late 2025 versus last year with this NVIDIA partnership.

It's much deeper. And now we're deploying the Blackwell 6000, and that's a huge leap from where we were with the 4000 in terms of capabilities, and we're deploying them much more broadly, and a much stronger partnership and relationship. So it's a world of difference and that enables the Inference Cloud and all the applications that we talked about.

Okay. Crystal clear. And congratulations on that exciting partnership. Ed, if I may, just a numbers question.

I mean, the first caller kind of asked you about your soft guidance for the different business lines. I think your answer, if I was not mistaken, was 10% for security, just under 15% for Compute. So if I understood that rightly, that implies that delivery probably takes a leg back down again in 4Q. Am I thinking about that the right way?

And if so, is that conservatism? Or is there something that we should know about as to why growth in delivery would inflect back down?

Yes. We gave you a pretty wide range there, and delivery is hard to call in Q4. So I wouldn't read it as we're expecting anything negative necessarily with delivery. The seasonal aspects of the quarter don't really manifest themselves to around Thanksgiving. So it's hard to say what the retail season will look like and what the sort of end of year media season will look like as you get new devices online.

So there's a variety of outcomes you can get this quarter. And yes, what I said was we should get to about 10% for Security, a couple -- a little bit below 15% on Compute, but that actually bodes well for next year because it's really just a timing issue and then delivery is sort of the fill in. So depending on where you peg your model on that range, you'll get a variety of outcomes for delivery.

Thank you. And our next question today comes from Rudy Kessinger with D.A. Davidson.

This is Andres Miranda for Rudy. Coming back to the beginning of the call, you said that you have now the 3 larger cloud providers using CIS. That implies to us that, that wasn't the case before. Can you just confirm that? And if that's the case, did you just sign one this quarter? And what is the upside moving forward? How should we think about the 3 large cloud providers.

I didn't completely get the question. Can you repeat the question that you're asking?

Yes. So like at the beginning of the call you said you had the three larger cloud providers now using CIS. Does that imply that, that wasn't the case before? So did you just sign one of them in the quarter? Or what is the upside moving forward for CIS?

Good. We signed the third -- we just signed the third one. And the first one signed a much larger contract. So one got a lot bigger, and one is new. And so now we have all three. Is that what you're asking?

Yes. Thank you.

And our next question comes from Tomer Zilberman with Bank of America.

I actually want to go back to Security and talk about the demand you're seeing there. If I take the commentary from some of your peers, they're talking about an acceleration in the underlying demand environment, but when I look at your trends, you've kind of been growing 9% to 10% the last few quarters and you called out 10% for the year. So I just wanted to see kind of the puts and takes of what you're seeing in terms of demand and how you're thinking about that as you go into next year.

Yes. So I think what we're trying to highlight for you today is we're seeing significant demand for our API Security and our Guardicore Zero Trust platform security products. API Security, in particular, if you go back in time, we closed our acquisition of Noname back in June. So this is the first quarter of full organic year-on-year growth.

And we more than doubled. So we're going to exit at about $100 million run rate. So we're seeing an amazing demand for API security and continued strong demand for Guardicore. So -- and also you have -- as Tom talked about, with API Security and what's happening with the Agentic Web and the opportunity for future growth, if you kind of look out into the future, there's a lot of runway for API Security and the penetration rate inside of our base for both products is relatively low, and we've got a great track record of getting very high penetration.

So we've got some products that are been around for a while that are still growing, but it's not growing as quickly. So I think you missed the opportunity, if you just focus on the overall number. You're really going to look at the two fast-growing products, the underlying demand for those products and also our position in the market, we're very well positioned in the market with leading market leading products.

And our next question comes from Jeff Van Rhee with Craig-Hallum Capital.

This is Daniel Hibshman on for Jeff Van Rhee. Congrats on the quarter. Maybe one just to open up on the delivery trajectory and what's being expected there. Now, is this a sort of line where as always the growth rate is kind of always be in constant flux just based on the market dynamics that year?

Or do you think the trend line we're stabilizing around here kind of in the single-digit growth -- a single-digit decline is sort of a trend line to be expecting into the future? Just kind of long-term vision on how you expect that to behave secularly.

Yes. Good question. So there's always seasonality just in the trends on traffic on the Internet. Q4 is always a larger seasonal quarter.

You've got the return of college football and the NFL and you've got new content for new TV shows and that sort of stuff. So that always drives more traffic at new devices coming online. You've got a big holiday shopping season. So that's very typical to see a jump in traffic there.

Typically, Q1 might be a little bit lower than what you saw in Q4. Q2 generally in line with Q1. And then Q3 tends to be a little bit seasonally softer just traditionally because of not as much sports going on. You don't have this -- you've got no new shows coming out and people are on vacation, not using the Internet as much. So I don't see any change in that sort of general trend on the Internet. As Tom talked about, with these AI agent applications could create more video traffic, just more API traffic.

So there's a possibility for a leg up there. We've had weak gaming over the last couple of years, some big titles are in the backlog. That actually helps console recycle refreshes help as well. So we're due for one of those in the next year or 2. So I think the demand trends could get better over time.

But we've been pretty cautious with delivery because we -- occasionally, you can get surprised. But we're very pleased with what we're seeing, and we are kind of getting back to that where we had projected the business to be kind of flat to down single digits is certainly what we've delivered this year. And if the trends remain constant in terms of what we saw this year, it's possible we could do that again.

And then just one other for me on the share repurchases, just any methodology or strategy change to call out both in regard to the record buybacks we saw in the first half. And then it looks like -- I just -- out of curiosity was looking, it looks like this is the first quarter. Akamai hasn't bought back any shares since it looks like a quarter back in 2009. So typically just a very, very steady cadence. Is this a little bit of a shift to buying more opportunistically in more concentrated amounts?

Or just any thoughts if there's any change in the thinking there?

No. As Ed talked about earlier, no change in our thinking or strategy. And in fact, we bought back more shares or spent more on shares this year than ever before. So yes, we didn't buy back shares in Q3, but we bought back a ton this year.

And our next question comes from Jackson Ader with KeyBanc Capital Markets.

The international versus the U.S. script has slipped a little bit here in the last couple of quarters. Just curious which segments were strong or maybe stronger than you expected in the international segment? And just traditionally, when we see international strength versus U.S., which segments should kind of be flagged in our minds?

Yes, good question. And you're right, it did slip a little bit. One thing that did aid to the U.S. growth last year or the '25 was some of the Edgio contracts were more concentrated in the U.S. So those are not starting to anniversary.

So that's a piece of it. But internationally, I would say in APJ in particular, we are seeing that sales team really embraced compute in a way that they're sort of leading the charge as far as signing up a lot of large compute deals and embracing security as well. So it's kind of strength across the board there. APJ, in general, has been very, very strong for us.

EMEA has been strong. Some of the country growth that I've seen across Western Europe was a little bit surprising in terms of a bit healthier than we've normally seen. So I'd just say, across the board, international has always been good for us. We're seeing it sort of pick back up again.

And I would say compute and APJ is probably the one thing that I would call out in terms of strength.

Okay. Great. And then a quick follow-up on the Inference Cloud. You mentioned, Tom, the fact that you're close to the robots, right?

You're close to the user, which I understand. But I'm just curious, I mean, is there -- would there be other things outside of kind of what I think of as like almost the Internet of Things use case that might also trigger more inference at the edge. Like if a rise in small language models were to happen or diversity of silicon. Are there kind of headlines we should use as word association that would be positive for the Inference Cloud when we see them.

Yes. I think -- well, I don't know about catchwords to look at, but pretty much everything is going to be powered by AI. I think how the web works is going to change. Everything is going to be model-based, how you interact with it will be different.

There'll be applications people haven't even dreamed about yet. And a lot of these, especially when there's a bot that's doing something important like car or humans interacting in some way, you're going to want the thing to be in real time. And by that, I mean within 10 small number of tens of milliseconds. And for that, you need to be close and you're not going to want to be going far away to a big data center with a giant model that's doing a zillion things and has a lot of capacity and infrastructure that really isn't relevant to your test.

And so I do think you're going to see the proliferation of small- to medium-sized models that are operating close to the user with specific tasks in mind. And I think that's why you're starting to hear the industry leaders talk about Inference as being -- well, really the next big thing and ultimately larger than the giant models and the training and the core of the Internet. And that that's where the future of the Internet and the web goes.

Thank you. And that concludes today's question-and-answer session and today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful day.