Please note this event is being recorded. I would now like to turn the conference over to Mark Stoutenberg, Head of Investor Relations. Please go ahead.
Good afternoon, everyone, and thank you for joining us today on short notice. We have some very exciting news to share from a customer win perspective, and we will get to that in just a moment. 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 that include revenue 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 from any acquisition, geopolitical developments, and other risk factors identified with our filings with the SEC.
The statements included on today's call represent the company's views on September 24th, 2026, and we assume no obligation to update any forward-looking statements. As a reminder, we will be referring to certain non-GAAP financial metrics during today's call. A detailed GAAP to non-GAAP reconciliation is available in the Investor Relations section of akamai.com under financials. Before I hand the call off to Tom, I have two quick housekeeping items to cover. First, we have published a presentation of slides outlining the financials and timing of this new contract. You can access this presentation in the IR section of our website in both the presentations and events or quarterly earnings sections. Second, during today's abbreviated Q&A, please limit yourself to one question and one follow-up focused strictly on today's announcements. We will not be addressing questions related to our third quarter results.
With that, I'll now hand the call off to our CEO, Dr. Tom Leighton.
Thanks, Mark, and thank you all for joining us. As we announced in our press release earlier today, I am very excited to tell you that Akamai has signed the largest contract in our company's history, a commitment of $11.6 billion over seven years with Anthropic to support their accelerating CPU workload demands with Akamai Cloud's distributed AI infrastructure and software. Anthropic is advancing the AI revolution, and we are thrilled they chose Akamai's capabilities for building and operating AI infrastructure at scale. When combined with the $2.8 billion in multi-year commitments for our cloud infrastructure services that we signed earlier this year, this transaction will significantly accelerate Akamai's CIS business and overall revenue growth.
For nearly 30 years, Akamai has amassed industry-leading expertise in building and operating the world's most distributed platform for content delivery and cybersecurity at global scale and with a strong reputation for reliability, quality, and trust.
We were also pioneers in edge computing and took a major step forward with our cloud strategy when we acquired Linode's developer-friendly compute platform in 2022, and then integrated it with our world-leading capabilities for delivery and security and our unique distributed platform with more than 4,000 points of presence across 700 cities in 130 countries. Over the last four years, we have made major investments to upgrade Linode's core compute and storage infrastructure to create Akamai Cloud, a leading cloud platform that provides the performance, security, and reliability required by the world's largest enterprises and their most critical applications. We have scaled and deployed the platform into dozens of cities around the world, all interconnected with our global network fabric, which is one of the largest in the industry.
As a result of this hard work, we have made Akamai the cloud company that powers and protects an AI-driven world.
Our cloud platform extends high-performance cloud computing from the core to the edge, enabling organizations to build and scale next-generation AI applications while also providing comprehensive multi-layered security to safeguard enterprises against evolving cyber threats. Customers are using our cloud infrastructure services today for a wide variety of applications, with many powered by AI. Examples include conversational voice agents for customer service and personal assistance, translation for local language and cultural etiquette, speech recognition for subtitle generation, photorealistic image generation for personalized commerce, live transcoding and ad break detection, robotics and physical AI, site reliability and root cause investigation, real-time virtual world generation and rendering for simulations, real-time AI video intelligence to transform raw CCTV feeds into actionable insights, strategic findings from complex gameplay data in seconds instead of hours, and B2B agentic DevOps assistance designed for large-scale enterprise workflows.
Enterprises choose Akamai for their cloud infrastructure needs because of our low latency and global scalability, our proven ability to manage and scale distributed systems, our decades-long track record of reliability, our global network fabric, our market-leading security services, threat intelligence and expertise, our ability to get the hardware and space around the world to support our contracts, our talented and experienced technical team that puts the customer first, and our reputation as a stable, trusted and dependable partner. Akamai Cloud spans the full spectrum from core to edge and training to inference, with dozens of core regions in major cities around the world, hundreds of cities with edge container support, and thousands of locations for function as a service.
We plan to continue expanding our cloud platform with greater capacity and scale, with diversified hardware, and with new capabilities for agent sandboxing and security, AI gateway and firewall, model as a service, and intelligent orchestration to ensure that each workload runs on the most cost-effective hardware with minimal startup time and low latency to users and data. With the AI business we've signed this year, backed up by a very strong pipeline, we're building upon our global footprint and years of experience in serving the world's largest enterprises to enable and secure responsible AI, as we position Akamai to be the infrastructure provider for the next generation of AI-powered applications. I'll turn the call over to Ed to say more from the financial perspective. Ed?
Thanks, Tom. As Tom just outlined, today we announced a significant expansion of our strategic relationship with Anthropic, signing an $11.6 billion seven-year commitment for CIS services to support their accelerating CPU workload demands. Additionally, our agreement provides for the potential to expand to an additional $9 billion of revenue commitments for a total of up to $20 billion over seven years. As part of this expanded relationship, Akamai has issued a warrant to Anthropic to purchase up to 7.7 million common share equivalents of Series B non-voting convertible Preferred Stock of Akamai, which is equal to approximately 5% of total shares outstanding. The common stock equivalent exercise price of the warrants is $111.33. The warrants have a term of seven years and vest based on the size of committed revenue from Anthropic.
Approximately 3.1 million common share equivalents, or 2% of shares outstanding, are expected to vest as part of today's announcement and related to the $11.6 billion commitment. The remaining 3% would vest as Anthropic commits additional revenue in commercial agreements, with approximately 1% of total shares outstanding vesting for each additional $3 billion of committed revenue, up to a total of $9 billion of additional revenue commitments. While I can't talk to all the specific details regarding the $11.6 billion commitment, what I plan to discuss today is the following.
The expected timing and amount of revenue we expect to generate from this contract over the next several years as the business ramps, the expected capital expenditures and expected timing of the CapEx, some details on colocation required to power deals of this size, and finally, accounting treatment for the warrants and other items for you to consider as you update your models. These points I'm about to cover are also detailed in the supplemental slides we published today to the IR section of our website. Starting with revenue, please note that the fair value of the warrant will be deducted from the revenue ratably over the life of the contract and is included in the $11.6 billion total. First, we do not expect to generate any revenue in 2026 related to this contract.
Second, we expect revenue to begin in the second half of 2027, and we expect to generate approximately $150 million- $300 million for the full year 2027. Finally, we expect revenue to continue to ramp throughout 2028 and to be fully ramped by year-end 2028, with a go-forward annualized revenue run rate of approximately $1.7 billion per year thereafter. Because of this take-or-pay structure, in which Akamai is guaranteed payment upon delivery, revenue will hold steady for the remainder of the contract once revenue is fully ramped. From a CapEx perspective, we expect to spend approximately $5.5 billion over the next two years to support the $11.6 billion commitment announced today. First, we plan to spend approximately $1.7 billion of the $5.5 billion to secure and pre-purchase critical supply chain components, including memory, in the fourth quarter of 2026.
Second, for the full year 2027, we expect CapEx to be approximately $3.1 billion to support this contract. Third, for the full year 2028, we expect to finalize capital deployments with an additional approximately $700 million of CapEx in 2028. Also as a reminder, depreciation will begin when the equipment is placed in service. Overall, we expect depreciation to be substantially in line with revenue. Finally, there is no contractual requirement to refresh or upgrade the equipment over the length of the contract. Moving to power requirements. While I also can't share specific power details for this particular deal, what I can say is that over the past year, we've announced several major CIS contracts totaling approximately $2.8 billion of multi-year committed revenue with various leading enterprise customers. With today's $11.6 billion announcement, our year-to-date signed total contract value reaches approximately $14.4 billion.
That combined total, once fully ramped, is expected to generate approximately $2.2 billion in annual recurring revenue. We believe that the required power for all of these deals combined will be approximately 95 MW- 105 MW, which averages out to roughly $22 million in annual revenue per megawatt of power for the entire portfolio. Please note, as we bring new sites online, we typically anticipate a 60-to-90-day ramp period before they reach full revenue potential. Therefore, margins will likely experience temporary pressure over the next several quarters while we ramp revenue. Before we take your questions, I want to cover a few more things for you to consider as you model the impact of this transaction. For this contract, we are required to net fair value of any warrants issued against revenue.
In addition, under ASC 606, any price escalators over the term are required to be straight-lined over the life of the agreement. Please note that the revenue projections I have provided today take into account both the cost of the warrant and any price escalators in this agreement. As a side note, under ASC 842, we are required to treat co-location costs the same as revenue. Any cost escalators would be factored into any guidance we provide in the future. Additionally, because we are using substantial cash to fund CapEx, please adjust your financial models for the lower interest net income. We recommend referencing my earlier comments along with the CapEx schedule on slide four for the amount and timing, and please use a 4%- 4.5% yield on cash balance as you estimate the lower interest income from the cash used to fund the CapEx.
Your models also should reflect an adjustment to our share count to account for the issuance of the warrant. Once we expect a tranche of warrants to vest, we will include those shares in our calculation using the treasury stock method. The treasury stock method assumes that the warrant that is expected to vest is exercised, and that the proceeds from the exercise are used to buy back shares at the current stock price to offset dilution. More dilution will occur if the stock price increases and if we sign additional revenue commitments with Anthropic. With that, I will wrap things up, and Tom and I are happy to take your questions. Operator?
Thank you. We will now begin the question-and-answer session. To ask a question, you may press star then one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw the question, please press star then two. In the interest of time, please limit yourself to one question and one follow-up. The first question will come from John DiFucci with Guggenheim Securities. Please go ahead.
Hi, good afternoon. This is Lawrence Vensko on for John DiFucci. First, just wanted to say our congratulations to the entire Akamai team on this huge CIS win. Ed, maybe a question for you. Would you be able to provide us with a little more color on the profit metrics of this deal? You disclosed that CapEx is a little less than half the value of the deal, though we assume the useful life of the CapEx might go beyond the duration of this deal as it is defined today. You mentioned it a bit earlier, but if you could, what might be the approximate gross margins over the entire life of the deal? Thank you very much.
Yeah. Hey, Lawrence. Thanks for the question. I cannot get into the specifics of this deal or any one deal in particular, but I did provide a lot of information, including the total power. The way to think about cash gross margin, the largest cost is your co-location. You have the total power number across that entire portfolio, so you can sort of back into that. The majority of all of this across all the portfolios is in the U.S., so that is where you can assume the cost of colo, $3 million-$4 million a megawatt, something in that range. It is a pretty decent place to put the model. Other costs, there will be some warranty costs, a few other things, but colo is generally the major cost there.
From a depreciation perspective, since we do not have a requirement to refresh the hardware, you can assume seven years for depreciation for this particular deal. We have servers in our network where we get greater than seven years. So obviously at the end of this contract, if we can continue to use the machines, we certainly will. But I think that is probably the right way to think about your model. That is pretty much all I can say in terms of general direction for overall margins, not only for this, but for all deals in particular.
Got it. Thank you very much, guys. Congrats again.
The next question will come from Samik Chatterjee with JP Morgan. Please go ahead.
Hi. Congrats from my side as well, and thank you for taking my questions. For the first one, can you just elaborate on how to think about the $9 billion expansion opportunity? Are there certain milestones you need to meet in terms of execution on the first part of the contract to get that expansion opportunity, and is that also all CPU-based, and I have a quick follow-up.
I would think of that as an option to do additional business where there's an incentive in place where there's additional warrants that would vest if they were to do additional business. There's no dependency for us to do anything or milestones or anything like that. That's just purely looking at additional opportunities over the life of the relationship. To the extent that we find opportunities that Anthropic is interested in us bidding on, and we find an opportunity, we'll certainly tell you about it, but there's no connection in terms of the deliverables of the first $11.6 billion to that. It's just really more of an option for us over the future to do more business with them over time.
Got it. My follow-up, you've been talking about ARR to CapEx, the best way to sort of think about it as more like 0.5: 1. For this deal itself, it seems more closer to 1/3 on that front. Are you able to elaborate? What are the drivers that drive that sort of ARR to CapEx metric and seems to be a bit of deviation from what you've been sort of suggesting as a more longer term trend for most of the deals that you sign?
Yeah. I would say that half to a dollar pretty much holds true for the majority of the number of deals, the volume of customers, et cetera. For these larger deals, though, there's a lot of things you have to take into consideration. Number one, this particular deal is CPU, so you get much better flow through in terms of the efficiency on power. Also, it's a seven-year deal. When you look at the overall economics of a deal like this, you take all that into consideration. If someone were to go buy, say, a smaller contract from us, the yield would be much higher. The pricing would be obviously different because obviously the size and scale of this is pretty substantial.
We factor that in, and occasionally, if we can do a deal like this at this level, we'll do it, provided it fits within our margin guidance, and this certainly does.
The next question will come from Sanjit Singh with Morgan Stanley. Please go ahead.
Yeah, thank you, and congrats on this nice strategic deal. In terms of the financing of the $5.5 billion CapEx, is that sort of implied with the warrant structure here, or is there additional financing needs that the company's going to have to execute to deliver the $5.5 billion over the next couple of years?
Yeah, good question. So keep in mind, if you look at the schedule in my prepared remarks, the CapEx is spread out over two years. So we don't have a bullet, if you will, in terms of having to spend it all up front at once. It'll be spread out over time. And the business is very profitable, obviously. We have $4.6 billion in cash as of the last report that we reported last quarter, and we also have a revolver for $1 billion. And to the extent that if there's additional capital needed, we've always been good stewards of our shareholders, and if we need additional capital, we'll certainly have a discussion with our board and with our senior management team and do what we think is best for shareholders overall.
The next question will come from Param Singh with Oppenheimer. Please go ahead.
Yeah. Hi. Thanks for taking my questions. For my first one, I saw in your press release you mentioned that the new deal was for CPU workloads. I want to make sure the $14.4 billion of commitments you are talking about, are they all CPU architecture or is there some sort of GPU architecture also underlying it? Then I had a follow-up. Thank you.
Yeah. So this particular deal, the one we announced today, is all CPU. The $14.4 billion, which is a mix of customers and what we have talked about, is what we consider our large multi-year revenue contracts. That is a mix. That has got some CPU, that has got some GPU in there. So it is a mix of everything.
Understood. Thank you so much for that. For my follow-up, 100 MW is a lot, and I am glad you are expanding at a very good pace. Maybe you could give us some color on any commitments you have gotten from your colo providers. Are they new colo providers? Are you looking at having your own lease, and is this behind the meter or grid power? Any kind of clarity on that 100 MW would be really helpful. Thank you.
Yeah. Sure. So first of all, we are very comfortable with the portfolio and pipeline we have for colo. We are very unique, I would say, in terms of how we go about building out 100 MW of power, for example. We have many, many providers we work with, and we are able to get agreements for multi-years for say, 10 MW- 30 MW in certain locations. In some cases, it might be a little bit less. But we are very comfortable with what we can put together, and there is no dependency for us to go build. We are working with our colocation providers. So this is spread out among numerous providers, and like I said, we are very confident in our ability to secure that. Some of it is already been secured.
Think of it as what we do on a regular basis, but just at a slightly greater scale in terms of the size that we would be ordering from some of our colo providers.
The next question will come from Jackson Ader with KeyBanc Capital Markets. Please go ahead.
Hey, guys. Thanks for taking our questions. The first one I had was, Ed or Dr. Tom, did you guys talk about how many different sites that once you actually get fully ramped by 2028, how many different colocation sites this would actually, the footprint would actually be?
It would be numerous, but we haven't disclosed the number.
Okay. I think you mentioned that it was going to be mostly based in the States. Ed, when you talked about this fitting into your profitability profile, the profitability profile you gave was mostly for GPU and the inference cloud. If we're more efficient maybe with CPUs on a power consumption basis, do you see yourself thinking maybe more CPUs might be kind of the way forward for incremental margin improvement versus the inference cloud? Thank you.
Yeah. It's a good question, and obviously what we gave you the numbers for, and you can sort of put it all together, and you'll see it's a pretty attractive portfolio. It is a mix, but obviously CPUs have a different dynamic in terms of you can get a lot more CPU, therefore generally more revenue per dollar of megawatt of power. So yeah, I'd say in terms of demand going forward, we see demand for both. Obviously, there's a lot of talk in the industry about how much CPU goes alongside these big AI deployments. There's an awful lot of CPU that's needed to run all this. It's not all just GPU. Look, I think depending on the mix of business we have, you can get margin expansion also through GPU, depending on the pricing and the efficiency there. Not all GPUs behave the same either.
Again, this is really good business for us. I'm very happy with the entire portfolio we've signed up this year. It's, I think, a great mix of business that we have with customers and with both GPU and CPU.
The next question will come from Rudy Kessinger with D.A. Davidson. Please go ahead.
Hey, thanks for taking my questions, guys, and congrats on getting this deal done. I have a two-parter because the answer to the first part maybe impacts the second part. But the additional $9 billion opportunity on this deal, would that require additional CapEx, or did the $5.5 billion of CapEx suffice to serve that additional $9 billion of revenue? Then just based on that answer, I guess it might change the second part, but the second part is getting a lot of questions on just the ROIC here of the total CapEx outlays. Obviously, the operating margins from all the math I'm doing look to be about 30% or so, based on the assumed depreciation in colo. But just talk about the ROIC on the total CapEx deployed so far for this $14.6 billion commitment. Thank you.
Yeah. The answer would be the next $9 billion, we don't know what that's going to be yet. That would be additional CapEx. Once we sign those would obviously be large enough that we would give you some color in terms of what we were doing along with CapEx and expected revenue. As far as ROIC, we don't break that out, but I think I've given you guys plenty of information to do math, not only on this deal but on all of our deals. You can see it is a very attractive return on capital.
The next question will come from Fatima Boolani with Citi. Please go ahead.
Oh, good afternoon. Thank you for taking my questions, and congratulations on this marquee transaction. Dr. Tom, and maybe Ed, I wanted to just get a sense of the motivation for the financial and investment relationship, pursuant to the warrant that is tied to this arrangement with Anthropic. I wanted to just unpack some of the motivations behind that as being part of this announcement.
Yeah, sure. The warrant actually provides incentives for future business and growth, as you can see. I think it helps align interests. Compared to the volume of the deal, it's pretty tiny. The value of a warrant at the strike price that we issued at about where we closed today, $111 or so, is about a little over $150 million. That's part of a transaction that's worth $11.6 billion. If you look at the $20 billion deal, if we were to do the extra $9 billion, that 5% warrant has a value today of less than $400 million. So you can see the financial aspect of the warrant is very, very small compared to the overall revenue to Akamai and what is a very strategic relationship for us.
Just as a related-
Just one thing to add on that, just to- I was just going to say some-
Sorry, go ahead.
Just to add on something here. Just as Tom mentioned, the value of the warrant, when you issue a warrant like this, you have a grant date, which was the day we signed the contract, so therefore, the value is set. So to the extent that there's future issuances of future vesting of the warrants, that number's already known. So you don't have to worry about, hey, the value of that's going to accrete over time, and that's going to have an impact on the revenue. It's going to have a very small netting impact on revenue going forward.
I appreciate that clarity. Then just as a related matter, just given the strategic nature of this transaction, does this preclude you from similar engagements with some of the competitors of this particular customer? Just wondering if there are some limitations in your ability to replicate the success with other comparable frontier labs. Thank you.
Yeah. No limitations at all. You should think of Akamai as working with all the major players out there in AI, including the hyperscalers, who are all customers of Akamai and all use our cloud infrastructure services. So yeah, we work with all the major players, and this deal doesn't change that at all. In fact, maybe probably helps our ability to do that.
We have time for one more question, and that question will come from James Fish with Piper Sandler. Please go ahead.
Hey, guys. Congrats. Thanks for squeezing me in. Maybe just working off of Fatima's last question there. It's a bit of a unique deal structure. First, how should we actually think if other major potential customers come here, given Akamai's attractive footprint versus just needing to focus in on executing on this massive expansion? Second, should we expect more deal structures like this with some of these larger frontier models out there? Thanks, guys.
Akamai is very good at scale. As you can tell from just our footprint today, the volume of traffic we carry, the volume of security work that we do, the number of major enterprises that we work with. So I think we'd have no problems really at all working with other major players on deals like this. You should think of us as already working with the major players in AI. Of course, it's our intention to keep growing the CIS business and Akamai overall. Ed, do you want to add to that?
Yeah. The one thing I would add here, Jim, is since we've started to do these larger deals, the opportunity set has increased. So it's actually, as Tom said, it's sort of the opposite, that by doing something like this, there's no contractual reason why we couldn't work with anybody, for sure. But you do find that folks will reach out to us that may not have worked with us in the past or some that have, that say, "Boy, I didn't know you could work at that scale. I would love to sit down and have a conversation about doing something larger than we have had ever contemplated doing with you." So this does sort of feed on itself. Obviously, we've been pretty busy here over the last nine months announcing a lot of really big and exciting opportunities.
As Tom said, we're not limited in what we can do. Obviously, there's some scarcity in the marketplace, so it does take some time from when you announce a deal to when you start recognizing revenue. But we're open for business, and we hope to do a lot more of this in the future.
This will conclude our question and answer session as well as conference call. Thank you for attending today's presentation. You may now disconnect.
Thank you.