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Good day, everyone, and welcome to the Q2 2026 Akamai Technologies, Inc. Earnings Conference Call. All participants will be in a listen-only mode. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star and then 1, using a touch tone telephone. To withdraw your question, you may press star and 2. Please also note today's event is being recorded. At this time, I would like to turn the floor over to Mark Stoutenberg, Head of Investor Relations. Sir, please go ahead.
Good afternoon, everyone, and thank you for joining the Second Quarter 2026 Earnings Call. Speaking today will be F. Thomson Leighton, Akamai's Chief Executive Officer, and Edward McGowan, Akamai's Chief Financial Officer. Please note that today's comments include forward-looking statements, which include 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 as of 08/06/2026, 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. With that, I will now hand the call off to our CEO, Dr. F. Thomson Leighton.
Thanks, Mark. I am very pleased to report that Akamai continues to build momentum and gain wide industry recognition as a key infrastructure provider for the AI-driven economy. Akamai has long been known for operating the world's most distributed platform for content delivery and cybersecurity at global scale and with a reputation for reliability, quality, and trust. Now we are leveraging our global footprint and years of experience serving the world's largest enterprises to do for the AI-driven economy what we have done for cybersecurity and content delivery. The response from industry leaders and major enterprises has been very strong. In fact, we were very pleased to announce today that a U.S.-based technology company has committed more than $600 million over four years for our cloud infrastructure services to power their robotics development. The addition of this new customer brings the total volume of the multiyear commitments signed so far this year for our cloud infrastructure services to more than $2.8 billion.
As a result of these commitments, and the exceptionally strong pipeline we are seeing, we now anticipate that Akamai's overall revenue growth will accelerate into the low teens in 2027. For investors who want to understand how the AI market is evolving, and why Akamai is such a unique and vital player in this new ecosystem, I encourage you to read the July 23 article in Fast Company by Victor Day. In the article, Day explains the role of Akamai's distributed platform in transforming the content delivery and cybersecurity marketplaces, and how a similar approach can benefit the AI ecosystem with many agentic workloads being processed at the edge, close to users instead of in massive centralized data centers. In a related blog, IDC analyst Dave McCarthy considers a world transformed by AI agents and the practical challenges of automated execution of queries against a trained model. Whereas training frontier models requires massive data centers and energy consumption, the next challenge for AI is what it will take to run those models everywhere at low latency and with affordable cost.
It is also helpful to read a recent blog by Akamai CTO Robert Blumofe on how AI inference is reshaping the cloud. Bobby's post explains why the infrastructure needed for AI agents will ultimately be a flexible continuum stretching from the core to the edge. As the market for AI moves beyond centralized AI, Akamai's strategy is to provide a unified distributed grid for AI inference. By pushing AI inference to the edge and combining it with our massive deployment of CPUs for delivery, security, and functions-as-a-service, our platform will enable customers to run agents and models within milliseconds of their end users, with the responsiveness of local compute and the scale of the global web, optimizing performance while reducing latency and cost. Customers are already leveraging our cloud infrastructure services for a wide variety of repeatable use cases. For example, an AI patent intelligence platform in Singapore shifted its inference workloads from a hyperscaler to Akamai, boosting performance by 30% and cutting infrastructure costs by 20%.
An AI-powered decision intelligence platform in Poland chose us to run low-latency game theory simulations globally with predictable costs. An enterprise data storage provider in the U.S. chose us to run their high-throughput storage observability and analytics platform. A global AI software company in India chose us to run their GenAI image creation in a $12 million win over a hyperscaler. An AI-powered communications provider in India chose us to eliminate unpredictable hyperscaler billing and accelerate their customer engagement. A SaaS media workflow platform in the U.S. chose us for high-throughput live media encoding. Looking across our business as a whole, AI is not only driving adoption and revenue growth for Akamai Cloud, AI has also been a tailwind for our security solutions. In Q2, Akamai security revenue grew 10% year over year as reported and 9% in constant currency. Security growth was led once again by strong demand for our market-leading web application firewall, API security, and Guardicore segmentation solutions.
Our WAF continued to see strong demand in Q2 from customers eager to protect against vulnerabilities that could be exposed by frontier models like Anthropic or GPT 5.5. Customers that added or significantly expanded their WAF usage in Q2 included one of the world's leading commerce sites, one of the world's leading automakers, and one of the world's largest banks in a $14 million upgrade to have Akamai secure all of their applications. We also signed renewal upgrades for security and delivery products with one of the world's largest telcos in a contract worth more than $20 million over two years. Today, we are very pleased to announce that CrowdStrike, a leading AI-native cybersecurity platform, has switched to Akamai for its web security and content delivery needs. CrowdStrike told us they were dissatisfied with the inconsistent service they received from a prior SMB-focused competitor.
We see this validation from another security leader as a strong endorsement of Akamai's enterprise security capabilities and our hard-won reputation for trust, reliability, and dedicated customer support. On the go-to-market front, we recently announced that Akamai has been selected as a strategic partner in WWT's AI Readiness Model for Operational Resilience, or ARMOR for short. This is the industry's first holistic vendor-agnostic AI security framework, and our inclusion positions Akamai as a foundational security architect for the AI factories being built by WWT and accelerated by NVIDIA. Without this collaborative security framework for AI, organizations are often forced to piece together fragmented security strategies. By aligning the Akamai security portfolio with ARMOR, we provide a methodology to protect large-scale AI clusters proactively by preventing the lateral movement of threats.
As WWT's Chris Conrad said, no single vendor can secure the AI frontier alone. Through our close partnership with WWT, we are turning the hype of secure enterprise AI into a tangible, scalable reality for customers. Akamai is also proud to be one of the industry's must-have security providers partnering with Anthropic and OpenAI to help ensure the safe and rapid deployment of AI-enhanced defenses. With our access to programs like Glasswing and Daybreak, and our participation in initiatives like the Open Secure AI Alliance, we are applying our expertise to help keep major enterprise critical infrastructure secure. As employees across all industries use AI tools more frequently, enterprises need more help to secure their workforce and prevent sensitive data from being leaked. That is why we acquired LayerX, a leading provider of secure enterprise browser and AI usage control. With LayerX, now rebranded as Akamai Workforce Protector, we are able to give security teams the deep visibility they need to see exactly how users are interacting with web content, SaaS applications, file uploads, and even raw AI prompts.
By adding this browser security platform to our portfolio, Akamai is now uniquely positioned to protect enterprises from unauthorized AI agents, whether they are operating on a user's laptop or living inside internal applications that talk to external large language models. What makes the combination particularly exciting is how nicely Workforce Protector aligns with Akamai's existing Zero Trust portfolio, including our Guardicore micro-segmentation, Zero Trust Network Access, and DNS security solutions that thousands of enterprises rely on today. Ultimately, we believe these combined capabilities will deliver a powerful unified workforce security solution that directly addresses one of the industry's most urgent challenges: securing and governing how employees, partners, and supply-chain ecosystems interact with AI. LayerX is the latest in a series of acquisitions we have made to build out our security portfolio and make it easier for enterprises to obtain more comprehensive solutions from Akamai as their strategic security partner.
Overall, we expect our security portfolio to generate more than $2.4 billion in revenue this year, making Akamai one of the largest security providers in the market. In summary, we are excited to see AI driving demand for our cloud and security portfolios, and we are grateful for our talented team here at Akamai who continue to perform extraordinary work to deliver flawless digital experiences for our customers. Our employees' dedication to our customers' success is one of the reasons why so many of the world's top brands and most demanding businesses rely on Akamai as their trusted, dependable, and reliable partner. Now I will turn the call over to Edward for more on our results and our outlook for the remainder of the year. Edward?
Thanks, Tom. Before I begin the standard review of our quarterly financials and updated 2026 outlook, I want to build on Tom's remarks. From a strategic and financial perspective, we could not be more excited about the trajectory of our business. Securing a four-year $600 million GPU services deal with a leading U.S.-based technology company focused on robotics development brings our recently announced major wins to over $2.8 billion this year. A huge validation of our platform. Beyond providing great multiyear revenue visibility, it also underscores the scale of our cloud infrastructure services business. For this new customer, we do not expect any material revenue impact for 2026 but we do expect revenue to fully ramp throughout 2027. And finally, as Tom mentioned earlier, and backed by these multiyear commitments along with an expanding pipeline, we have a clear line of sight to accelerating our top-line revenue growth from single digits this year to the low teens in 2027.
With that, let's dive into the Q2 results. Revenue in the second quarter was $1.1 billion, up 5% year over year as reported and in constant currency. Cloud Infrastructure Services, or CIS, revenue was $99 million, up 39% year over year as reported and in constant currency. This was in line with our expectations, and we continue to expect CIS revenue to meaningfully accelerate in Q4 and then further accelerate in 2027. Security revenue maintained strong momentum with revenue of $404 million, up 10% year over year as reported and 9% in constant currency. The strength in the second quarter continued to be driven by our fast-growing API security and Guardicore segmentation solutions. Moving to delivery and other cloud applications, revenue was $396 million, down 6% year over year as reported and down 5% in constant currency. International revenue was $549 million, up 6% year over year or up 7% in constant currency, representing 50% of total revenue in Q2.
U.S. foreign exchange fluctuations had a negative impact on revenue of $2 million on a sequential basis and a negative $1 million impact on a year-over-year basis. Moving to profitability. In Q2, we generated non-GAAP net income of $236 million, or $1.59 of earnings per diluted share, down 8% year over year as reported and down 6% in constant currency. These results include our expanded colocation investments, higher depreciation, and increased headcount costs, all to help fuel faster growth for our cloud infrastructure services. Our non-GAAP operating margin for Q2 was 25%, in line with our expectations. We expect operating margin to remain in the mid-20s for the remainder of this year as we continue to invest to capture the exciting growth opportunities in CIS. Our Q2 CapEx was $347 million, or 32% of revenue. Second quarter CapEx was below our guidance primarily driven by the timing of receipt of some GPUs.
These shipments arrived a few weeks later than expected following the quarter end, pushing the bulk of the planned spend into Q3. Moving to cash and our capital allocation strategy. In May, we raised $3.5 billion via two equal tranches of zero-coupon convertible debt to fund our growing CIS pipeline and for general corporate purposes. In Q2, we spent approximately $410 million to buy back approximately 3 million shares. Year to date, we have repurchased roughly 5 million shares for a total of approximately $616 million. We ended the second quarter with approximately $565 million remaining on our current repurchase authorization. However, given the strong market demand for CIS, we are temporarily pausing share repurchases to reallocate capital to support our high-growth CIS pipeline. Finally, as of June 30, we had approximately $4.6 billion of cash, cash equivalents, and marketable securities.
Now before I provide Q3 and full-year 2026 guidance, I want to touch on a few housekeeping items. First, on July 2, we completed the acquisition of the security company LayerX for approximately $205 million. From a financial perspective, we expect the acquisition to have no material impact on full-year 2026 revenue. On the bottom line, we expect LayerX will be dilutive to our non-GAAP EPS by approximately $0.02 for 2026, split evenly across Q3 and Q4. Second, I would like to turn to foreign exchange and its expected impact on our second half 2026 performance. Based on currency movements since our last earnings call, we now expect second-half revenue headwinds of approximately $9 million. Finally, I would like to provide additional color on our capital expenditures for the remainder of the year. For Q3, CapEx is projected to step up significantly, partly due to the shipments that slipped into July that I referenced earlier and as we ramp up buildouts to support the major contracts announced earlier this year.
As mentioned on our last call, GPU demand remains exceptionally strong. As a result, all of our GPU capacity is completely sold out. Therefore, driven by the $600 million new customer win we announced today and a very robust pipeline, we expect to invest up to $500 million in CapEx to replenish and expand our GPU capacity. We expect to spend approximately $60 million of that this year with the remainder hitting in early 2027. Moving now to guidance. For the third quarter, we are projecting revenue in the range of $1.105 billion to $1.130 billion, up 5% to 7% as reported, and up 5% to 8% in constant currency over Q3 2025. At current spot rates, foreign exchange fluctuations are expected to have a negative $2 million impact on Q3 revenue compared to Q2 levels and a negative $8 million impact year over year. At these revenue levels, we expect cash gross margin of approximately 70%. As a reminder, gross margin is impacted by the significant increase in colocation as we accelerate the growth in our CIS business.
Q3 non-GAAP operating expenses are projected to be $347 million to $359 million. We anticipate Q3 EBITDA margin of approximately 38% to 40%. We expect non-GAAP depreciation expense to be $153 million to $155 million. We expect non-GAAP operating margin of approximately 24% to 26%. And with the overall revenue and spend configuration I outlined, we expect Q3 non-GAAP EPS in the range of $1.60 to $1.80. This EPS guidance assumes taxes of $0.55 million to $2 million, based on an estimated quarterly non-GAAP tax rate of approximately 19%, and it also reflects a fully diluted share count of approximately 150 million shares. Moving to CapEx, for the reasons I highlighted earlier, we expect to spend approximately $475 million to $525 million in the third quarter. This represents approximately 43% to 46% of total revenue. Looking ahead to the full year 2026, we expect revenue of $4.445 billion to $4.530 billion, which is up 6% to 8% as reported, and up 5% to 7% in constant currency.
For Cloud Infrastructure Services, we continue to expect year-over-year revenue growth of at least 50% in constant currency. We continue to expect security revenue growth in the high single digits on a constant currency basis in 2026, and for delivery and other cloud apps, we continue to expect a decline in the mid-single digits year over year on a constant currency basis. At current spot rates, our guidance assumes foreign exchange will have a positive $9 million impact on revenue in 2026 on a year-over-year basis. Given the recent strength in the U.S. dollar, this impact is significantly less than the positive $20 million we discussed on our last quarter's earnings call. Moving to operating margins for 2026, we are estimating a non-GAAP operating margin of approximately 25% to 26% as measured in today's FX rates. Turning to CapEx: at this time, we anticipate our full-year capital expenditures will be approximately 40% of total revenue.
Moving to EPS: for the full year 2026, we expect non-GAAP earnings per diluted share in the range of $6.40 to $7.05. This non-GAAP earnings guidance is based on a non-GAAP effective tax rate of approximately 19% and a fully diluted share count of approximately 150 million shares. Before wrapping things up, I want to provide additional color on how we safeguard profitability and manage risk across our cloud infrastructure services business, specifically as it relates to our recently announced large contracts. While initial capital deployment happens upfront, these contracts are structured to deliver strong cash flows over their life backed by take-or-pay commitments. To give you visibility into how we manage these opportunities, I would like to outline the economics that are typical in these multi-$100 million multiyear contracts we have seen to date and expect in the future. While I will not speak to any one contract in particular, the following is meant to illustrate large deals that have been signed and what we see in our current pipeline.
For these multi-megawatt large-scale deployments, we take several factors into consideration, including customer credit quality, contract duration, the specific compute architecture deployed (i.e., GPU or CPU), data center space, power availability, CapEx, and direct operating expenses such as networking, power, along with any software and hardware maintenance. Taking all these factors into account, our signed deals and active pipeline consistently reflect a highly attractive profile, delivering non-GAAP cash gross margins spanning from the mid-60s up to the mid-70s. After factoring in hardware depreciation and other operating expenses, these large-scale contracts typically generate non-GAAP operating margins ranging from the low- to mid-20s up to the low-30s. So with that, I will wrap things up, and Tom and I are happy to take your questions. Operator?
分析師問答
Ladies and gentlemen, at this time, we will begin the question-and-answer session. To withdraw your question, you may press star and 2. If you are using a speakerphone, we do ask that you please pick up the handset prior to pressing the keys to ensure the best sound quality. Again, that is star and then 1 to ask a question. Our first question today comes from Samit Chatterjee from JPMorgan. Please go ahead with your question.
Hi. Thanks for taking the question, and congrats on the new win here. Maybe if you can just help us think about what you are seeing in terms of more appetite from customers for the CIS business in terms of pipeline. You have announced these significant deals, but you are also sold out as you are indicating. So does that sort of preclude you from signing any significant more awards with your customers in the near future as well? Any visibility on both those fronts would be helpful. Thank you.
Yeah. Very strong pipeline, really across the spectrum of industries and scale of the deals. And no, that does not keep us from signing up more customers because we are ordering, obviously, more hardware. Typically, we are looking at about a six- to nine-month window on the larger side. So, no, we are continuing to sign customers up. Edward, do you have more color on that?
Yeah. I was just going to add the way to think about the comment is we sort of gave a little preview last quarter that there was a good chance we might be placing an order for more GPUs based on what we saw from the pipeline, and we were able to sell that all out. Some of that large deal will take up some of that remaining inventory. We are placing another order with NVIDIA for a significant chunk of additional GPUs—some to satisfy the new order, but a lot of that is covered by what we had before. The rest of it is based on the strong pipeline we see for additional GPU demand. In terms of the way the market is going at this point, customers are essentially preordering in a lot of cases where many folks do not have a ton of inventory on hand. Usually, the conversations are about getting some GPU capacity, generally locking that in for a long period of time. Think of it as a reserve instance, which is a good analogy to what folks do in the cloud market. We will generally reserve that months in advance. It actually enables us to maintain good inventory discipline and not extend ourselves too far out and meet market demands. I'll pass it on. Thank you.
Our next question comes from Jackson Ader from KeyBanc Capital Markets. Please go ahead with your question.
The first one I had was actually about the timing between deal signage for these multiyear deals and the multimillion, multiyear deals and when you actually expect them to fold into revenue. Tom said something about like a six- to nine-month window. I was curious, are you talking about from deal signage to actually seeing revenue, or was that window referring to something else? Thanks.
I'll take that one. So it is usually between signing and when we recognize revenue. For the really large deals, we generally will not keep speculative inventory. That will be informed by a large customer coming and ordering. Generally, you may need to get some additional data center space. We have a nice pipeline of data center space that is coming online between now through the end of next year, and it's sort of a core competency of ours. When we talk about the period between signing and revenue recognition, that is usually six to nine months typically with these large deals. To the extent that they are large enough, we will call them out on the call like we did over the last three calls and give you some indication of when we think these contracts will start generating revenue.
That makes sense. And then a quick follow-up. Edward, it was helpful to walk through the illustrative example of the margin profile of these deals. Has that remained pretty consistent as component pricing and your own pricing on GPUs has fluctuated? Is there any risk that the margin profile could structurally shift lower if there's upward pressure on components in the future? Thank you.
Great question. In terms of the pricing environment, especially with big customers, it's a bit more collaborative. There's a general understanding that inventory is tight and data center availability is tight. If customers do not order when they say they are going to order, things may not be there and prices may go up. Prices are moving relatively quickly in the marketplace, and we are able to pass on increases in pricing. Generally, we have that structured into a large contract. For example, if I am receiving goods over a period of three to nine months and there are movements in pricing—whether memory or hardware costs—we have mechanisms to take that into consideration. We are constantly adjusting pricing. For example, someone may do a follow-on order where they bought six months ago and now they're buying today at a higher price; we mark that price up. It's very collaborative with customers, and we are able to get price increases passed along in CIS.
Our next question comes from John DiFucci from Guggenheim Securities. Please go ahead with your question.
Thanks for taking my questions. Nice job, guys. I appreciate all the detail you gave on the characteristics and profitability of these deals. The size and revenue are impressive, but so is the profit. I have a question about the timing: from other companies doing similar deals, it seems like initially you may see less profit because you start spending and incurring expenses before revenue ramps. Over the life of a longer-term deal, when do you achieve that profit? I don't want people to be surprised if at first you see more pressure on the profit line until you get to the expected levels.
Great question. The answer depends a bit and it's also dynamic in the business. In many cases, you will take on data center space ahead of time. For big deals, you might open up several data centers with a particular customer, and equipment is received over several months. You will definitely have colocation costs ahead of revenue depending on contract structure. But generally, when equipment is ordered and we start taking depreciation, it's a relatively short period between racking and stacking equipment and getting revenue. Accounting rules for both revenue and colocation or leases—if you have escalators—you generally spread that out over the entire contract, so your cost will be amortized flat and your revenue will be amortized flat. You pretty quickly get to that full profitability, but there may be a quarter with some noise where you have some cost ahead of time. Generally, there is a quick ramp to the profitability we discussed given what we are seeing in the pipeline and with customer behavior. When modeling, expect margins a bit lower as we ramp, and then they should start to ramp up into the levels I described.
Okay. So when you say a relatively short time, like a quarter? Maybe a quarter or so?
Yeah. About a quarter typically. On the long end, maybe five or six months, but generally speaking, about a quarter.
Our next question comes from Param Singh from Oppenheimer. Please go ahead with your question.
Hi. Thanks for taking my questions. Firstly, on the compute side, good to see the visibility and pipeline. I wanted to understand when you think about available capacity, what do you have in terms of megawatts? What is your pipeline and how much you can expand? Also, would you need to expand to more sites versus what you have today to support this growth? I have a follow-up as well. Thank you.
We are continuing to expand the platform into more locations and more cities having GPUs. I think you will continue to see that going forward. We are in a very good position to get the capacity and data center space that we need. We probably deal with more data center companies than anybody. We have our servers today in 700 cities around the world across 130 countries. We have a great reputation for being a reliable partner, strong financials, and established relationships. So we are in a good position to get what we need to take on these very large customers.
Thank you. As my follow-up, good to hear the commentary around agentic AI. How do you think about acceleration in that part of the business, especially for modules such as API security and micro-segmentation tied to agentic AI traffic coming into the platform?
There is great synergy. We use AI to make our products more capable. We help customers identify their shadow AI with API security. Now with LayerX, we help them protect the workforce so when the workforce is using AI they are not inadvertently exfiltrating sensitive corporate data. In the compute business, we are enabling AI on our platform. We are in a great position to support our customers' use of AI and to secure it at the same time. Thank you so much for that.
Our next question comes from Rishi Jaluria from RBC. Please go ahead with your question.
Thanks so much for taking my questions. Great to see continued momentum in the CIS business as well as some major customer wins. Two for me. First, in addition to the large CIS deals, we've been debating the opportunity for true AI edge inferencing to leverage your edge network. Can you talk about some of the opportunities you are seeing? Is there an opportunity for some of these large, central cloud-driven AI deals to expand more to edge cloud, especially because you are the only one that has edge cloud and central cloud on one platform? Maybe help us understand that. I have a quick follow-up.
I think you said it well: it is a continuum. A big advantage we have is that we can do the core for enterprise customers that want to train their model and we can do the edge for when they are doing inferencing where it is latency sensitive or bandwidth sensitive. A great example is robotics: robots have sensors, including video, which is high bandwidth to ingest. Our GPUs are well suited to processing that video and using AI to determine what is going on and then provide an instruction back to the robot. These situations are latency sensitive—not only the bandwidth of the video but telling the robot what to do quickly. Think about driverless cars, robots operating around humans, or robots in factories; untimely actions can be problematic. So training may be most efficient in centralized data centers, but inferencing and runtime usage often needs to be close to the robot. We see that across the spectrum and it is a big advantage to have everything on one platform. To be clear, we are not in the business of training foundation models at the absolute frontier; we provide the core and edge resources for training medium or smaller models and for inference. The key is having the right resource in the right place to optimize cost and performance.
Very helpful. Then on the security side, especially with the LayerX acquisition, as agents proliferate—every brand must embrace them but also protect themselves—can you walk us through how to think about that becoming an accelerant to the security business and where LayerX fits in that strategy? Thank you.
LayerX protects employees who are using a variety of AI tools. The danger is that they may leak sensitive data when they use those tools; LayerX identifies and prevents that and enforces the business rules set by security teams. Dealing with agents goes beyond that: we are a leader today with bot management and agent management solutions. Some agents are authorized and should get good service; others are not. We help customers identify the agent, determine whether it is authorized, and then take the appropriate action. For example, with LLM-driven search engines, it's important your brand shows up in next-generation search. We identify scrapers coming from a search engine and can give different content—structured and keyword-optimized—so the customer gets better search rankings. That's one example of how we help customers identify agents and respond appropriately for their business.
Our next question comes from Sanjit Singh from Morgan Stanley. Please go ahead with your question.
Thanks for taking the questions. In less than a year that CIS has been stood up as a business, you guys have come up with almost $3 billion in bookings, which is impressive. It sounds like these term rates will continue, given your comments on the pipeline. I wanted to get a sense on financing strategies going forward. To what extent is the company willing to go into net debt or access more equity capital to fund this strong pipeline?
I'll start and then hand it to Edward. We've been working on this business for years and it's built on a platform we've been developing for decades. It's not an overnight phenomenon. In the last year we made more investment in go-to-market because CIS is in a position to take on major enterprise customers at scale. We have over $4 billion of cash and we will invest to continue growth of this platform. Edward, do you want to add detail?
We have $4.6 billion of cash on the balance sheet today. We've structured our debt so there's a ladder of maturities. The way these big deals work, the free cash flow is excellent after you deploy initial capital: you dip a little and then recover with high free cash flow margins. We have excellent banking partners, and converts have been attractive for us. We work with the Board on scenarios and look for the best economics for shareholders. There's still debt capacity if needed. So far we've used equity-linked debt but not done equity offerings. We'll look at what provides the lowest cost of capital. We can grow the business under the current model and are holding an investment-grade credit rating, which helps with colocation providers. We have suspended the buyback temporarily to use available cash for growth because we have not seen an opportunity like this in a long time. I'm comfortable with our ability to finance growth going forward.
Understood. As a follow-up: CIS has had two quarters of sub-40% growth, a bit less than last year, and you're targeting at least 50% growth for the full year. How should we think about the Q3 to Q4 ramp? Is it sustained growth in CIS and then a big hockey stick? What gives you confidence that hockey stick will emerge in Q4?
Good question. We provided quarterly guidance. We did receive some GPUs later than expected, which pushed revenue from Q2 into Q3 for a few weeks. I'm not expecting a growth acceleration for CIS in Q3, but I do expect to see a big hockey stick of acceleration in Q4 for several reasons. We are able to start getting revenue for GPUs we've sold that we have taken into inventory and are racking and stacking. The big contracts we mentioned start to generate revenue in Q4. Everything is on track; it's a question of delivery, setup, and generating revenue. We expect a big hockey stick that should continue to ramp significantly into Q1 of next year as you get partial quarters of revenue from big deals and then more in Q1. I expect the acceleration to continue through next year.
Our next question comes from Frank Garrett Louthan from Raymond James. Please go ahead with your question.
How challenging is it to get power at the facilities where you are doing CIS? Can you give us an update on how many locations you have today, and how many will you need to build out for this new business that you just signed?
Great question. We are in a very good position to get the data center capacity and power we need. We've been in this business a long time and probably deal with more data center companies than anybody. Our infrastructure is deployed in over 700 cities in 130 countries. Because we have a reputation as a reliable partner and strong financials, we are able to get the capacity we need. We are continuing to grow our data center footprint in more locations and taking on larger locations and more power as we grow, and I expect that to continue.
One advantage we have is flexibility given our large backbone. For example, to get power on the West Coast we have many different options of where we can go. Not all power is created equally state by state, so you might go a couple hundred miles into a cheaper state, deal as an anchor tenant with a builder, make a long-term commitment, get guaranteed power with great performance because it's connected to our backbone, and satisfy customer demand while getting much better economics. Another advantage is that the commitments we're asking for are often 5 to 20 megawatts, which is a meaningful commitment that helps data center builders scale and get good IRR on their investment.
Our next question comes from Rudy Kessinger from D.A. Davidson. Please go ahead with your question.
Thanks for taking my questions. Could you talk about the specific metrics—latency or other measures—that these customers are looking at when choosing Akamai over hyperscalers? What specific performance advantages make you the choice for these large workloads?
Great question. While we can't discuss specific deals, in general customers choose Akamai because of our reliability and our massively distributed platform, which is unique in the marketplace. As I mentioned, 700 cities in 130 countries. We can get compute close to users and close to the data, which provides better performance, lower latency, and better scalability—particularly when dealing with video. We offer full-stack compute and storage combined with industry-leading security and delivery platforms. Because of our global delivery platform and distributed capability, our cost for egress is often lower than the competition, enabling a compelling value proposition: great performance, high reliability, and lower cost.
Our next question comes from Fatima Boolani from Citi. Please go ahead with your question.
Good afternoon. Edward, you framed capacity as a reserved-instance model which gives you visibility and predictability for customers. I know you've entertained standing up a rental or spot business within CIS. Can you give a sense of where you are on that journey? To the extent you have excess capacity, could spot pricing drive faster growth in CIS this year? Also a follow-up on the security business after that, please.
We offer both committed and rental models. What we are finding is stronger demand from customers who want to lock in longer periods of time, which is better for us in terms of locked-in value. We do have customers that ask for hybrid models where they take capacity for a period of time with some notice if we need to reclaim it. The market for our customers is skewing toward certainty versus purely hourly rentals. Most of the growth right now is coming from committed models, given the size of these deals, but we do offer both.
On the security business, you called out a tailwind to Guardicore segmentation and API security tied to traffic mix. What about more traditional products like DDoS and classic WAF? Is there a rising tide lifting all boats or is it mainly higher-growth SKUs that are accelerating?
Great question. We have seen real tailwinds from AI across our security portfolio. Attackers have assembled much larger bot armies and the scale of attacks has grown significantly over the last year, which increases demand for DDoS services. Web Application Firewall is also in greater demand because there will be more zero-days; we often see those first and push firewall rules to protect our customers before the zero-day becomes public knowledge, giving customers time to patch safely. I've spoken with many CISOs and CIOs who are undertaking urgent projects to ensure all of their applications and sites are protected by our WAF. So we are seeing good tailwinds from AI across the board, and Akamai can help major enterprise customers respond.
We have time for one final question. That comes from Connor on for Patrick from Scotiabank. Please go ahead with your question.
Thanks for taking the question. I was wondering if you could double-click on the CrowdStrike customer win. It's a positive sign for the Akamai architecture. When did that deal close and are there partnership dynamics as well as a customer relationship worth highlighting?
That closed recently, and it's a real validation point for our security solutions. CrowdStrike cares a lot about security and reliability, and they were not happy with their prior provider. They were attracted to Akamai because of our reliability and higher level of security capabilities. We do partner with them, and it's a good relationship as well as a customer validation of Akamai's security solutions.
Ladies and gentlemen, with that, we will be concluding today's question-and-answer session as well as today's conference call. We thank you for participating and joining today. You may now disconnect your lines.