Rackspace Technology (RXT) Q1 revenue beats; stock surges 55% on AMD AI cloud deal

Rackspace Technology shares surged 55 per cent on Wednesday after the cloud services provider reported first-quarter revenue that beat Wall Street estimates, swung to a GAAP profit, and disclosed a non-binding memorandum of understanding with AMD to build governed enterprise AI infrastructure for regulated industries.

The stock closed at $3.52 on May 7, having touched an intraday peak that more than doubled the previous close before settling. The rally snapped a prolonged slide for RXT, which had fallen as much as 78 per cent from peak to trough before bottoming in mid-February.

Revenue came in at $678 million for the three months to March, up 2 per cent from a year earlier and ahead of the $675 million consensus estimate compiled by analysts. Adjusted EBITDA of $71.2 million exceeded the $68.57 million the Street had modelled, while non-GAAP operating profit rose 20 per cent year on year to $31 million.

On a GAAP basis, the company reported net income of $8.3 million, reversing a $71.5 million loss in the same quarter last year. The result included a one-time $55.8 million gain on debt extinguishment. Non-GAAP earnings per share came in at a loss of 6 cents, slightly wider than the 3-cent loss analysts had forecast.

“This is a category Rackspace is built to lead,” chief executive Gajen Kandiah said of the AMD partnership, framing the deal as an entry into a new segment serving regulated industries including healthcare, financial services, and government.

What the print showed

The top-line beat was driven by the public cloud segment, where revenue climbed 7 per cent to $443 million, with services revenue up 10 per cent. Enterprises continued moving workloads off legacy infrastructure and into managed hyperscale environments during the quarter.

Private cloud revenue fell 6 per cent to $235 million, which management attributed to the timing of a large healthcare contract onboarding. The division’s operating margin improved 30 basis points to 24.7 per cent, suggesting the underlying economics of the legacy business are stabilising even as the top line contracts.

The company ended the quarter with $94 million in cash and $295 million in total liquidity. Net debt exceeds $3 billion, a legacy of the 2016 Apollo Global Management buyout that has weighed on the equity story for years.

The AMD framework

The memorandum of understanding with AMD is not a chip supply agreement. It sketches a framework across four areas: a managed Enterprise AI Cloud, an Enterprise Inference Engine, Inference as a Service, and Bare Metal Accelerated Compute. The architecture pairs AMD Instinct GPUs with EPYC CPUs in an integrated platform designed for regulated workloads that cannot run on public cloud infrastructure for compliance or data-sovereignty reasons.

The deal is non-binding, no definitive agreements have been signed, and no project financing has been secured. Chief financial officer Mark Marino told analysts the arrangement is “not something that we’ve got materially factored into our 2026 guidance.” Revenue from the partnership is not expected before 2027.

The market nonetheless treated the announcement as a signal Rackspace can compete for enterprise AI workloads that hyperscalers are structurally unable to serve. The stock’s move implies investors assigned a non-zero probability to Rackspace capturing a slice of the governed AI infrastructure market.

The guidance

Full-year targets were reaffirmed across the board: revenue of $2.6 billion to $2.7 billion, non-GAAP operating profit of $160 million to $170 million, and adjusted EBITDA of $305 million to $315 million. The unchanged outlook signals management expects the first-quarter momentum to carry through the rest of the year.

Before the AMD deal, the quarter showed operational progress on its own terms. Private cloud operating margin improved 30 basis points to 24.7 per cent, and the public cloud segment’s services revenue accelerated to 10 per cent growth, the fastest clip in at least six quarters.

The company also pointed to a series of customer wins: AdventHealth added more than 400 workloads to its Rackspace footprint, a UK NHS Foundation Trust signed a multiyear sovereign cloud contract, BT Group selected Rackspace as the foundation for BT Sovereign Cloud, and a Palantir partnership closed its first joint deal in 41 days, reducing a customer’s quoting cycle by 94 per cent.

What’s next

The AMD MOU now needs to convert into definitive agreements. Without committed financing and signed contracts, the enterprise AI story is still a pitch deck. Analysts are cautious: the three brokers covering RXT carry Hold ratings with a consensus price target of $2.17, well below the post-surge price. The Street sees the rally as having overshot the fundamentals.

At $3.52, Rackspace trades at roughly 1.5 times trailing-twelve-month revenue and nearly 13 times enterprise value to EBITDA, both above IT services peer medians. The premium implies the market is already pricing in a degree of AI-adjacent optionality that the company has yet to convert into contracted revenue.

The company’s ability to refinance or restructure its debt load, grow the public cloud segment at a pace that offsets private cloud attrition, and turn the AMD framework into revenue-generating contracts will determine whether Wednesday’s surge was a turning point or a short squeeze with a press release attached.