AKAM & Anthropic Ink $11.6B, 7-Year AI Deal: What it Signals to Tech Trade

Sam (0:00)

We're back on Morning Trade Live and focusing on the one-year chart for Akamai Technologies. The stock reached highs back in May. It had not seen in over 25 years, but has dropped to about 30%.

Since then, we're trading 7.5% higher right now. Just looking over the course of the year, we're still up over 50% year-to-date. We are up 40% or so. So not a bad run, even though we've come well off the highs. But we are looking at Akamai's new deal with Anthropic this morning. So joining us for the details is Marley Kayden. Happy Friday, Marley. Just walk us through what we know here.

Marley Kayden (0:37)

Good morning, Sam, and happy Friday to you. I've got this deal here now with Akamai and Anthropic. It's a seven-year deal. It's worth $11.6 billion to provide computing services to Anthropic. The multi-year commitment will support Anthropic services, accelerating their EPU workload demands by leveraging Akamai's cloud-distributed AI infrastructure and software. The market clearly viewing this as a win for the cloud infrastructure company. Shares were up about 20% pre-market. They're up more than 7.5% now in early trading. They also said the deal will involve $5.5 billion in new capital expenditures, including buying memory, with $1.6 billion of that coming in 2026 The deal also comes with an option to expand by another $9 billion if more compute is needed. Now, as a part of the deal, Akamai has issued a warrant to Anthropic, giving it the right to exercise 7.7 million shares of Akamai Common Stock, 5% of those outstanding at a price of $111.33 each. Now, some of that stock vests today, with the rest contingent on expanding the deal by that additional $9 billion.

For reference, right now, we're trading at $1,1871 with this move to the upside. Now, even without that option of that extra $9 billion, this is a huge deal for Akamai. Analysts are already commenting Guggenheim, noting that the annual recurring revenue from this deal alone is more than five times the company's 2025 cloud infrastructure services revenue and 40% of its total $4.2 billion revenue. They maintain their buy rating. They're raising their price target today to $225 up from $190.

Evercore also putting out a new note, calling this a quote-unquote landmark deal for Akamai, saying that it reinforces their view the company is set for a multi-year revenue re-acceleration. The firm also noted the importance of a lack of an exclusivity clause as a part of this deal, saying, quote, the Anthropic partnership does not preclude Akamai from working with other frontier labs, which could support additional AI wins over time. Evercore has an outperform rating on the stock and they have a price target of $175.

B of A also putting out an optimistic note, they called this news a game changer for Akamai. They also raised their price target to $185 from $175 and keeps a buy rating on shares. Sam, I mean, overwhelmingly the response to this from both the markets and from the sell side community is overwhelmingly strong in favor of what this could mean for the future of Akamai.

Sam (3:06)

Yeah, and you can see it obviously reflected in the shares today with this 8% gain. Marley really appreciate the details. Let's trade it now with Dan Deming, managing partner over at KKM Financial. Good morning, Dan. Happy Friday to you. How would you approach an example trade on this one?

Dan Deming (3:21)

Well, I tell you, it's interesting, as Marley pointed out, it still seems like analysts certainly agree that longer term the stock has upside. I think if you're looking at the price action based on what we experienced overnight coming into the opening, it's less than half of where it was early on. So not a great reaction post opening, but nonetheless still holding on to a pretty solid gain here. And I do think longer term that there's an opportunity here to possibly capture upside, but also if we do see a little more weakness, if the stock does not necessarily respond the way it's expected, that there's an opportunity to pick the stock up near the lows. So today's trade example is in October. It's three weeks out. It's buying a call spread. It's the 125, 140 call spread in October, but it's also selling the 110 put to finance the cost of that call spread. So can basically trade that for even money here. It allows to capture upside move in the next three weeks if we do see a positive reaction back to where it was trading just 24 hours ago.

But if not, then the opportunity to pick up the stock down around the lows. And I think for a longer term hold, I still think it looks good, but I don't know if this news necessarily is going to be the catalyst in the short term to break it out of this range.