In the past year, Akamai stock has experienced a 20% decline, unlike the Nasdaq-100, which has seen an 11% increase. While the company’s Q1 2024 earnings were relatively strong, with revenue growing by 8% year-over-year to $987 million and adjusted earnings per share up by 17%, the guidance for Q2 was weaker than expected. Factors such as a stronger U.S. dollar, cost optimization by a major social media customer, and a slowdown in traffic growth in the industry are expected to impact Akamai’s content delivery business negatively.
Despite the decline in Akamai’s legacy content delivery business, which saw sales drop by 11% year-over-year, the security business experienced significant growth, increasing by 21% to $490 million. The company has raised its annual guidance for its security and computing business, targeting growth rates of 17% and 23% at the upper end. Akamai’s focus on the security segment is promising, especially with the integration of various security offerings into the Akamai Guardicore platform and the recent acquisition of API security company Noname Security for $450 million.
The API security market is expected to grow at a rapid pace, with IDC Research predicting an annual expansion rate of 34% to nearly $1 billion by 2027. Akamai’s strong demand in this space, coupled with its previous acquisition of Neosec, positions the company well to capitalize on this growing market. However, AKAM stock has shown little change over the past three years, underperforming the S&P 500 index. In comparison, the Trefis High Quality Portfolio, consisting of 30 stocks, has consistently outperformed the benchmark index, providing better returns with less risk.
Despite AKAM’s lackluster performance compared to the S&P 500, Trefis remains bullish on Akamai stock for various reasons. The company’s valuation is reasonable, with a forward earnings multiple of approximately 15x at the upper end of its guidance. If Akamai executes well in the security and computing markets, there could be significant upside potential. Trefis’ price estimate for AKAM stock is $120, which is about 20% higher than the current market price. This analysis highlights what is driving the company’s valuation and how it compares to its peers in the industry.
Investors looking for market-beating portfolios can explore Trefis Market Beating Portfolios, which have consistently outperformed the S&P 500 index. Akamai’s performance in the security market and its focus on growth opportunities in the computing sector could be key drivers for the company’s future success. Despite challenges in the content delivery business, Akamai’s strong position in the security segment and potential for growth make it an attractive investment opportunity for investors looking for long-term growth potential in the technology industry.
