Rackspace Technology Posts 9% Revenue Decline But Secures $610M in AI Infrastructure Deals

Rackspace Technology Reports Mixed Q3 2026 Earnings Amid Strategic Shift to AI Infrastructure

Rackspace Technology reported Q3 2026 earnings on November 10, 2026, revealing a company navigating a significant transformation from legacy cloud services to enterprise AI infrastructure2

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. The company posted revenue of $609 million, representing a 9% year-over-year decline, yet beat Wall Street expectations and demonstrated substantial momentum in securing major AI partnerships1

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. Shares rose 4.78% in premarket trading to $2.85, suggesting investors are weighing near-term revenue pressures against longer-term AI opportunities2

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Revenue Decline Driven by Public Cloud Headwinds

The revenue decline was primarily driven by a 17% drop in Public Cloud revenue to $349 million, as the segment continues facing headwinds from contract non-renewals and customers migrating directly to hyperscalers2

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. Private Cloud performed notably better, growing 4% year-over-year to $260 million, supported by healthcare demand and implementation revenue2

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. The contrasting performance between these segments highlights the challenges Rackspace faces in its traditional business lines while simultaneously building momentum in new areas.

Profitability Metrics Show Improvement Despite Revenue Pressures

Despite the revenue decline, Rackspace Technology demonstrated improved profitability across key metrics. Adjusted EBITDA increased 8.5% year-over-year to $75 million, while non-GAAP operating profit rose 12% to $36 million1

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. The margin expansion reflects disciplined cost management, including workforce reductions, lower marketing spend, and reduced bad debt expense2

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. Private Cloud demonstrated stronger fundamentals with a 31.5% non-GAAP gross margin and 20.5% segment operating margin, while Public Cloud margins remained thinner at 10.5% gross margin and 7.8% operating margin2

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. The company maintained its profitability outlook, with non-GAAP operating profit guidance of $125 million to $135 million and adjusted EBITDA guidance of $285 million to $295 million for the full year1

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Major AI Partnerships Position Rackspace for Future Growth

The Rackspace strategic shift to AI gained significant commercial traction through three major AI infrastructure agreements that collectively represent over $610 million in potential revenue2

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. The largest commitment is a $380 million multiyear contract with Together AI to deploy and operate NVIDIA GB300 NVL72 infrastructure expected to enter service by mid-20271

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. This partnership positions Rackspace as the infrastructure operator for Together AI's platform, leveraging NVIDIA's latest GPU technology. The company also signed a $230 million contract with Blacksmith for AI infrastructure services1

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. On the AMD front, Rackspace increased its deployment target to approximately 17 megawatts of cumulative capacity by year-end 2027, up from an original 15 MW target2

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AI Deals Drive Outlook with Ambitious Capacity Targets

Rackspace Technology is targeting 20-22 megawatts of combined AMD and NVIDIA high-performance AI compute capacity by the end of 20271

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. At full deployment and anticipated utilization, the company expects this enterprise AI infrastructure to generate $420-460 million in annualized run-rate revenue with EBITDA margins exceeding 60%2

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. These margin projections represent a substantial improvement over the company's legacy cloud businesses and would materially transform Rackspace's overall profitability profile if realized. Management emphasized a disciplined approach to leveraging existing data center capacity to optimize deployment efficiency and mitigate risks associated with new infrastructure projects1

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. The company highlighted its strategic advantage due to existing data center capacity amidst potential tighter data center permitting controls1

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Palantir Partnership Progresses with Seven Commercial Contracts

The AI partnerships extended beyond Together AI and AMD to include significant progress with Palantir. Since the last earnings call, Rackspace has signed seven commercial contracts through its Palantir partnership, with two already in production and five in deployment phase2

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. Demonstrating confidence in the partnership's potential, Palantir has taken an equity stake of approximately 2% in Rackspace Technology2

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. Rackspace's POD strategy aims to simplify enterprise AI deployment, with a focus on regulated environments and collaboration with global systems integrators1

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. This approach positions the company to address growing demand from enterprises seeking to deploy AI capabilities while maintaining compliance with regulatory requirements.