Rackspace Technology cut its fiscal 2026 outlook after saying it is redirecting resources toward enterprise AI and away from lower-margin public cloud resale and other legacy revenue.
The company reduced its revenue expectation by $150 million and its adjusted EBITDA outlook by $20 million. Midpoint fiscal 2026 revenue now stands at $2.50 billion, down from $2.65 billion previously. Midpoint adjusted EBITDA is now $290 million, down from $310 million.
By segment, Rackspace lowered its private cloud revenue outlook to a midpoint of $1.025 billion from $1.050 billion, a $25 million reduction. Public cloud revenue was cut more sharply, to a midpoint of $1.475 billion from $1.600 billion, a $125 million reduction. Private cloud is now expected to grow 4% year over year at the midpoint, down from 6% previously, while public cloud is now projected to decline 13% at the midpoint versus a prior forecast of a 6% decline.
For the second quarter of 2026, Rackspace said revenue should come in between $641 million and $649 million. That compares with the updated full-year midpoint of $2.50 billion, implying the company expects a stronger second half than first half. Private cloud revenue in the quarter is expected to be $242 million to $246 million, while public cloud is expected at $399 million to $403 million.
The company expects second-quarter GAAP net loss of $62 million to $91 million, or $(0.25) to $(0.36) per diluted share. GAAP loss from operations is projected at $33 million to $53 million. Non-GAAP operating profit is expected at $19 million to $23 million, and adjusted EBITDA at $58 million to $62 million.
Rackspace also outlined a longer-term enterprise AI buildout. It plans to reach 2 megawatts of cumulative AI capacity by the end of 2026, 15 megawatts by the end of 2027, and 30 megawatts by the end of 2028. At full deployment, the company expects annual revenue of $450 million to $600 million from that 30-megawatt base, based on $15 million to $20 million of annual revenue per megawatt. It said enterprise AI margins should be in the 50%+ range.
The company said its recent partnerships with AMD, Palantir, Rubrik, Uniphore and VMware by Broadcom are part of the push. In its Palantir partnership update, Rackspace said it has scaled to about 400 Palantir certifications across sales, engineering, delivery and operations. It also said the first joint deployment closed in less than two months and produced a 94% reduction in quote cycle time for a U.S.-based solar tracking manufacturer.
Rackspace said the strategic shift is intended to create a new growth vector starting in 2027. The market has reacted to these announcements by moving the company's shares -33.66% to a price of $4.365. For more information, read the company's full 8-K submission here.
