Rackspace stock tumbles as AI funding plan meets outlook cut

A capital raise lands on a weaker forecast

Rackspace Technology told investors on July 9 that it can sell up to $250 million of common stock through an at-the-market program run by Goldman Sachs, a flexible financing tool that leaves the timing and size of sales to the company.stocktitan The announcement arrived alongside a sharp cut to the cloud-services provider’s 2026 outlook: expected revenue is now $2.45 billion to $2.55 billion, down $150 million from the prior range, while adjusted EBITDA was lowered by $20 million to $285 million to $295 million.stocktitan

The market reaction was swift. Shares were down about 25% late Thursday morning in one market report, while another put the decline at 23.6% as the stock touched $5.03, after a premarket lift from AI partnership news faded into concerns over dilution and weaker growth.seekingalpha +1

The AI pivot carries near-term costs

Management framed the financing as fuel for an enterprise AI shift, saying partnerships with AMD, Palantir, Rubrik, Uniphore and VMware by Broadcom give the company a way to build a new revenue stream starting in 2027.stocktitan The company also said Palantir named it a preferred partner for regulated and sovereign markets, and that Rackspace has built roughly 400 Palantir certifications across sales, engineering, delivery and operations.stocktitan

The updated forecast shows the tradeoff. Rackspace said Public Cloud revenue is now expected at $1.45 billion to $1.5 billion, down $125 million from the previous outlook, as hyperscalers move more customers to direct contracts and Rackspace exits low-margin resale activity.stocktitan Private Cloud guidance was cut by $25 million as the company exits some colocation and basic hosting revenue while reserving capacity for AI workloads.stocktitan

Investors are weighing runway against dilution

The stock-sale authorization is paired with a receivables-facility amendment that extends the scheduled termination date to July 2029 and permits the facility limit to rise by as much as $50 million, to a maximum of $350 million.stocktitan TipRanks described the moves as liquidity support for the AI transition, while noting that the same update included a projected second-quarter GAAP net loss of $62 million to $91 million and positive non-GAAP operating profit.tipranks

The balance sheet context is central to the selloff. In May, Rackspace reported first-quarter revenue of $678 million, cash and equivalents of $94 million, total liquidity of $295 million and non-current debt of $2.68 billion as of March 31.globenewswire The company’s longer-term pitch is that 30 megawatts of enterprise AI capacity by the end of 2028 could produce $450 million to $600 million of annual revenue at adjusted EBITDA margins above 50%, but Thursday’s trading showed investors demanding proof before paying for that roadmap.stocktitan