While the S&P 500 is up 13.9% since June 2025, Akamai Technologies (currently trading at $85.26 per share) has lagged behind, posting a return of 8.6%. This may have investors wondering how to approach the situation.
Is now the time to buy Akamai Technologies, or should you be careful about including it in your portfolio? Get the full stock story straight from our expert analysts, it’s free for active Edge members.
Why Do We Think Akamai Technologies Will Underperform?
We're sitting this one out for now. Here are three reasons there are better opportunities than AKAM and a stock we'd rather own.
1. Long-Term Revenue Growth Disappoints
A company’s long-term sales performance is one signal of its overall quality. Any business can have short-term success, but a top-tier one grows for years. Unfortunately, Akamai Technologies’s 5.8% annualized revenue growth over the last five years was weak. This fell short of our benchmark for the software sector.
2. Low Gross Margin Reveals Weak Structural Profitability
For software companies like Akamai Technologies, gross profit tells us how much money remains after paying for the base cost of products and services (typically servers, licenses, and certain personnel). These costs are usually low as a percentage of revenue, explaining why software is more lucrative than other sectors.
Akamai Technologies’s gross margin is substantially worse than most software businesses, signaling it has relatively high infrastructure costs compared to asset-lite businesses like ServiceNow. As you can see below, it averaged a 59.1% gross margin over the last year. Said differently, Akamai Technologies had to pay a chunky $40.87 to its service providers for every $100 in revenue.
The market not only cares about gross margin levels but also how they change over time because expansion creates firepower for profitability and free cash generation. Akamai Technologies has seen gross margins decline by 1.6 percentage points over the last 2 year, which is poor compared to software peers.
3. Long Payback Periods Delay Returns
The customer acquisition cost (CAC) payback period represents the months required to recover the cost of acquiring a new customer. Essentially, it’s the break-even point for sales and marketing investments. A shorter CAC payback period is ideal, as it implies better returns on investment and business scalability.
Akamai Technologies’s recent customer acquisition efforts haven’t yielded returns as its CAC payback period was negative this quarter, meaning its incremental sales and marketing investments outpaced its revenue. The company’s inefficiency indicates it operates in a highly competitive environment where there is little differentiation between Akamai Technologies’s products and its peers.
Final Judgment
Akamai Technologies doesn’t pass our quality test. With its shares lagging the market recently, the stock trades at 2.9× forward price-to-sales (or $85.26 per share). This valuation tells us it’s a bit of a market darling with a lot of good news priced in - we think there are better stocks to buy right now. We’d suggest looking at a top digital advertising platform riding the creator economy.
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