Rackspace lifts capex to $104 million as public cloud sales drop 17%

By Tom Whitfield

What changed in Rackspace’s third quarter?

Rackspace Technology spent $104 million on capital expenditures in the third quarter of 2026, nearly triple the $34 million spent a year earlier and up from $28 million in the second quarter. The release did not break down the spending, so it does not assign a dollar amount to any specific project or asset.

Total revenue fell 9.3% year over year to $609.1 million. MLQ calculated a 9.1% sequential decline from $670.1 million in Q2, as Public Cloud revenue dropped 17.2% to $349 million and Private Cloud revenue rose 4.2% to $260 million.

MLQ’s quarterly chart shows rounded revenue of $671 million in Q3 2025, $683 million in Q4, $678 million in Q1 2026 and $670 million in Q2. MLQ derived the Q4 figure from the annual result less nine months. Q3 therefore ended a period in which revenue had remained between $670 million and $683 million.

What does the AMD agreement change?

In June, Rackspace signed a definitive agreement with AMD for a phased deployment of an initial 30 MW of AMD Instinct GPU and EPYC CPU compute across its data centers. The schedule starts in late 2026 and runs through 2028.

The agreement turns the existing capacity footprint into a dated build program. Yet the $104 million figure remains unallocated, so the quarterly results do not connect a specific portion of spending to the AMD rollout.

Chief Executive Gajen Kandiah said: “As I enter my second year as CEO, we have moved from establishing our strategy to become the operator of the full enterprise AI stack and creating the framework to execute it, to now translating our go-to-market efforts and large existing capacity footprint into further commitments, rapid deployments and high margin operations.”

Kandiah tied the strategy to further commitments, rapid deployments and high-margin operations. The commercial test is whether those deployments produce enough revenue to justify the higher spending and interest costs. For now, the agreement provides scale and a timetable, but no disclosed return on the capital.

Did cost control offset lower revenue?

The operating loss narrowed to $12.5 million from $33.9 million a year earlier, while selling, general and administrative expenses fell 23% to $125.6 million. Non-GAAP operating profit rose 12% to $36 million.

The net loss improved to $53.5 million, or $0.21 per diluted share, from $67.1 million, or $0.28. Interest expense increased to $35.5 million from $21.2 million, absorbing part of the operating improvement.

Private Cloud’s operating margin fell to 20.5% from 26.9% a year earlier, even as segment revenue increased. Public Cloud’s margin rose to 7.8% from 3.3%, despite its 17.2% revenue decline. Gross margin improved to 18.6% from 17.1% in Q2, but remained below the prior year’s 19.4%.

Reported comparison

Measure	Q3 2025	Q2 2026	Q3 2026
Revenue	$671.2M	$670.1M	$609.1M
Private Cloud revenue	$250M	$263M	$260M
Public Cloud revenue	$422M	$407M	$349M
Gross margin	19.4%	17.1%	18.6%
Operating loss	($33.9M)	($33.2M)	($12.5M)
Net loss	($67.1M)	($67.5M)	($53.5M)
Diluted EPS	($0.28)	($0.27)	($0.21)
Capital expenditures	$34M	$28M	$104M

Cash ended September at $108 million, and total liquidity stood at $170 million, down from $202 million at the end of June. The quarter improved operating performance but left less liquidity ahead of the deployment schedule.

What does the 2026 guidance require?

Rackspace raised full-year revenue guidance to $2.51 billion–$2.56 billion from $2.45 billion–$2.55 billion in August, a $35 million increase at the midpoint. It also raised Public Cloud guidance to $1.515 billion–$1.545 billion from $1.45 billion–$1.50 billion.

Private Cloud guidance moved down to $995 million–$1.015 billion from $1.00 billion–$1.05 billion. At the midpoint, Public Cloud gained $55 million and Private Cloud lost $20 million, producing the company’s net $35 million increase.

Management left non-GAAP operating profit guidance unchanged at $125 million–$135 million and adjusted EBITDA guidance unchanged at $285 million–$295 million. The unchanged profit targets make revenue mix and cost execution more important because spending has already stepped up.

At the midpoint of the revenue range, MLQ calculated about $578 million for Q4, down from $682.8 million a year earlier. That implied result follows two quarters near or above $670 million. Rackspace scheduled its earnings call for Nov. 10.

In plain terms, management expects more Public Cloud revenue but less Private Cloud revenue, with no increase in the profit targets.

What must Rackspace prove from here?\n

The next test is whether the late-2026 AMD rollout converts higher spending into sustained cloud revenue. Management raised the revenue outlook but held profit targets, placing weight on deployment timing and cost control. If the rollout starts on schedule, capacity execution and cash conversion will decide whether Rackspace meets its outlook without further reducing liquidity.