Selling Rackspace After Guidance Cut Drives a Change of Strategy

Rackspace (RXT) is in the news, and it ain’t necessarily good news.

The firm cut guidance. The outlook for full fiscal year revenue was reduced to $285 million to $295 million from $305 million $315 million. The firm reported earnings preliminarily.

Rackspace posted preliminary Q2 revenue of $641 million to $649 million. Wall Street had been looking for roughly $657 million. The firm also posted a preliminary Q2 adjusted EBITDA of $58 million to $62 million and an adjusted Q2 EPS of -$0.11 to -$0.08. Consensus had been for -$0.05.

In a statement, Rackspace indicated: “As we look beyond 2026, our current plan is to ramp the Enterprise AI business up to cumulative capacity of 15 MW by the end of 2027 and a total of 30 MW of capacity by the end of 2028. We expect to average $15-20 million of annual revenue per MW deployed as GPU and customer mix evolves. This translates to $450-$600 million of annual revenue at the full 30 MW of AMD deployments and we expect Adjusted EBITDA margins for Enterprise AI to be in the 50%+ range.”

Strategy Update

The firm’s statement continued:

“Rackspace is becoming the operator of the full enterprise AI stack, serving a demand now visible across the market. Enterprises, particularly in regulated industries, are seeking control over their compute, their models, and their data, and assurance that the proprietary knowledge embedded in that data is not transferred outside their environments. Rackspace is model-agnostic by design and operates the governed layer that allows enterprises to use the best available models, whether open, closed, or their own, on private cloud where control matters and public cloud where elasticity matters, while policy, identity, and data boundaries remain under the enterprise’s control.”

Then this:

“Rackspace believes the correct strategic and tactical response in this environment is to prioritize our resources and focus on the activities that we believe provide the best returns to Rackspace’s stakeholders.”

Sarge says: “Hmmm.”

Mixed Shelf Registration

Rackspace announced that the firm is planning an at-the-market offering program under which it may offer and sell, from time to time, common shares having an aggregate offering price of up to $250 million.

CEO Gajen Kandiah, in the statement, said:

“The best-of-breed partnerships we have signed during 2026 — with AMD (AMD), Palantir (PLTR), Rubrik, Uniphore and VMware by Broadcom (AVGO) — combined with the data center capacity and 25+ years of expertise that Rackspace brings to the table, represent a unique positional advantage for Rackspace. Today’s capital raise announcement is meaningful because it will enable us to expedite our AI Enterprise strategy and unlock a meaningful revenue and EBITDA growth vector for Rackspace, starting in 2027.”

Aaron Sobel (partner at Apollo Global and a member of the Rackspace board of directors) said:

“Apollo remains highly supportive of Rackspace’s strategy and believes the Company is taking the right steps to fund its next phase of growth. We are excited about the opportunity ahead and remain aligned with Rackspace as it builds a differentiated platform for Enterprise AI.”

Sarge says: “sold,” while we’re not really in the red on this one.

Portfolio News

Ondas Inc (ONDS)

On Thursday morning, analyst Jonathan Siegmann of Stifel Nicolaus reiterated his “buy” rating on ONDS along with his $18 target price. Siegmann is rated at two stars out of five by TipRanks. Over the past two years, he has had a 51% success rate but has only generated an average return of 0.5%.

SoFi Technologies (SOFI)

On Thursday morning, analyst Will Nance of Goldman Sachs reiterated his “hold” rating on SOFI while increasing his target price from $17 to $21. Nance is rated at zero, yes zero, stars out of five by TipRanks. Over the past two years, he has had a 50% success rate while generating an average return of -7.7%.

Velo3D (VELO)

On Thursday morning, analyst Troy Jensen of Cantor Fitzgerald initiated coverage of VELO with a “buy-equivalent” rating while setting a $17 target price. Jensen is rated at four and a half stars out of five by TipRanks. Over the past two years, he has had a 59% success rate while generating an average return of 16.7%.

Wednesday’s Intention vs Wednesday’s Actual Trades

Intention: Sell 5 shares of (RKLB) at or close to the last sale of $83.10

Actual trade: Sold 5 shares of RKLB at $84.80

Intention: Sell 175 shares of (SIDU) at or close to the last sale of $2.25

Actual trade: Sold 175 shares of SIDU at $2.33

Intention: Sell 10 shares of (PL) at or close to the last sale of $27.95

Actual trade: Sold 10 shares of PL at $28.35

Intention: Purchase 10 shares of (VELO) at or close to the last sale of $13.38

Actual trade: Bought 10 shares of VELO at $13.51

Thursday’s Intentions

Sell 35 shares of RXT at or close to the last sale of $6.41.

Current Positions

Long 150 shares of (ALTO) at $5.51. Target price: $8. Last sale: $5.91.

Long 70 shares of (EVLV) at $5.8746. Target price: $8.50. Last sale: $6.08.

Long 200 shares of (OCUL) at $8.271. Target price: $11. Last sale: $10.23.

Short one OCUL $11 September 18 call at $1.65. Last sale: $1.65.

Short one OCUL $9 July 17 call at $0.90. Last sale: $1.26.

Long 250 shares of ONDS at $8.976. Target price: $14. Last sale: $7.65.

Long 20 shares of PL at $27.8225. Target price $46. Last sale: $28.17.

Long 35 shares of RXT at $6.4529. Target price: $9. Last sale: $6.41.

Long 145 shares of SOFI at $15.9559. Target price: $24. Last sale: $17.74.

Short one SOFI August 21 $20 call at $1.02. Last sale: $1.02.

Long 30 shares of (SWBI) at $15.74. Target price: $19. Last sale: $15.49.

Long 60 shares of VELO at $13.6343. No target price right now. Last sale: $14.59.

Cash: $1,314.16.

Portfolio Value: $10,903.93, +9.0% from inception on March 24.

At the time of publication, Guilfoyle was long ALTO, EVLV, OCUL, ONDS, PL, RXT, SOFI, SWBI, VELO, AMD and PLTR.