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研报TP $70.00005月8日 · Morgan Stanley

Software: New Stack 1Q26 Earnings Round-Up (AKAM, APPN, & FROG) – Infrastructure Showcasing AI Benefits

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Software Infrastructure 1Q26: AI-Driven Acceleration in Cloud and Large Deals (AKAM, APPN, FROG)

Core Conclusions

Infrastructure software fundamentals strengthened in 1Q26, with three distinct proof points validating AI as a structural growth driver. Akamai secured a $1.8B commitment, advancing its double-digit revenue timeline by two years. JFrog’s cloud business re-accelerated to +50% YoY, driven by AI coding agent demand. Appian delivered modest cloud acceleration (+20% cc), but durable reacceleration requires more quarters. The common thread: AI infrastructure demand is converting into measurable revenue, but near-term margins face dilution from investment.

Akamai: Large AI Deployment Fast-Forwards Growth Timeline

Conclusion: The $1.8B, seven-year commitment from a leading U.S. AI-native represents the largest deal in Akamai’s history and validates the edge inference thesis, pulling double-digit total revenue growth into 2027 from a previously expected FY28 timeframe.

Evidence: Total revenue of $1.074B was in line with consensus. Cloud Infrastructure Services decelerated to +39% cc (from +44% cc in 4Q25), in-line with seasonal expectations. Security grew +9% cc to $590M, ahead of consensus of $581M, with AI expanding the enterprise attack surface. The $1.8B deal adds to last quarter’s $200M AI inference win. Guidance for FY26 revenue was raised to +6.9% at the midpoint (from +6.3% prior), but non-GAAP operating margin moved down to ~26% from ~27%, and EPS guide of $6.40–$7.15 fell below consensus. Capex rises to 40–42% of revenue as capacity is deployed, but management emphasized the deal is accretive to cash gross and EBITDA margins over the seven-year depreciation period.

Investment Implication: The lower near-term EPS reflects the cost of funding a larger opportunity. Investors should focus on the revenue trajectory: CIS expected to grow at least +50% cc in FY26, with the $1.8B deal contributing ~$20–25M in Q4 alone. The debate will center on capex intensity and revenue recognition timing, but the economic unit economics are attractive once capacity is deployed. Overweight maintained.

JFrog: Cloud Re-acceleration Confirms AI Coding Agent Beneficiary

Conclusion: JFrog stands out as one of the purest ways to play the explosion in AI coding agents, as cloud revenue re-accelerated to +50% YoY, now 51% of total revenue, and net revenue retention improved to 120%.

Evidence: Q1 revenue of $154M grew +26% YoY, +4% above consensus. Cloud revenue was 9% ahead of consensus, driven by excess usage over committed contracts. Security portfolio (Curation, Xray, Advanced Security) continues to gain traction and is improving new logo acquisition, an area of weakness in 2025. Despite a $6.5M beat, FY26 revenue guidance was raised only $4.5M to $628–632M – not reflecting a demand change but management’s conservative playbook (de-risking large deals, not assuming excess usage). This pattern implies further upside to guidance through the year.

Investment Implication: The acceleration and high net retention suggest sustained demand. Price target raised to $80 from $70, based on 50x CY27 FCF estimate of $199M (vs 42x prior). The multiple expansion is justified by re-accelerating cloud growth, improving strategic positioning with security offerings, and clear AI agent benefits. Overweight.

Appian: Cloud Acceleration but Durable Re-acceleration Requires Time

Conclusion: Appian delivered a solid Q1 beat and raise, with cloud revenue re-accelerating to +20% cc (from +16% in Q4), but market sentiment on seat-based application software remains challenging, limiting near-term multiple re-rating.

Evidence: Cloud revenue of $124.5M grew +25% reported (+20% cc), total revenue $202.2M (+21% reported, +17% cc). Adjusted EBITDA of $26.6M beat consensus by 27.7%, driven by revenue flow-through. Cloud net ARR expansion rate improved to 115% from 114% in Q4. FY26 cloud revenue guidance raised ~2.4% to $515–521M, adjusted EBITDA raised ~7% to $97–105M. Q2 guidance was mixed: cloud revenue +13% at midpoint, but Q2 EBITDA of $5–8M below consensus due to seasonal marketing spend.

Investment Implication: While Q1 results are encouraging, the path to durable acceleration remains uncertain. For a sustainable re-rating, Appian needs sustained cloud growth acceleration, more meaningful AI attach (DocCenter and tier adoption), and progress moving from pure seat-based pricing to hybrid seat-plus-usage models. Equal-weight maintained with $25 price target (19x CY27 FCF of $1.34).

Key Risks

  • Capex and margin dilution from AI deals – For Akamai, FY26 capex rising to 40–42% of revenue puts pressure on reported EPS. If capacity deployment is slower or unit economics disappoint, the growth thesis is undermined.
  • Revenue recognition risk in committed capacity deals – The $1.8B Akamai contract is recognized ratably as capacity is deployed, not usage-based. Any delays in deployment could push revenue recognition, creating estimate volatility.
  • Competitive pressure in CDN/Delivery – Akamai’s Delivery segment continues to decline (-9% cc in Q1). If the decline steepens or Security growth decelerates, the overall growth profile weakens.
  • Appian ability to escape seat-based valuation discount – Broader market skepticism toward seat-based application software may persist even with improving execution, capping upside.
  • JFrog reliance on excess usage – A change in customer behavior (reducing over-consumption) could cause cloud growth to decelerate sharply.

Valuation and Trade Implications

  • Akamai (AKAM, OW, PT $116? - not explicitly stated in report but rating unchanged): The step-change in CIS revenue visibility and AI validation outweighs near-term margin dilution. Double-digit total revenue growth in 2027 is now more certain. Key metric to track: CIS quarterly revenue ramp and security growth.
  • JFrog (FROG, OW, PT raised to $80): The re-acceleration in cloud and strong net retention support a higher multiple. The conservative guidance creates beat-and-raise potential. Key metric: cloud revenue growth trajectory and large deal pipeline.
  • Appian (APPN, EW, PT $25): Execution improvement is priced at current levels. Re-rating requires sustained cloud acceleration and a shift away from pure seat-based pricing. Key metric: cloud net ARR expansion rate and AI attach rates.

The infrastructure software cohort is demonstrating that AI benefits are tangible and translating into large contracts and accelerating cloud growth. However, the market is still pricing in execution risk and near-term margin headwinds. We view this as a favorable entry point for investors with a 12–18 month horizon, particularly in AKAM and FROG.