Why Wall Street Is Turning Bullish On Rackspace Stock After Its AI Pivot

Rackspace Technology Inc. (NASDAQ:RXT) is getting back into the good graces of investors.

The cloud computing company saw its share price soar in recent weeks after announcing its commitment to expanding its involvement in artificial intelligence (AI). In particular, on June 16, Rackspace saw its shares skyrocket when it announced its partnership with semiconductor manufacturer AMD and its plans for cost-cutting measures and investing in AI infrastructure.

The move marks a significant shift for a company that has spent years struggling with slowing growth.

AMD Deal Gives Rackspace a Big AI Opportunity

The biggest reason behind the recent excitement is Rackspace’s new agreement with AMD. The company will deploy up to 30 megawatts of AMD-powered computing capacity across its global data centers. The rollout is expected to begin later this year and continue through 2028.

The deal includes AMD’s latest AI chips and EPYC processors, which will help Rackspace provide powerful computing services for businesses building and running AI applications.

Demand for AI infrastructure has exploded over the past year. Companies across industries are looking for more computing power to support AI tools, automation, and large-scale data processing.

Rackspace says the new infrastructure will be used by enterprise customers, especially in industries like healthcare where secure and reliable AI systems are becoming increasingly important.

CEO Gajen Kandiah described the strategy as providing governed AI environments where businesses have a single operator accountable for outcomes rather than multiple vendors handling different parts of the process.

Rackspace Is Cutting Costs to Invest in AI

Alongside the AMD announcement, Rackspace also revealed plans to cut about 15% of its global workforce.

The company said the move is part of a broader effort to shift resources away from older business areas and focus more on AI-related services.

Most of the job cuts will come from legacy cloud operations, while the savings will be invested in AI infrastructure, engineering, and customer solutions.

Rackspace expects to spend between $14 million and $19 million on restructuring costs. However, the company believes the changes will generate annual savings of between $75 million and $85 million.

Many investors see this as a positive step because it shows management is willing to make difficult decisions to support future growth.

Some traders also believe the savings could help Rackspace better manage its debt burden.

Wall Street Is Becoming More Optimistic

Analysts are also starting to take a more positive view of Rackspace.

UBS recently raised its price target on the stock for the second time in less than a month. The bank first increased its target from $2 to $5 before raising it again to $5.50.

Although UBS still rates the stock as “Neutral,” the higher target suggests the firm sees improving business momentum. Analysts have pointed to Rackspace’s growing AI business, cloud services growth, and expansion into markets like the Middle East as reasons for the more positive outlook.

Investor sentiment has improved dramatically as a result. Rackspace shares have surged more than 500% in 2026, making it one of the year’s biggest turnaround stories.

The excitement is not limited to Wall Street analysts. Options traders have also been piling into the stock. On June 16, more than 42,000 Rackspace options contracts changed hands. Most of that activity came from call options, which are often used by traders who expect a stock to move higher.

Nearly 39,000 call contracts were traded compared to fewer than 4,000 put contracts. The heavy call buying suggests many traders believe Rackspace could continue its strong run if the company successfully executes its AI strategy.

The AI Story Goes Beyond AMD

The AMD partnership is important, but it is not the only AI project Rackspace is working on.

The company has also partnered with Palantir to help businesses deploy AI applications. It continues to work with major technology companies including NVIDIA, AMD, Amazon Web Services, Microsoft, and Google Cloud.

Rackspace serves more than 20,000 customers worldwide, including businesses in healthcare, government, and other highly regulated industries. This gives the company a large customer base that could potentially adopt its AI services in the coming years.

As more businesses look for secure and private AI solutions, Rackspace hopes to become a trusted provider of the infrastructure needed to run those systems.

Risks Still Exist

Despite the recent rally, Rackspace still faces challenges.

The company generated about $2.69 billion in revenue over the last year, but profits remain weak. Gross margins are around 18.5%, while overall profitability remains under pressure.

Debt is also a major concern. Rackspace carries roughly $3.05 billion in long-term debt and still has negative shareholder equity.

While the company reported a small net profit of $8.3 million in the first quarter and positive operating cash flow of $5.1 million, its financial position remains far from perfect.

That is one reason some analysts remain cautious despite the recent stock surge. Using the Heikin Ashi strategy, market watchers are now mapping the stock's potential next move. This comes as the approach helps smooth out price noise and makes underlying trends easier to spot on the chart.

Meanwhile, Wall Street’s growing interest in Rackspace comes down to one thing: AI. Investors are starting to see it as a company trying to build a bigger role in enterprise AI infrastructure.

There are still risks, especially around debt and profitability. But the potential rewards from a successful AI transformation are becoming hard to ignore.

Benzinga Disclaimer: This article is from an unpaid external contributor. It does not represent Benzinga’s reporting and has not been edited for content or accuracy.