Rackspace Technology: Palantir Partnership Bet

Rackspace is a hybrid multicloud and managed services company headquartered in San Antonio, Texas. Founded in 1998, it operates across Private Cloud (~37% of revenue, $250M in Q3 2025) and Public Cloud (~63%, $422M). The company designs, builds, and operates cloud environments across AWS, Azure, Google Cloud, VMware, and OpenStack — functioning as an outsourced cloud operations team. Revenue has declined from $3.12B in 2022 to a projected ~$2.6B for 2025. Customer counts fell from ~300K in 2015 to ~95K by 2023. Apollo Global’s 2016 LBO loaded the balance sheet with nearly $4B in debt; the 2020 re-IPO at $18/share was followed by a 98% decline to $0.42 by early 2026. A March 2024 refinancing eliminated over $900M in net debt, reducing principal to ~$2.5B.

Q3 2025 revenue: $671M (-1% YoY). LTM revenue: $2.69B (-3%). Adjusted EBITDA positive but interest expense on $2.5B debt consumes most of it ($150M-$200M/year estimated). Cash: $100M, total liquidity $386M. Capex: $34M/quarter ($136M annualized). Free cash flow minimal to negative after interest and capex. Net losses ~$800M annually though ~two-thirds is non-cash (goodwill impairment, intangible amortization). Post-surge market cap: ~$333M. EV: ~$2.73B. EV/Revenue: ~1.0x — cheap for tech services but reflects structural risk, not opportunity. P/S: 0.12x trailing. Q4 2025 earnings due Feb 26.

Rackspace competes with IBM Consulting, Accenture, Cognizant, Deloitte, and WWT in managed services. For the Palantir partnership specifically, Booz Allen Hamilton, Accenture, and other large SIs already have Palantir relationships and larger sales organizations. Rackspace’s differentiation: managed operations on private and sovereign cloud infrastructure. Accenture will implement your Palantir deployment — they won’t host it in a UKAS-certified sovereign data center with 24/7 SLA-backed managed ops. That’s Rackspace’s lane. The regulated industries AI deployment niche (healthcare, financial services, defense, government) requires strict data sovereignty and compliance that rules out vanilla hyperscaler deployments.

Primary catalyst: Palantir partnership announced Feb 18, 2026. Rackspace will deploy, govern, and operate Palantir Foundry and AIP as managed services for regulated enterprises. 30 Palantir-certified engineers now, scaling to 250+ in 12 months. Targets healthcare, financial services, defense, government. UK Sovereign data center deployment for GDPR/EU AI Act compliance. Secondary catalysts: Q4 2025 earnings (Feb 26) — sequential improvement would validate stabilization narrative. New CEO Gajen Kandiah (ex-Cognizant, Hitachi Vantara) moving fast — deal announced 5.5 months into tenure. Potential equity raise to accelerate debt reduction while stock is elevated.

• Debt overhang: $2.5B gross debt against $333M market cap creates extreme equity dilution risk in any restructuring scenario
• No financial terms disclosed: The Palantir partnership contains zero revenue commitments, no minimum deal values, no named customers — it is a marketing event until proven otherwise
• Q4 2025 earnings (Feb 26): Announcement timing 8 days before earnings raises questions about strategic narrative cushioning
• Revenue structural decline: Three consecutive years of decline, core managed cloud business losing customers to hyperscaler-native operations
• Execution risk: Hiring and deploying 250 Palantir-certified engineers in 12 months is expensive and uncertain
• Competitive pressure: Booz Allen, Accenture, Cognizant, Deloitte all have Palantir relationships with larger enterprise sales organizations
• Palantir’s reaction: PLTR only moved +4.6% on this news — meaningful for Rackspace, minor channel for Palantir
• Sector compression: If the AI trade cools in 2026, RXT as the weakest balance sheet gets hit hardest