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Rackspace Technology, Inc. (NASDAQ: RXT) is making two big moves at the same time, and they tell a story about a company trying to change what it does while also trying to save money. The company has announced a multi-year partnership with Advanced Micro Devices, Inc. (AMD – NASDAQ: AMD) to build 30 megawatts of AI compute infrastructure, while also cutting 15% of its global workforce. These two actions happen together because the company is trying to become an AI infrastructure provider while shrinking its legacy operations.
The AMD deal will roll out in phases from late 2026 through 2028 across Rackspace’s data centers worldwide. The infrastructure will use AMD Instinct GPU clusters and EPYC CPUs to support what the company calls its Enterprise AI Cloud framework. This is a significant bet because AI compute demand has been surging, and 30 megawatts of GPU cluster capacity represents a meaningful asset if that demand continues. The partnership evolved from a memorandum of understanding announced in May 2026 and now establishes AMD as a strategic technology partner.
At the same time, Rackspace is reducing its workforce by 15% globally. The company expects this will create restructuring charges between $14 million and $19 million, mostly within 2026. But the cuts are also expected to generate annualized cost savings of $75 million to $85 million once fully implemented. Most affected employees received notice last week, with remaining departures happening over the next six months depending on role and location. The board’s executive committee approved the plan on June 10, and the company says it is fading certain traditional service delivery functions, especially in public cloud, while optimizing geographically to redirect resources toward enterprise AI.
Rackspace occupies a difficult position in the managed services market. It is too large to be nimble like smaller competitors, but too small to compete directly with hyperscalers like Amazon’s AWS, Microsoft’s Azure, or Google’s GCP. Yet it has a massive global customer base that needs multicloud management. The company is a global, multicloud managed services provider that designs, builds, and operates cloud environments for enterprise customers across public clouds, private clouds, and hybrid infrastructure. It provides cloud strategy consulting, migration services, application management, and 24/7 managed operations to thousands of enterprise clients worldwide.
For small-cap investors, this is a high-risk, high-conviction turnaround play. Rackspace has a market cap of approximately $1.43 billion, which puts it in the small-cap category. The AMD deal is a credible attempt to carve out a position in AI infrastructure buildout. If AI compute demand continues to surge, the 30MW of AMD GPU capacity could become a meaningful asset. The simultaneous workforce cut signals that management is serious about profitability, not just growth.
But there are real risks. Analysts note that the biggest danger is whether these newer AI services scale fast enough to offset ongoing commoditization in core hosting and managed services. The company still faces pressure on legacy cloud revenues, margins, and cash flow. Q1 2026 showed public cloud revenue growing 6.7% to $443.4 million, but private cloud revenue dropped 6% to $234.7 million, highlighting the shift in customer demand. Management guided to continued GAAP losses for full-year 2026, with non-GAAP loss per share expected between $(0.15) and $(0.20).
BMO Capital and UBS both raised their price targets on Rackspace recently, with BMO lifting it from $2 to $5 and UBS from $2 to $5.50, though both maintain neutral or market perform ratings. The street consensus price target sits at $4.17 with mostly hold ratings. Shares surged 30% on the day of the AMD announcement, showing how quickly sentiment can flip around this stock.
Whether this dual strategy works will determine if Rackspace becomes a successful turnaround story or slides into a slow decline. The company needs its AI-focused offerings to translate into sustained revenue growth while managing the transition away from traditional services. Apollo Global Management backed Rackspace through a difficult debt period two years ago, and secured debt has surged from around 50 cents on the dollar to over 80 cents following the recent partnerships.
The path forward requires Rackspace to prove that managed AI infrastructure is a viable enterprise niche. The company sees the trend of AI transitioning from model training to inference as a potential growth driver, and expects to reduce leverage through earnings growth if the strategy succeeds. For investors watching small-cap stocks in the technology sector, Rackspace represents a bet on whether a managed services company can successfully transition to AI-native cloud infrastructure without losing its core customer base in the process.
