Rackspace cuts 15% of staff to fund its AMD pivot as shareholders sue; the stock is 57% below July

Rackspace Technology▼−10.52% — Rackspace Technology, down 10.52 percent today (NASDAQ: RXT) traded at $2.83 on October 16, 2026, down 11.3% on the day, valuing the San Antonio cloud company near $812 million ¹⁷. That is 57% below its $6.58 close on July 8, the session before management priced its artificial intelligence transition at $150 million of lost 2026 revenue ². The New York law firm Bronstein, Gewirtz & Grossman has solicited Rackspace investors with notices on October 8↗ and again on October 15↗ ³⁴.

A 55% pop, a 15% layoff, a 33% crash

The sequence runs one direction. A May 7 memorandum of understanding↗ with AMD▼−6.01% — AMD, down 6.01 percent today, the chipmaker, arrived with first-quarter results and lifted the stock more than 55% in a single session ⁵. On June 16 the definitive version followed: 30 megawatts of AMD-based compute for Rackspace data centers, phased from late 2026 through 2028 ⁵⁷.

The same day, an SEC filing disclosed a "workforce realignment plan": about 15% of the global workforce, most notified around June 10, with $14 million to $19 million of one-time charges buying $75 million to $85 million of annualized savings redirected into the AMD build ⁵⁶. The stock closed up 4.99%, the premarket spike already fading ⁷. On July 9, Rackspace cut its 2026 revenue outlook by $150 million and adjusted EBITDA by $20 million↗, and the stock fell 33.6% to $4.37 ²⁸.

What the suit calls hidden, the filings spell out

Buyers from May 7 to July 8 sued on August 8 in Morgan-Reed v. Rackspace Technology↗, in the Southern District of New York, alleging the company concealed the shift of capacity and capital away from profitable Private Cloud, its hosted-infrastructure segment, while Public Cloud, which resells Amazon▼−1.94% — Amazon, down 1.94 percent today and Microsoft▼−2.20% — Microsoft, down 2.20 percent today cloud services, decayed as hyperscalers took customers direct ⁹. These are unproven allegations, and the October notices are law-firm solicitations, not findings; Rackspace has not admitted wrongdoing.

The strategy, though, is now in the company's own words. Finance chief Mark Marino told the August earnings call↗ the revenue decline reflects "our strategic decision to exit low-margin Public Cloud revenue over time" ¹. The June filing↗ says the savings move "from its public cloud business unit" toward enterprise AI infrastructure with AMD ⁶. Even the AMD agreement is a framework: each deployment requires a separate commercial agreement, and AMD is not obliged to approve any particular one ⁵.

$450 million a year, on paper

Rackspace's own target for the 30 megawatts is $450 million to $600 million of annual revenue at full deployment by end-2028, at AI margins above 50%, figures the company labels illustrative ¹⁸. The first slice, nearly 2 megawatts by end-2026, needs about $75 million of capital spending, against $111 million of cash and negative $32 million of second-quarter operating cash flow, with hardware-backed financing still being arranged ¹. A Stocktwits post pegged the build at "an average $300M annual revenue," below the company's own math ⁶. The base that must carry the bill has been shrinking for three years ¹².

Sellers inside, skeptics outside

The bull case is real enough to argue: the AMD agreement is signed, Palantir▼−7.73% — Palantir, down 7.73 percent today named Rackspace a preferred partner the same July morning, Nvidia▼−1.30% — Nvidia, down 1.30 percent today added it to its Cloud Partner program in September, and the full-year revenue guide of $2.45 billion to $2.55 billion held in August ¹⁷⁸. The friction is equally documented. Insiders sold 714,141 shares for $2.3 million last quarter, including 498,728 from chief executive Gajen Kandiah at $3.21 on September 4, under a pre-arranged plan to cover tax withholding ¹⁰. Analyst consensus sits at Reduce with a $4.00 target, and 10.8% of the float is sold short ¹¹⁰.

November is the next reading

Third-quarter results decide the fork; on last year's cadence they land by early November, when the 2025 third-quarter report arrived on November 6↗ ¹¹. Three lines tell the story: whether the first 2 megawatts stay on schedule, whether the hardware-backed financing closes, and how fast Public Cloud shrinks. Until the megawatts turn into invoices, the revenue is a forecast.