What happened
Shares of Rackspace Technology(NASDAQ: RXT) rose 74.4% in June 2023, according to data from S&P Global Market Intelligence. The cloud computing platform provider built this tremendous gain in two chunky leaps. First, the company turned its official business focus toward the explosive artificial intelligence (AI) market. Then, Rackspace signed a long-term generative AI partnership with industry giant Google Cloud, a division of Alphabet(NASDAQ: GOOG)(NASDAQ: GOOGL). Both announcements sent Rackspace's stock price skyward.
So what
On June 13, the company unveiled a new AI unit called Foundry for Generative AI by Rackspace (FAIR). The idea is to provide a cohesive set of generative AI solutions across multiple cloud computing platforms. Rackspace will help its clients workshop generate AI ideas, find funding for the resulting projects, and build user-friendly experiences around the new AI products.
"As our customers chart new territories with generative AI, we will help them become trailblazers in their transformative journeys by pioneering the responsible and sustainable use of AI solutions," said Srini Koushik, Rackspace's chief technology officer and global leader of FAIR.
Two weeks later, Google Cloud inked a deep partnership with the FAIR project. Koushik called this agreement "a force multiplier" that accelerates the adoption of generative AI ideas across a broad market. The deal gives Rackspace customers access to Google Cloud's growing portfolio of generative AI tools, and the two companies will cross-promote this technology hub.
It was no surprise when Rackspace investors wholeheartedly embraced these AI-focused news items.
Now what
That said, Rackspace isn't exactly soaring to unmatched heights right now. Instead, the stock bounced off an all-time low in the middle of May and is still down by 71% in 52 weeks.
And the skies around Rackspace will probably stay turbulent for a while. Apart from the generative AI initiative, the company is knee-deep in a structural reorganization and a challenging economy. Earnings were negative in the first quarter, and top-line revenues fell 2% year over year.
All in all, Rackspace may be an interesting stock pick if you're looking for a deeply discounted AI company facing both promising business prospects and difficult short-term challenges. Don't expect a smooth ride to the top, though.
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