Fastly (FSLY) Q1 2026 Earnings Transcript

Fastly delivered record Q1 revenue of $173 million, up 20% year over year, with security revenue up 47% to $38.8 million and compute/other revenue up 67% to $8 million. Gross margin hit a record 65.1%, operating income rose to $19.1 million, and adjusted EBITDA increased to $29.5 million, while RPO grew 63% to $369 million and LTM NRR improved to 113%. Management raised full-year 2026 revenue guidance to $710 million-$725 million and operating margin guidance to 9%, citing strong AI-driven demand, new product launches, and broad-based customer expansion.

Analysis

The important read-through is that Fastly is no longer being valued as a pure CDN repair story; the mix is shifting toward security and compute, which are materially stickier and less price-elastic than bandwidth. That matters because the company is increasingly monetizing the same traffic stream multiple times: network remains the distribution layer, while AI-driven security and edge inference become the higher-margin overlays. If that mix shift persists for even 2-3 quarters, the market will likely rerate the business on durable cross-sell economics rather than on low-growth delivery volume.

The second-order implication is that the competitive battle is moving away from raw throughput and toward platform security for machine traffic. Fastly’s strongest wedge is not “AI compute” in the NVIDIA sense; it is securing, governing, and monetizing agentic traffic as it traverses the edge. That puts pressure on incumbents whose value proposition is still anchored in delivery-only contracts, and it creates a subtle risk for peers if customer renewals start incorporating security attach rates and API governance as table stakes.

The biggest near-term risk is not demand; it is margin quality. Capex is being pulled forward into a memory-inflation environment, so reported gross margin and FCF can look better than the underlying economics if the one-time accounting lift and front-loaded hardware timing are ignored. Over the next 1-2 quarters, the stock can still work if bookings and RPO convert, but any sign that AI traffic is mostly low-margin bandwidth without commensurate security attach would compress the multiple quickly.

Consensus likely underestimates how much of the upside is coming from mid-market expansion rather than just large-enterprise wins. A rising NRR with broader customer breadth usually precedes better forecast reliability and less revenue volatility, which should support a higher valuation floor. The more contrarian take is that Fastly’s real option value is not just in edge compute, but in becoming the control plane for AI traffic policy; if management executes there, current guidance may prove too conservative for FY27, not just FY26.

Key Decisions for Investors

• Long FSLY for a 3-6 month momentum trade on security/compute mix shift; risk/reward favors upside continuation if next print confirms broad-based security attach and RPO conversion.
• Pair trade: long FSLY / short AKAM over the next 2-3 quarters; thesis is that Fastly’s security-led mix can outrun legacy delivery pricing pressure while Akamai remains more exposed to commoditizing network services economics.
• Buy FSLY call spreads expiring after the next earnings cycle; use them to express upside from AI security adoption while defining risk around capex/margin volatility.
• Avoid chasing the move if network services growth decelerates further without security offset; that would signal the mix story is stalled and likely cap the multiple expansion.
• Monitor NVDA as an indirect beneficiary of edge inference demand over 6-12 months, but keep it as a secondary trade until Fastly proves compute can scale beyond experimental co-innovation.