Why Is Rackspace Technology (RXT) Stock Down Today?

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One of the biggest movers in today’s market is Rackspace Technology (NASDAQ:RXT) on news of an analyst downgrade. Currently, RXT stock is down more than 11% on a rather mixed day in financial markets.

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Most tech-related stocks are under pressure today, as investors continue to digest comments made by the Federal Reserve regarding future interest rate hikes. This week has been an otherwise bearish one for high-growth stocks, as investors prepare to adjust their financial models with higher discount rates.

For Rackspace, a company providing cloud technology services to clientele, these macro headwinds are a big deal. Like many companies in the cloud sector, Rackspace is not yet profitable. However, future profits are becoming much less valuable as interest rates rise. Thus, in this environment, investors are already taking a bearish view of such stocks.

That said, there is a company-specific factor dragging RXT stock lower today. Let’s dive into what the market is pricing into this stock.

Why Is RXT Stock Sinking Today?

Today, Rackspace Technology dropped on news of a key analyst downgrade. Oppenheimer reportedly downgraded this stock to the equivalent of a hold from a buy, suggesting downside potential with this company’s business model.

In particular, analysts have reportedly priced in margin pressures with the company, suggesting the reselling of its AWS/cloud business on low margins is not likely to produce profitability in the near term. Additionally, the introduction of other higher-margin businesses may take time.

The company is also undertaking a strategic review, which appears to just be getting started. Accordingly, while this is an early-stage growth company, analysts seem to be siding with the market that growth may not materialize fast enough, relative to deteriorating market conditions.

Overall, RXT stock is one I think is likely to be volatile from here. Investors looking for aggressive growth have a number of options right now. Today, these investors appear to be looking elsewhere.

On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.


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