Alarm (ALAR) Q3 2025: AI Customer Revenue Surges 84%, Margin Compression Signals Land-Grab Strategy
Alarm’s third quarter marked a decisive pivot toward serving hyperscale AI customers, with revenue up sharply but margins intentionally compressed as the company prioritized capturing market share in a volatile, high-growth segment. Leadership is explicitly trading near-term profitability for long-term positioning as a foundational data infrastructure provider to the world’s largest AI labs. Investors should watch for margin normalization as in-house solutions scale and customer mix stabilizes.
Summary
- AI Land Grab Prioritized Over Margins: Leadership is intentionally accepting lower profitability to secure large-scale, multi-year AI customer relationships.
- Product Suite Expands Beyond Proxy: Alarm’s revenue mix is shifting to include datasets, scrapers, and unblocker tools, broadening its addressable market.
- Margin Recovery Hinges on In-House Delivery: Gross margin improvement depends on reducing reliance on third-party vendors as scale and product validation are achieved.
Performance Analysis
Alarm’s third quarter results underscore a strategic inflection point, with total revenue reaching $13 million, up 84% year-over-year, propelled by surging demand from hyperscale AI customers. The company’s two largest clients—globally recognized AI labs—accounted for a significant portion of revenue, with one alone contributing $3.5 million. This concentration signals Alarm’s deepening integration into the workflows of leading AI innovators, but also introduces volatility and customer concentration risk.
Gross margin contracted to 56%, down from 74% a year ago, as Alarm leaned heavily on third-party infrastructure to fulfill massive initial orders for new AI-centric products. Management characterized this as a deliberate, temporary tradeoff, with plans to internalize delivery and optimize network architecture as demand stabilizes. Operating expenses rose to $7.4 million, reflecting accelerated investment in R&D and go-to-market capacity. Net profit was modest at $0.1 million, as the company absorbed upfront costs to build capacity and deliver at scale.
- AI Customer Mix Shift: Growth was driven primarily by a handful of large AI customers, fundamentally changing the revenue base and risk profile.
- Margin Compression as a Strategic Choice: Infrastructure buildout and third-party costs weighed on margins, but management is clear this is a planned, reversible effect.
- Cash Position Remains Solid: With $24.6 million in cash and equivalents, Alarm retains the flexibility to continue investing ahead of revenue while maintaining balance sheet strength.
Alarm’s results reflect a company in the midst of a deliberate transformation, trading short-term financial metrics for long-term strategic relevance in a rapidly evolving AI data ecosystem.
Executive Commentary
"This significant jump was driven by increased consumption from major AI customers, continued expansion within existing enterprise accounts, and strong adoption of our newer AI-centric products...we are certifying some near-term profitability to strongly capture market share and secure multi-year relationship in a segment growing several hundred percent year over year."
Shachar Daniel, Chief Executive Officer
"The lower margin reflects the work we are doing with large customers, mainly AI companies, which require data gathering at significantly higher scales, necessitating upfront costs...Overall, this is consistent with our strategy to engage in large-scale, high strategic opportunities that we believe can drive meaningful long-term growth and profitability, even at the cost of lower, shorter margins."
Shaiabni, Chief Financial Officer
Strategic Positioning
1. AI Data Infrastructure as Core Business
Alarm is positioning itself as a critical infrastructure provider for the world’s largest AI labs and technology companies, moving beyond its legacy proxy business. The company’s platform is now central to AI model training runs, with customers relying on Alarm for high-throughput, real-time public web data at unprecedented scale. This shift is transforming Alarm’s business model, revenue mix, and customer concentration profile.
2. Product Suite Diversification
Management is accelerating the expansion of its product suite, with datasets, website unblockers, and custom scrapers now contributing material revenue. Website Unblocker delivered triple-digit sequential growth, while Custom Scrapers saw high double-digit gains. This diversification is intended to drive healthier unit economics and reduce dependency on any single product or customer.
3. Margin Optimization Roadmap
Alarm’s path to margin recovery is anchored in three pillars: (1) transitioning delivery from third-party partners to in-house or acquired solutions, (2) optimizing server and network architecture for efficiency, and (3) shifting the revenue mix toward higher-value, higher-margin products. Management expects these efforts to restore gross margins as customer demand stabilizes and infrastructure investments mature.
4. Customer Lifecycle and Volatility Management
The company distinguishes between R&D-phase AI customers—whose data needs are unpredictable and bursty—and production-phase customers, whose demand is steadier and more forecastable. Alarm is building relationships across both groups but acknowledges that near-term revenue will remain volatile until more customers transition to production usage.
5. Strategic Capital Deployment
Alarm’s balance sheet strength enables continued investment in capacity and product innovation, even as near-term profitability is suppressed. Leadership is explicit that this front-loaded spending is necessary to outpace competitors and entrench Alarm as a long-term partner to the largest and most demanding AI customers.
Key Considerations
This quarter’s results reflect Alarm’s willingness to absorb near-term pain for long-term gain, as it seeks to become indispensable to hyperscale AI clients. The company’s execution on product expansion, infrastructure buildout, and customer onboarding will be critical for sustaining growth and restoring profitability.
Key Considerations:
- Customer Concentration Risk: A handful of large AI customers now drive a substantial share of revenue, amplifying both opportunity and volatility.
- Margin Recovery Timeline: The speed at which Alarm can internalize delivery and optimize infrastructure will determine how quickly gross margins rebound.
- Product Validation Through Third-Party Partners: Management’s use of third-party solutions as a demand validation mechanism reduces R&D risk but temporarily depresses margins.
- Pipeline Expansion Beyond Flagship AI Labs: Early adoption by smaller customers is underway, but scaling these relationships will be essential for long-term growth and risk diversification.
Risks
Alarm’s aggressive pursuit of AI market share exposes it to customer concentration, revenue volatility, and margin pressure, particularly as the buying patterns of R&D-phase customers remain unpredictable. The company’s ability to transition relationships to production-stage, optimize delivery, and maintain capital discipline will be tested as the AI data market matures. Competitive threats from both established and emerging data infrastructure players remain a persistent risk.
Forward Outlook
For Q4 2025, Alarm guided to:
- Revenue of approximately $12 million, plus or minus 7 percent
- Adjusted EBITDA of around $1 million, with a range of plus or minus $0.5 million
For full-year 2025, management expects:
- Revenue of approximately $41 million, up nearly 30 percent year-over-year
Management highlighted several factors that will shape near-term performance:
- Ongoing margin pressure as AI customer onboarding and infrastructure investments continue
- Potential for margin improvement as in-house solutions displace third-party delivery and volumes stabilize
Takeaways
Alarm’s Q3 signals a bold commitment to winning the AI data infrastructure land grab, with the company sacrificing short-term margins to secure relationships with the world’s most demanding AI customers.
- Margin Recovery Watch: Investors should monitor the pace of transition to in-house solutions and product mix evolution as key drivers of profitability restoration.
- Customer Base Diversification: Scaling adoption among smaller and production-phase clients will be critical for reducing volatility and sustaining growth.
- Execution on Capacity Build: The ability to efficiently scale infrastructure and deliver at global scale will determine Alarm’s long-term strategic position in the AI ecosystem.
Conclusion
Alarm’s third quarter results capture a company in aggressive pursuit of strategic relevance in the AI era. While near-term margin compression is significant, management’s transparent articulation of the tradeoffs and roadmap to profitability provides a credible framework for long-term value creation—if execution matches vision.
Industry Read-Through
Alarm’s results offer a clear read-through for the entire AI data infrastructure sector: demand from hyperscale AI labs is both explosive and volatile, requiring vendors to invest ahead of revenue and accept temporary margin pressure. The shift from proxy-only to multi-product data platforms is accelerating, and companies unable to scale infrastructure or diversify customer base risk obsolescence. As AI model training cycles mature, revenue predictability and margin normalization should improve, but only for those with the operational scale and product breadth to remain relevant. Competitors and investors across the data infrastructure landscape should anticipate ongoing volatility, customer concentration risk, and the necessity of bold capital allocation to win foundational roles in the AI stack.