Track market-moving stories before they get noisy

DigitalOcean (DOCN +4.80%) is currently building artificial intelligence (AI) data centers as fast as it can to meet soaring demand for computing capacity from its customers, many of which are small and medium-sized businesses (SMBs). The company's revenue growth is accelerating, which has fueled a staggering 360% increase in its stock over the last 12 months.

DigitalOcean will release its operating results for the second quarter on Aug. 4, and they could determine whether the stock's upward momentum continues. Should investors be buying at the current price?

Image source: Getty Images.

Demand is off the charts for DigitalOcean's AI data centers The cloud computing industry is dominated by trillion-dollar companies like Amazon and Microsoft, but those giants typically chase the customers with the highest spending potential. That leaves SMBs somewhat underserved, but DigitalOcean has filled this gap in the market by offering those smaller companies affordable cloud services with highly personalized support and a simple interface for ease of use.

It is applying that same blueprint to its new platform, which it calls AI-Native Cloud. It features five distinct layers to help DigitalOcean customers develop and deploy AI software. The foundational layer is infrastructure, which includes 20 data centers (and growing) housing thousands of the latest chips from suppliers like Nvidia and Advanced Micro Devices.

Businesses can rent computing capacity from those data centers through AI-Native Cloud, and the platform's other four layers provide the tools to develop usable AI software. Those tools include ready-made large language models (LLMs) from companies like Anthropic, which can serve as the foundation for powerful AI chatbots and AI agents.

On July 7, DigitalOcean announced that it ended Q2 with a whopping $800 million in remaining performance obligations (RPO), which was a tenfold increase from the year-ago period. RPO is usually defined as the value of signed contracts for services that haven't been delivered yet, so this metric can be a good predictor of future revenue. Simply put, it appears several DigitalOcean customers are lining up to rent more data center capacity from the company once it comes online.

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The upcoming Aug. 4 report could be another blockbuster DigitalOcean generated $257.9 million in revenue during Q1, which was a 22% increase from the prior-year period. It was the third straight quarter in which that growth rate accelerated, and based on the company's July 7 update, revenue apparently soared at an even faster rate of 29% during Q2.

DigitalOcean also ended Q1 with a record $1.03 billion in annual run-rate revenue (ARR). AI customers accounted for $170 million of that total, up by a staggering 221% year over year. I would expect the company to report a similarly strong AI result on Aug. 4.

Guidance will be another key point of focus for Wall Street. The company previously said it expects to deliver overall revenue growth of 50% during 2027, but in its recent update, management told investors it plans to revise that forecast higher in the Q2 report because the business is carrying so much momentum.

Should investors buy DigitalOcean stock right now? DigitalOcean is firing on all cylinders right now, but there is a hitch for investors considering adding this stock to their portfolio today. It's trading at a price-to-sales (P/S) ratio of 15.4, which is significantly higher than its long-term average of 8.5 since going public in 2021.

However, based on DigitalOcean's 2027 revenue guidance, its forward P/S ratio is just 8.1. This is where the Aug. 4 report could be important. If management meaningfully revises the company's 2027 revenue growth forecast higher, then its forward P/S ratio might actually be much lower than 8.1. If that's the case, the stock might actually be cheap right now for any investors willing to hold it for at least the next 18 months.

DOCN PS Ratio data by YCharts.

DigitalOcean stock may be up by 360% over the last 12 months, but it's down 25% from its recent peak. This dip might be a good buying opportunity heading into the Aug. 4 report, but investors who add it now must be willing to hold the stock over at least the medium term -- but the longer the better -- to maximize their chances of positive returns.

The architectural landscape of cloud infrastructure is fracturing. For years, the market assumed legacy hyperscalers like Amazon NASDAQ: AMZN and Microsoft NASDAQ: MSFT would control the enterprise server space indefinitely, leaving smaller infrastructure providers to fight over budget-conscious developers.

DigitalOcean Today

$143.20 +2.73 (+1.94%)

As of 11:02 AM Eastern

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52-Week Range$25.56▼

$187.50P/E Ratio62.37

Price Target$145.36

That paradigm shifted on June 7, 2026, as DigitalOcean Holdings NYSE: DOCN defied a broadly declining macroeconomic backdrop and rose by more than 10% following a highly bullish preliminary second-quarter earnings release. The price action signals something much deeper than an earnings beat. The market is witnessing a pivot as smaller independent cloud providers capture high-margin, enterprise-scale workloads.

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Investors chasing this momentum should unpack the underlying data to separate the growth story from the temporary distortions of short covering and passive index accumulation, because when you look closely, you can observe how DigitalOcean is changing the tide in the enterprise artificial intelligence sector.

Reeling in Revenue: Accelerating Top-Line MetricsAnalyzing the second-quarter pre-announcement reveals the distinct drivers behind the sudden upside volatility. Management now forecasts second-quarter revenue of $282.1 million, a 29% year-over-year acceleration. This decisively eclipses Wall Street’s consensus estimate of $273.6 million and marks a steep re-acceleration from the 14% growth recorded in the second quarter of last year.

While the top-line beat is impressive, the forward-looking metrics are fundamentally resetting valuation models across the sector. DigitalOcean reported remaining performance obligations exceeding $800 million. Remaining performance obligations act as a reliable leading indicator of future revenue, representing contracted but unrecognized sales.

Adding $550 million to this pipeline in a single quarter is a feat of management, reflecting a greater than tenfold increase from the prior year. The weighted-average contract life has also extended from 1.6 years to over three years. By locking in long-term capital, DigitalOcean is preserving adjusted EBITDA margins despite executing heavy infrastructure spending.

Deep Water Infrastructure: The Enterprise AI PivotThe historic surge in contracted revenue requires a permanent re-evaluation of DigitalOcean's target demographic. Historically, the broader market categorized the business as a volume-driven host for small businesses or independent software developers. A low average revenue per user model traditionally struggles during periods of macroeconomic tightening, as smaller clients churn or downsize their hosting plans to survive.

Management explicitly attributes the recent $550 million pipeline jump to multiple nine-figure annual customer commitments strictly tied to inference and AI workloads. Nine-figure contracts are fundamentally incompatible with small business budgets. These agreements are the domain of highly funded enterprise AI labs and institutional research divisions. DigitalOcean is effectively pivoting from a budget-friendly hosting service to a heavyweight player in AI infrastructure.

To support these enterprise contracts, DigitalOcean deployed capital from a recent $800 million equity offering to secure an additional 20 megawatts of data center capacity for late 2027 and early 2028. This brings the total committed capacity to 155 megawatts. By focusing on purpose-built architectures, such as its proprietary inference routing software, DigitalOcean is winning strictly on total cost of ownership against the major hyperscalers, avoiding a margin-crushing race to the bottom on pricing.

Currents of Capital: Institutional Buy-In Vs. Insider ExitsUnderstanding the mechanics of the current price action requires looking under the hood at market sentiment and institutional capital flows. Options flow reflects a strong upside bias, with the volume put-to-call ratio dropping to 0.18 and total contract volume rising above 136% of the average daily volume.

Overall MarketRank™73rd Percentile

Analyst RatingModerate Buy

Upside/Downside3.6% Upside

Short Interest LevelHealthy

Dividend StrengthN/A

News Sentiment0.72 Insider TradingSelling Shares

Proj. Earnings Growth57.41%

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This bullish derivatives activity is colliding directly with forced buying in the underlying equity. Short interest currently sits at approximately ~12% of the public float, translating to roughly 12.2 million shares shorted. With a days-to-cover ratio nearing four, the double-digit intraday climb is undoubtedly exacerbated by short sellers scrambling to close underwater positions. Institutional ownership commands ~50% of outstanding shares (down from around ~90%), creating a structural floor that successfully absorbed the dilution from the recent equity offering.

Despite the institutional accumulation, retail investors should consider internal structural headwinds. Over the trailing three months, insiders liquidated approximately $565.9 million in stock. The bulk of this distribution came from major shareholder Access Industries, along with multi-million-dollar sales from key executives. With zero open-market insider purchases during this period, internal leadership is clearly utilizing the elevated valuation to take profits.

Sailing Close to the Wind: At 57x Earnings?The fundamental momentum backing DigitalOcean is undeniable, and the expanding contracted revenue provides visibility through 2026. However, market mechanics and valuation multiples should still matter for investors entering at these levels.

DigitalOcean commands a premium trailing price-to-earnings ratio of ~57x. A valuation this rich leaves very little room for operational missteps, particularly in a high-interest-rate environment where the broader technology sector remains highly sensitive to changes in the cost of capital.

The recent addition of DigitalOcean to the Russell 1000 index has led to continued passive index accumulation, creating an artificial tailwind for the share price. Investors should first acknowledge that DigitalOcean is currently priced for perfection, and the heavy insider distribution suggests that early institutional backers have already made the easy money.

Dropping Anchor: Rigging the Deck for an AI PivotThe cloud computing narrative is undergoing a fundamental shift, revealing that nimble, cost-effective infrastructure providers can thrive alongside the trillion-dollar tech giants. DigitalOcean is proving that independent operators can successfully capture enterprise market share without sacrificing profitability. The pivot toward artificial intelligence infrastructure is entirely resetting the forward growth trajectory and shielding DigitalOcean from the high-churn risks typically associated with small business clients.

The underlying data support the bullish price action, driven by tangible contract expansions rather than speculative hype. Investors evaluating the infrastructure space might consider adding DigitalOcean to their watchlist as a high-growth alternative to mega-cap technology stocks, provided they have the risk tolerance for premium valuation multiples and post-squeeze volatility.

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Move into the large-cap index reflects DigitalOcean's growing scale, durable business model, and consistent execution.

BROOMFIELD, Colo.--(BUSINESS WIRE)--DigitalOcean Holdings, Inc. (NYSE: DOCN), the AI-Native Cloud, purpose-built for inference and agentic workloads, today announced that it has been added to the Russell 1000 Index, moving up from the Russell 2000 Index, as part of the FTSE Russell semi-annual reconstitution of its U.S. indexes. The move was effective after the U.S. market opened on June 29, 2026.

The Russell 1000 Index represents approximately the largest 1,000 U.S. companies by market capitalization. DigitalOcean’s move into the Russell 1000 reflects the scale of its AI-Native Cloud and its sustained and disciplined business execution. The Company has grown into a $1 billion Annual Run Rate Revenue business and has continued to invest in its integrated platform while generating strong margins and cash flow, simultaneously demonstrating growth and efficiency.

About DigitalOcean

DigitalOcean (NYSE: DOCN) is the AI-Native Cloud, purpose-built for inference and agentic workloads. Its five-layer integrated platform, spanning GPU and CPU infrastructure, core cloud, inference, data, and managed agent orchestration, is open throughout with no vendor lock-in, giving builders everything they need to start fast, scale production AI workloads, and improve unit economics. More than 650,000 customers and millions of developers globally trust DigitalOcean to build, ship, and scale their applications. To learn more, visit www.digitalocean.com

Forward-Looking Statements

This release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, regarding our ability to continue to scale our business. The forward-looking statements contained in this release are subject to known and unknown risks, uncertainties, assumptions, and other factors that may cause actual results or outcomes to be materially different from any future results or outcomes expressed or implied by the forward-looking statements. Further information on these and additional risks, uncertainties, assumptions and other factors that could cause actual results or outcomes to differ materially from those included in or contemplated by the forward-looking statements contained in this release are included under the caption “Risk Factors” and elsewhere in our Annual Report on Form 10-K for the year ended December 31, 2025 and subsequent filings and reports we make with the SEC.

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